22nd November 2016 at 1:12pm
When it comes to managing your finances, it pays to have some structure in your life.
And what more impressive structure than a pyramid?
A pyramid’s solid design and its weight distribution allowed early civilizations to create stable and majestic structures that have defied the test of time. And the rudiments of its notable design can easily be applied be applied to your finances too.
A blueprint for success
You may now be in a workplace pension and enjoying all the benefits that come with it; tax efficiency, employer contributions, investment returns and hassle free retirement saving. It’s the most important first step, so well done. The next step is to take a broader view of your finances and take into account your wider financial life too. Getting all your ducks in a row will complement the good work you’re already doing by saving into a pension, and can help put you on a path to financial fulfillment.
Julie Hutchison, during her days as our Consumer Finance Expert, constructed a financial planning pyramid model which can help you do this, it showed how taking a straightforward and pragmatic approach to your finances helps you to take that control and build for your future.
The Financial Planning Pyramid
1. Sort out your everyday money
It all starts with sorting out your everyday money, getting out of the red and managing your bank account efficiently.
Sort out your everyday money
2. Building cash savings
Then thoughts turn to building cash savings for an emergency buffer.
This is your cash fund to cover roof repairs, the new boiler, paying your rent or mortgage if you lose your job – that kind of thing.
How much you need here varies – we’re all individual – but having cash savings to cover several months’ costs puts you in a good position. Some people use a Cash ISA for this, which is tax efficient.
3. Long-term savings
Then the real focus turns to long-term savings in your pension and a Stocks and Shares ISA, for example. While these can fluctuate in value over time, the idea is you have decades ahead to build-up savings for later on. This is where investing comes in. Again, both are a tax-efficient way of saving.
Decades to build up savings for later on
4. Your estate
And finally, sorting out your Will should be on everyone’s to-do list. Who do you want to share your hard-earned money with?
Making sure your loved ones are taken care of can give real peace of mind. Family, friends and charities can feature here, and you may want to gift money now rather than later.
Making sure loved ones are taken care of
Some ancient learnings
So take note from the architects of old and create your own pyramid. Taking time to check how organised you are at each layer is a good way to sense-check your finances and plan for the future.