Welcome back to this series of six guides, written and produced in partnership with Dozens. This is number two â if you missed the first one, check it out here. These guides will set out everything you should consider as you set up your savings and make investments for the future â and, most importantly, how to take action today.
Part one:Â Investment wrappers
Part three:Â Saving, investing, and trading
Part four: Rebalancing your portfolio
Part five: Choosing a provider
Part six: Pensions and retirement
These guides contain some specific tips for British Finimizers. If youâre in the US or somewhere else, never fear â weâre hoping to bring you your own special content very soon đ
1. Cleaning house đ
3:29 min read

Not all debt is bad debt
Step two in figuring out your future finances is understanding just how much youâre able to save or invest. The aim is to grow your wealth over the medium and long term â and youâll no doubt want to give yourself the best possible chance of success.
That means starting out by minimizing the amount of pesky interest payments youâve got on any outstanding debts â since those payments erode any gains you might earn from savings or investments.
Debt often gets a bad rap â but arguably, not all of it is deserved. Some debt can actually be good. Bear with us⌠đł
Good debt is that which provides a financial benefit over and above the money and leaves you better off overall. For example, once a mortgage is repaid, youâll be the sole owner of a property which may increase in value â and even before then, you can potentially generate rental income. Student loans are likely good debt too, since higher education should boost your job prospects and earnings potential.
Bad debt, on the other hand, is all take and no give â it doesnât provide any future financial benefit. Tomorrow you wonât thank today you for the financial fallout of debt-fueled shopping sprees, luxury holidays, or using credit to pay off bills đŚ
Good riddance to bad rubbish debt
One way to defeat pricey bad debt is to transfer your outstanding credit card balances. Although there are often initial fees involved, many credit cards allow you to move existing debt to a new card interest-free (for a while). That should help you pay off your balance more easily â but be careful not to add to it, as youâll probably still be charged interest on newpurchases.
For larger or longer-term debts, consolidation might help. By taking out a single new loan and using that money to pay off all your other loans, you may be able to reduce your interest costs and, again, pay off your balance sooner.
What is an emergency fund?
Once your debts are under control, itâs important to protect yourself (and your wealth) from lifeâs unexpected trials and tribulations. Introducing the emergency fundâŚ
An emergency fund is money you set aside to cushion unexpected financial shocks that can be stressful as well as expensive: losing your phone, your job â or even a few teeth đŹ A good rule of thumb is that you should have three monthsâ salary after tax set aside to help weather the storm during lifeâs more testing tempests.
Sadly, the average Brit has less than one monthâs salary set aside for a rainy day. This can easily lead to rising debt (of the bad kind), because when a financial emergency strikes, youâll be forced to borrow â ultimately increasing your financial burden thanks to interest payments, and hampering your saving and investing goals.
If you donât already have one, you can start building up your emergency fund right now. Putting aside just ÂŁ100 a month soon adds up. It may make sense to store your emergency cash in a savings account with âinstant accessâ, meaning you can get hold of it quickly in an emergency â while also earning a little interest.
A bit of budgeting canât hurt
It sounds a bit dry; but in order to figure out how much youâre able to invest, youâll need to keep track of your regular incomings and outgoings to know how much cash youâve got available now â and how much you expect to have available on a monthly basis.
You can go retro with the trusty combination of pen and paper, or use a spreadsheet đ¤ â but no matter what your preferred budgeting tool, hereâs one bit of handy advice championed by none other than the âOracle of Omahaâ himself, billionaire investor Warren BuffettâŚ
Pay yourself first. Putting money from your paycheck directly into a savings or investment account before paying for anything else hopefully means that money out of sight is also out of mind â and is therefore less likely to be spent on a whim. Do, of course, leave enough to cover your necessary expenses…
2. The investment equation đ¤
3:19 min read

Youâve wrestled with the angel of debts, built up a buffer, and identified the slack in your budgetary sack. Nice. But before you start looking at providersor portfolios, youâll need to have your answer to the investment equationready. To get there, consider these five things:

1. How much money do you have available right now?
If you were to squirrel away a chunk of change for three to five years, how much would you be able to put aside today? When saving or investing for the long term, this is an important question to answer â itâs your starting pot of money. You could invest it all in one go, or slowly over time. But more on that later⌠đ

2. How much additional money will you have available per month?
If you had to put another chunk of cash away â but this time from your monthly income â how much could you afford to save or invest? Itâs worth being conservative in your assessment: this is money you shouldnât expect to see again for three years at the earliest.

3. Do you have a target amount?
Whatâs your saving or investing goal? If itâs specific, is there an amount of money at which you plan to cash out? Be clear about what that is and why. But you donât have to have a set aim right now; building up smallish annual gains into something rather impressive while preventing inflation from eroding the value of your money is a noble goal in itself.

