Where Should I Put My Money? How to Master Cash Management
If at the end of every month you are lucky enough to save money, after all your expenses, then this money probably gets put away in a savings account or builds up the balance in your current account.
If you are using a current account to have your salary paid in to and then also have a savings account to hold some of your extra cash then what you have is the beginnings of a well structured portfolio.
All you need to do is make a couple of tweaks and you'll be home free.
Here is how.
I once heard these next few items referred to as the pantry, the fridge and the freezer.
I'm going to be a little more obvious and call them a cash reserve, short term money and long term investments, but we'll go along with the kitchen analogy as well.
Current Account If we start with the place your money first comes in to being.
So you've been paid and your money is in your current account.
Most people will have a rough idea of what they spend and save each month.
The best thing to do is leave in your current account what you need to spend on bills, food, rent, mortgage etc and then transfer the remainder to a savings account or ideally two.
Following the culinary example I guess this would be the supermarket where you pick up your weekly or monthly supply.
The reason you split your savings in two is explained below.
Cash reserve So you've transferred some of your surplus cash to a savings account.
This is great.
You are now building up your cash reserve.
This will be money that you never touch.
Money that you know is there in case of an emergency but you never rely on for normal expenditure.
You will only need to build up this reserve for as long as it takes to get to the level you want it at.
Set yourself a target.
Some people consider the equivalent of six months' expenditure of three months' salary a good level.
Some like round numbers, say £10, 000, £20, 000 or £50,000.
It's really up to you.
This would be the pantry in our little example.
The place you come to when there is no other food around and you know there will always be something you can lay your hands on during hard times (i.
e.
when the food shopping hasn't been done).
Short Term Money The other place you send your savings to is your short term money savings account.
This will hold money that you can spend whenever you want to.
You can use this account to save all the surplus cash you have after paying your bills and saving some towards a cash reserve.
Some people use this type of account to save up for certain expenditures like a holiday or a car.
Use this account to dip in to whenever you fancy spending some money, whether expected or unexpected.
This would be your fridge.
The amount you want to build up is entirely up to you, whatever makes you feel comfortable.
Long Term Investments Then once you are happy that you are building up a cash reserve, or have already done so, and are putting away money for short term expenses on a regular basis you can also start to think about your future.
Long term investments are an important part of anyone's planning and careful wealth management that is tailored to your current and future needs is important to make the best of the resources you have.
Regardless of what you choose to invest in the need for investing in your future should take a high priority.
A good financial adviser can help you be really clear about your strategy and purpose here.
Long term investments usually have two purposes, either to make a bit extra or to save for your future.
Both are more than worthy reasons to invest money.
A lot of people use an ISA or personal pension to save for their future.
many also use an ISA to invest in shares, funds (e.
g.
unit trusts) or bonds etc.
If you can stick to these basic elements of building your portfolio you will see that it doesn't need to get complicated at all.
In the above example you wouldn't need any more than a current account, two savings accounts and some investments like an ISA or personal pension.
In practice many people have a lot more accounts and plans than this.
It's not really necessary in all honesty.
Please note that the above information does not form a personal recommendation as individual circumstances will always dictate what is best for you as a person.
If you are using a current account to have your salary paid in to and then also have a savings account to hold some of your extra cash then what you have is the beginnings of a well structured portfolio.
All you need to do is make a couple of tweaks and you'll be home free.
Here is how.
I once heard these next few items referred to as the pantry, the fridge and the freezer.
I'm going to be a little more obvious and call them a cash reserve, short term money and long term investments, but we'll go along with the kitchen analogy as well.
Current Account If we start with the place your money first comes in to being.
So you've been paid and your money is in your current account.
Most people will have a rough idea of what they spend and save each month.
The best thing to do is leave in your current account what you need to spend on bills, food, rent, mortgage etc and then transfer the remainder to a savings account or ideally two.
Following the culinary example I guess this would be the supermarket where you pick up your weekly or monthly supply.
The reason you split your savings in two is explained below.
Cash reserve So you've transferred some of your surplus cash to a savings account.
This is great.
You are now building up your cash reserve.
This will be money that you never touch.
Money that you know is there in case of an emergency but you never rely on for normal expenditure.
You will only need to build up this reserve for as long as it takes to get to the level you want it at.
Set yourself a target.
Some people consider the equivalent of six months' expenditure of three months' salary a good level.
Some like round numbers, say £10, 000, £20, 000 or £50,000.
It's really up to you.
This would be the pantry in our little example.
The place you come to when there is no other food around and you know there will always be something you can lay your hands on during hard times (i.
e.
when the food shopping hasn't been done).
Short Term Money The other place you send your savings to is your short term money savings account.
This will hold money that you can spend whenever you want to.
You can use this account to save all the surplus cash you have after paying your bills and saving some towards a cash reserve.
Some people use this type of account to save up for certain expenditures like a holiday or a car.
Use this account to dip in to whenever you fancy spending some money, whether expected or unexpected.
This would be your fridge.
The amount you want to build up is entirely up to you, whatever makes you feel comfortable.
Long Term Investments Then once you are happy that you are building up a cash reserve, or have already done so, and are putting away money for short term expenses on a regular basis you can also start to think about your future.
Long term investments are an important part of anyone's planning and careful wealth management that is tailored to your current and future needs is important to make the best of the resources you have.
Regardless of what you choose to invest in the need for investing in your future should take a high priority.
A good financial adviser can help you be really clear about your strategy and purpose here.
Long term investments usually have two purposes, either to make a bit extra or to save for your future.
Both are more than worthy reasons to invest money.
A lot of people use an ISA or personal pension to save for their future.
many also use an ISA to invest in shares, funds (e.
g.
unit trusts) or bonds etc.
If you can stick to these basic elements of building your portfolio you will see that it doesn't need to get complicated at all.
In the above example you wouldn't need any more than a current account, two savings accounts and some investments like an ISA or personal pension.
In practice many people have a lot more accounts and plans than this.
It's not really necessary in all honesty.
Please note that the above information does not form a personal recommendation as individual circumstances will always dictate what is best for you as a person.
Source...