Contributed by Norbert Fullerton, Actuary & Financial Consultant
The first few months of the calendar year can be the busiest, as savers and investors look to sort out their finances and maximize investment gains. Below, is the second in a series of personal finance tips where I outline some steps people can take to maximize returns in 2013.
Ingredient 1: Keep cash in reserve. It is a good idea to hold cash in reserve to cover eventualities such as job loss or illness. If your employer doesn’t offer insurance protection for such eventualities then it is wise to shop around for individual insurance. Returns on cash are usually low compared to other forms of investment; however, the advantage is that it is safe and can be accessed at any time. The main thing is to avoid having to sell your investments while the markets are in a bad state.
Experts say consumers should hold at least three months’ worth of salary in a savings account. Savers looking for a safe home for cash should look for accounts that promise to pay rates in line with the Federal funds rate or are fixed for a set period.
Ingredient 2: Review your mortgage. A mortgage will be the biggest monthly expense for most people so it makes sense to review your deal and make sure you are not paying more than you need to. If you get a bonus, it also helps to pay off some of the mortgage. Opt to reduce the mortgage term rather than the monthly payment.
Ingredient 3: Join a pension plan. If your employer has a pension fund where they will contribute, even if it requires an employee contribution, then you should join so long as you can afford it. Pensions investments in the US and around the world normally grow almost free of tax, and at retirement they usually enjoy some tax breaks.As a rule of thumb, if you’ve not made substantial contributions to a pension you should aim to pay in at least half your current age as a percentage of your salary to expect a reasonable level of retirement income. I’ve seen too many people not put aside enough for their retirement and, when they get to that age, they are depressed that they have to live a drastically inferior lifestyle to what they were used to. Relying on either social security benefits or your family’s assistance are unwise and insufficient for most people.
What is your money management recipe? We invite you to share your ideas in the comment box below?
Investors should take advice from their own independent advisor(s) before making an investment decision and should be aware of local laws governing investments. Neither the author nor any other person or unit belonging to Food for the Soul, nor any of its officers, directors or employees accept any liability or responsibility in respect of the information or any recommendations expressed herein. Remember, the value of your investment and the income from them may rise or fall and is not guaranteed. You may not get back the amount originally invested. Past performance may not be indicative of future results.