4. Whatâs your time horizon?
Three to five years is a good minimum when it comes to saving or investing. If youâre in more of a hurry â perhaps because youâre saving towards a house deposit â itâs worth bearing in mind that this may limit the ways in which it makes sense for you to invest and save: specifically, the level of risk you should be willing to take. On the other hand, if youâre putting money aside for the very long term, like for retirement, then you can probably take more risk now â since thereâs lots more time in which to make up any short-term losses.

5. How much risk can you handle?
Following on from the above, remember higher risk means potentially higher rewards â but it also opens the door to higher potential losses. Even if youâre investing over the long term, if the idea of high risk turns your stomach 𤢠youâre perfectly entitled to seek safer havens. After all, you donât want to find yourself selling off your investments in a panic if they drop by more than you were prepared for. Your risk tolerance may also change depending on the nature of your eventual investments. If you use a robo-advisor, for example, your overall risk level may end up higher or lower than youâd like.
Once youâve got answers to these five questions, youâll be in a pretty good place. You should have a good understanding of how much youâre able to invest or save, which will help you make more informed, empowered choices about which approaches and providers might suit you best.
Of course, these questions donât exist in a vacuum â they all impact one another. For example, if youâre starting out with ÂŁ1,000, can contribute an extra ÂŁ200 a month, and have a target amount of ÂŁ30,000, youâll either need a long time horizon, a willingness to take on a lot of risk â or both.
The joy of this investment equation is that you donât actually need to answer every question. If youâve got firm answers to any four, the fifth answers itself. Using the above example, if your aim was to achieve your target in six years, the average annual return required to get you there would mean youâd have to accept much higher risk â or alternatively change your answer to another question, like how much you were putting in regularly.
3. How to spend it đ¸
2:35 min read

Once youâre happy you know how much money youâve got ready to put to work â and once the investment equationâs helped you set and refine your expectations â itâs time to get spending. If your cash is headed into a savings account, thereâs probably nothing stopping you putting all your money in at once â so go right ahead. If youâre investing it, on the other hand, itâs worth considering your options.
All at once
Some evidence suggests that buying into the market in one go usually leads to a better performance than averaging in over time, since the value of stocks tends to go up in most years (but not in all). It may also better suit investors with a longer time horizon, whoâre more likely to have enough time to recover from any temporary downward market dips đŁââď¸
Another potential benefit of investing all at once is lower transaction fees. Depending on your provider, you may have to pay both a fixed fee and a percentage of the amount youâre investing on each occasion. Investing a large chunk at once may therefore lower your overall fees.
On the other hand, investing all at once comes with some timing risk. You might buy at a low point â a.k.a. âbuy the dipâ â and potentially lock in higher future profit than you otherwise might. But you might equally pile in right before a major drop in prices â and spend an uncomfortable period seeing your investment in the red. Remember, even the pros find it hard to âtime the marketâ… âą
Spread over time
Those new to investing may understandably find the prospect of investing a large amount of money in one fell swoop rather daunting. In order to decrease the risk of buying stocks at the wrong time, some investors employ a technique called âdollar-cost averagingâ (thatâs pound-cost averaging to Brits). This involves committing to invest a fixed amount on a regular schedule (e.g. monthly). After a period of time â say 18 months â youâll have invested all the money you planned to, having essentially paid the âaverageâ price of your chosen investments over that time.
One of the benefits here is that you inherently purchase more, say, stocks when prices go down and fewer stocks when prices go up, given that youâre investing the same amount each month. (ÂŁ100 invested in stocks priced at ÂŁ10 each buys more stocks than ÂŁ100 invested in stocks priced at ÂŁ15.) This approach may therefore suit investors who want to smooth out the initial risk of buying investments đ
But on the downside, youâll probably pay higher fees over time than you would investing in one go. Furthermore, while youâre waiting to invest the rest of your money, itâs not earning much of a return â and nor is it benefiting from the all-important compounding effect, lowering your potential future gains.
Of course, you donât need to live or die by the initial approach you choose here. You can invest a larger amount upfront and then continue adding to it at regular intervals over time.
4. All set? đ
Less than 1 min read
In part one of this series, we explained the first step in figuring out your future finances â protecting the value of your money from inflation in a tax-efficient way, while making sure you can get access to your cash as and when you need it.
This guideâs built on that, helping you understand the steps you need to take before investing; the five questions you need to ask yourself to figure out how much you can invest; and the benefits and drawbacks of investing all at once or over time.
Next, discover part three where we walk you through the next big decision youâve got to make as you figure out your future finances: deciding whether to save, invest or trade. Stay tuned⌠đ¤
This guide was produced in partnership with Dozens.
Dozens is not a bank. They are authorised by the Financial Conduct Authority as an e-money institution (FRN 900894) and also as an investment firm (FRN 814281).Â
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