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A 2013 survey by Ipsos Mori Social Research Institute offers an insight into how British families are coping in this age of austerity and reveals how the UK recession has left many families in an extremely fragile financial situation. This is true not just for poorer families but also for the middle classes who are struggling to maintain their standard of living. An increasing number of people find themselves in a position of financial insecurity where unforeseen events can push them over the brink.
Talking of the more well-off families analysed in the report, one researcher said ‘They are only ever two financial shocks away from external borrowing’, a statement which got me thinking about how we can all protect ourselves against such financial shocks. These come in all shapes and sizes from an unexpected redundancy or tax bill to the car or the boiler breaking down or even an injury or health scare which means the family breadwinner cannot work.
The impact of these events, which happen to most of us at some time or other in our lives, highlights the importance of properly managing your financial situation. There are things that you can do to protect yourself and your family against the impact of unforeseen crises but it requires organisation, planning and discipline.
The first step is to learn to budget properly. By understanding exactly what your outgoings are, both big and small, and establishing a budget, you can ascertain exactly how much you have to spend each month once the essentials are covered. By doing this you will take control of your financial situation, eliminate wasteful spending and make smarter choices which will, in turn, free up money for more important things.
Secondly, it is important for all households to set up an emergency fund to tide them over those times when they do suffer a financial shock. Keep this fund ringfenced in a separate, easily accessible account so that you won’t be tempted to spend it but it can be quickly withdrawn when you need it. Your emergency fund should ideally be enough to cover between three and six months of expenditure.
Thirdly, have a think about your insurance requirements. Although peace of mind insurance is an extra monthly cost for you to bear, it is probably more affordable than you think and is the cornerstone of the finances of any family. The financial impact of some of the more expensive financial shocks that we face in life – a family member having a serious accident or dying suddenly – will be mitigated by having good protective cover in place. Don’t wait until you need this kind of cover as by then it will be too late.
Finally, if you do have excess funds, make sure you invest them wisely. In the current financial environment the bank is not the best place for your money. A regular savings programme is far preferable and can help you build capital to ensure that your financial security grows and grows.
Our financial advisers are not just for the super wealthy. Most of our clients are ordinary people who want to take control of their financial situation and ensure a bright future for themselves and their families. Do contact us if you would like to discuss how we could help you.