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Managing Income

What Do You Really Want Out of Life?

Whatever anyone really wants out of life, it's important to prioritise one's goals. After all, once you know where you want to go, it's far easier to develop an investment strategy in order to get there!

However, it's surprising how many people, despite having great 'wish lists' of what they want out of life, fail to plan ahead or put into place any kind of strategy that will help them achieve their goals. This is true of what they want both during their working life and beyond into their retirement years.

Setting goals involves recognising key stages in life and investing to meet those needs. Inevitably personal circumstances and needs change at important times in life, such as getting married, buying a property, having children, starting a business, or whatever. And again, beyond these is the requirement to maintain a good standard of living during retirement years.

Enjoying a good lifestyle demands having the requisite levels of funds available to pay for a desired home, holidays, hobbies and pastimes and whatever other activities may enhance a particular individual's life. Earned income alone is seldom enough to fund everything.

Crucially therefore, it's important to invest and to invest early. This goes hand-in-glove with the need to take a long-term perspective on what a person wants to achieve in their lives. By having well defined long-term goals, it's possible to develop an investment strategy that will help provide funds at important times in life to help meet those corresponding needs. This can also be to help meet luxury purchases, for example a holiday home, that are so much a part of making lifestyle dreams a reality.

Building a balanced and well diversified portfolio can help investors ensure that they get what they really want out of life. With careful planning towards clear long-term goals, it is possible for investors to achieve the kind of lifestyles they may otherwise have felt were beyond their reach.

Information provided by Edward Jones Ltd - further information jon.bradburn@edwardjones.com

Start Paying Yourself First

You may have heard the expression 'pay yourself first'. But what does it mean, and what can it do for you?

In the world of personal finance, paying yourself first means regularly setting aside an amount to save and invest before you meet other financial obligations. You commit a portion of your regular income to savings and investments, whether it's through an automatic plan at a financial institution or by transferring money when you sit down to pay bills and other expenses.

Regularly putting money aside is a painless way to build wealth. It creates a disciplined environment for putting money to work. It's easier to contribute smaller amounts throughout the year than to find a large amount to invest. Would you rather put £200 a month into a personal pension plan or have to scramble to find thousands later on to make up any shortfall in the pension you want? And because your money is invested sooner, you increase your potential investment return.

The first step in a pay-yourself-first strategy is determining how much you want to regularly save and invest. You need to examine your income and spending to see how much you can make available for medium and long-term investments. Once you've decided how much you want to commit, work that amount into your budget. The money can go towards any number of financial goals - e.g. retirement savings, your children's education, the down payment on a new house.

It's important to be realistic. If you commit too much you'll only end up removing money from your savings and investment pool at a later date because you'll be short of cash to meet expenses.

Your next move is to set up a reliable system to pay yourself. The best way is to make your payments automatic. You can do this through savings and investment plans that regularly deduct amounts from your income or move money from your bank account to investments. Most people use these plans to invest monthly, but you can choose other periods: weekly, bi-weekly, quarterly or semi-annually. A pay-yourself first plan works best with frequent periodic payments.

If you're a disciplined saver and investor, you can make transfers manually every month. But you'll have to resist the temptation to skip a payment or spend the money elsewhere. Regular investment plans make it harder to derail a pay-yourself-first strategy.

Once you've set up a pay-yourself-first system, stick to it. Even if you think you don't have the money to pay yourself in a given month, make the payment anyway. Then find the cash for expenses elsewhere by cutting costs or even taking on overtime work. However, this shouldn't be a problem if you made an accurate assessment of your finances when deciding how much to commit.

For help in setting up a pay-yourself-first plan, speak with your financial adviser. A professional can help you determine the right amount for your regular savings and investment strategy, recommend an appropriate investment plan and help you choose suitable investment vehicles.

Information provided by Edward Jones Ltd - further information jon.bradburn@edwardjones.com

Coping with the Rising Cost of Living

Even in these days of relatively low inflation, the rising cost of living continues to be an issue.

Since 2000, the UK has had one of the lowest inflation rates in the European Union. In April 2005, for example, the Retail Price Index (RPI) stood at a steady 3.2 per cent*. This represents a balance between some costs which have stabilised or even reduced - food (largely due to aggressive supermarket price wars), furniture and air travel - set against other costs which have risen quite dramatically - utilities, Council Tax and bank charges.

However, it is important to emphasise that inflation figures do not necessarily reveal the whole picture in terms of the actual costs of living. For example, many significant areas of expenditure (e.g. housing) are often not taken into account for the purpose of official inflation figures. When you consider that some areas of the country are continuing to experience annual house price rises of around 15%, it's no wonder that there is still a general public perception that it can be hard to keep up with rising costs. This is particularly in view of the fact that these days most wage/salary structures are more or less pegged in line with the official inflation rate.

Investing against the effects of inflation is therefore an important consideration. This dovetails with the need for a well diversified portfolio of investments, as inflation may hit some harder than others. By spreading their investments, people can better protect themselves against the potential effects of inflation and can help ensure a good level of growth in their portfolios.

A further key factor to bear in mind is rising life expectancy. Planning for an income after retirement to supplement or replace an already strained State pension system is very advisable and will help individuals avoid having to face financial difficulties or becoming dependent later in life. However, recent years have shown how vital it is to ensure that the right pension arrangements are in place and that an adequate level of contributions is being made.

Even the most competent governments find it impossible to predict the future with any certainty. Hopefully the UK's relatively low inflation rates will continue for years to come. But in an uncertain world, it's never too early to start investing and to have a sound investment strategy in place to help combat whatever increasing pressures arise on the cost of living.

*Source: Office for National Statistics

Information provided by Edward Jones Ltd - further information jon.bradburn@edwardjones.com