With financial uncertainty looking set to continue into the new year, many people feel are feeling financial anxiety. This is natural, and to some degree, it is a healthy reaction.
Feeling anxious in times of financial uncertainty means you care about your financial future and are willing to take steps to protect your investments and capital. One step anyone can take is to use the services of a reputable financial planning firm.
Having a good financial planner on your side will help to guide you and your finances through turbulent times.
Lifestyle financial planning is one methodology that can help to cushion your finances.
Below are a few of the top financial tips that can easily be incorporated into your lifestyle in 2023.
At the heart of any sound financial plan is a cost of your lifestyle. Check this annually to make sure it fits your current circumstances and requirements. We use a detailed calculator that lists your basic requirements (The money you absolutely need) and the luxury (discretionary) costs to help you understand how much you will need going forward.
Your lifestyle costs should list all your outgoings, including items like:
- Rent and/or mortgage
- Debt repayments
- Medical bills
Once you understand your entire lifestyle costs, then we look at your income, it is easier to make rational decisions about how to fit your lifestyle around your disposable income.
Putting something aside for a rainy day has always been one of the wisest pieces of financial advice you can get. This is even more true in times of financial and geopolitical uncertainty.
An often-cited criterion for the size of this fund is that it should be the equivalent of 3 to 6 months of expenses. This is assuming a complete loss of income, such as job losses.
It is worth incorporating the creation of an emergency fund into your budget and considering it as a short-term expense. Your long-term self may just thank you!
With rising interest rates, debt becomes more of a burden on our budgets. In particular, debts that have flexible interest rates are where you should concentrate. Start with the debts that are subject to the highest interest rates and pay them off as much as possible.
To figure out whether should you repay a debt, simply divide the interest rate by .6 and it will give you the guaranteed gross of tax returns required to justify not repaying the loan off.
EXAMPLE: I have a mortgage with an interest rate of 4%, if I divide 4% by .6 = 6.67%.
THIS IS THE GUARANTEED RETURNS BEFORE TAX THAT I MUST GET FROM MY SAVINGS TO JUSTIFY NOT REPAYING THE MORTGAGE. THEY DO NOT EXIST.
Another alternative is to see if you can refinance higher-interest loans and package them in a loan with a lower rate.
Financial planners can offer sound advice about how to ease a debt burden.
It is easy to make knee-jerk reactions in times of financial instability. When stocks and shares fall, many people rush to sell, but for long-term investments, this isn’t always the right path.
As long as your long-term investments are in stable companies or commodities, then they will usually quickly shrug off downward fluctuations when conditions improve.
As Certified Financial Planners, we can show you the difference between the plan with the -15% returns on your investments over the last year versus the plan before the drop, guess what, our clients can never tell the difference in the plans, ie the longer term effects, because they are usually negligible.
The point is to remember the long game. These are not investments that carry high risk/reward ratios. These are the types of investments that may decline in value as markets struggle, but over 10,20, 30 years or longer, they will still be in good shape.
Good financial plans should be reviewed frequently and be flexible enough to adjust to changing financial conditions. One aspect of lifestyle financial planning that should be reviewed frequently is the risk/reward threshold of your investments.
High-risk investments will pay handsomely if things move the right way, but they aren’t called high-risk investments for nothing. How much you are willing to expose yourself to high-risk strategies is a variable that can swing wildly depending on market conditions. What was seen as a worthwhile gamble a few months ago may now seem like an unnecessary risk. In such circumstances, it is always best to get some expert advice. A good lifestyle financial planner will work with you to understand your finances and whether your current investment strategy needs to be reviewed.
Good financial management is more crucial than ever. The current financial climate is tricky, to say the least. Safely navigating your finances through the crisis is challenging, but with a little planning and some care and attention to the fine details, your finances can still be in good shape.
At Financial Architects, we can help to ensure that your financial and lifestyle goals remain firmly on track. Call us today and find out more about how we can ensure that 2023 is a prosperous and successful year.