Attaining financial security calls for proper management of personal finances. However, it’s not always straightforward. Some people find it challenging to deal with the many tasks that come along with it. Debt management company Lowell has looked at some of these tasks and highlighted what you need to know about building a financial safety net.
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What is a financial safety net?
Having a financial safety net means more than just creating an emergency fund for unforeseen events like illness, job loss, car repairs, or other personal tragedies. It’s a set of well-organised measures that reduce the risk of losing your financial security or attaining your short- and long-term financial goals.
Simply put, this means taking out different insurance policies based on your personal circumstances, building an emergency fund, controlling day-to-day finances, investing, and creating and following a financial plan to achieve your short- and long-term goals.
What money management tasks do people struggle with the most?
According to research from Lowell:
- 66% of Brits find it challenging building up a financial safety net to fall back on if needed
- 60% are unable to save for specific long-term purchases
- 59% can’t seem to find ways to make more money from savings and assets in the future
- 52% find it difficult to save up for experiences and activities
- 33% are unable to stick to a budget
There was some good news, though. The research found that 80% of Brits find keeping track of their regular bills and payments manageable. Additionally, 67% claim that they can control their spending.
The research also reflected mixed feelings about what was more important in attaining financial security. For example, 37% of Brits felt that building up a financial safety net is the most important task in personal finance. That said, 24% believed that finding ways to make more money from savings and assets was more important. A further 22% believed that sticking to a budget was the most important task.
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How do you create a financial safety net?
John Pears, managing director of Lowell, shares four tips to get you started.
1. Prioritise your debts
Taking out a loan can be a good financial move. But things could turn for the worse, especially if you don’t put much thought into your financial decisions or create and strictly follow a financial plan.
Make plans to pay off your debts in good time. This not only puts you in a comfortable financial position but also allows you to have a good credit score.
2. Start small
Though it’s recommended that a good financial safety net should cover three to six months of your expenses, saving that much can feel overwhelming for some people. John Pears suggests looking at this as your end goal. You can start saving small, and eventually, it will add up.
3. Prioritise needs, wants and savings
Since 60% of Brits are unable to save for specific long-term purchases, John Pears suggests getting into a habit of understanding and differentiating your needs and wants. Make a list with three columns: absolute necessities, wants and luxuries. This can help you get a clear idea of how much you can save each month.
4. Do a financial spring clean
You’ll need to look at all your incomings and outgoings. Where is your money going? Can you reduce any payments or cut unnecessary outgoings? You might realise that there are things you can do without and other things that have cheaper alternatives.
