Sufficient savings to achieve your desires
♦ COMMENT Natalie Holt from The Lang Cat consultancy firm asks, when it comes to money, how much is enough?
Free money? Yes please. Given the chance, most of us probably wouldn’t turn down the offer of some extra money – no questions asked – but how do you know if and when you have enough money? And, crucially, enough for what?
Look at lottery winners, for example. When the lucky ticket holders hit the jackpot, their bank balance suddenly looks unbelievable. Some manage to make the money last, while still enjoying their winnings.
Yet for others, they live the good life for a few years then end up with not much to show for it. A few might even go bankrupt. For them, receiving a life changing amount of money still wasn’t enough.
Money can be an emotional subject, and can feel complicated or overwhelming. But essentially there are three steps to having “enough”...
1 Know what you’re starting with
It begins with understanding what money is coming in, and what is going out. This means budgeting, and tracking your spending.
Note down the amount of money you have at the start of the month, after essentials such as bills, and with anything left over, what you want this to go towards. Keep track of spending as you go and at the end of the month, see where you’re at.
Staying on top of your money this way can feel daunting, or boring, or both. If money is stretched, you’re not alone, but you start to understand where your money goes. While there will be payments you can’t control, hopefully there will be some you can.
2 Make a plan
There will be times when there is no money left at the end of the month. But over time you can use any “left over” money to build up savings for the future.
Ultimately, it helps to kno w what you are saving for. This could be an emergency fund, a holiday, a house deposit, or a pot for when you stop work.
A good mantra here is to “pay yourself first”. Set aside money for the things you want to make happen, once essentials are taken care of. If your money doesn’t have a job, it’s easy for it to go on day-to-day spending.
3 Measure and monitor
The question of “enough” becomes more difficult to answer when you’re about to retire, or have retired already.
There’s a lot of guesswork, like how long your money has to last and the impact of taking money out of your pension. This is a good time to consider bringing in the experts.
Financial advisers can help make sense of things. Financial planners offer a similar service, but will start with understanding what’s important to you ahead of talking about your finances.
Many financial planners offer something called cashflow planning. This takes into account your financial situation and shows how likely you are to have the money that’s needed for the life you want. It also shows how different financial decisions will affect your money over time, and will help answer the question of “how much is enough?”
Knowing what “enough” looks like will depend on your circumstances. But with some planning, getting there is possible.