Five ideas to fund rainy days
These past few weeks have been a challenge for all of us.
All have given some, while some have given all. Our sympathies go out to those impacted more than others.
So, what have we learned about our finances and everyday issues? I won't go into health factors — better people have better advice than me. But I will offer a few ideas about one of my pet topics — your “Rainy-Day Fund”.
Let's be clear what it is.
It is the amount of money you have saved for unexpected expenses or, in this current crisis, having spare cash to see you through loss of wages or reduced income. So, in my parlance, “When it rains, you need an umbrella”.
So, when we get through this crisis (and we will), here are some adjustments you may want to consider.
1. Voluntary contributions to your company pension fund. Currently you will be contributing a percentage of your income to your company pension fund and hopefully your employer does the same on your behalf. That's good. But you may want to think about adding voluntary contributions over and above the mandatory contributions. Adding a few extra dollars (maybe an extra 5 per cent) each month will make an enormous difference to your overall savings situation. Those voluntary contributions usually carry different rules than the mandatory rules, so ask your pension provider. These contributions can be used as part of your rainy-day fund or for future big-ticket items (house deposit) — or your retirement plans.
2. Review your current expenses. There may be some items in your monthly budget that could do with a review and maybe a pair of scissors. But make sure that if you do cut back on some expenses don't then wander off and buy other “stuff” just because you have that extra cash. Take the savings and put them into the voluntary contributions (as above) or a savings account – and leave them there. Your future will thank you.
3. Increase your income. The chances are that you may not be able to get that wage increase any time soon. But you may have extra time to work somewhere part-time. However, take into account the toll on your health and free time, and especially if you have family dependents who need you at home. Alternatively, you may have some skills that could provide extra income — baking for example. Don't knee-jerk during this crisis but give it some thought.
4. Market volatility. First up — I'm not a certified financial adviser — but I've been around the world of finance for over 50 years. I've picked up a thing or two. If you pay attention to your pension fund statements or your investment portfolio you will know what market volatility is about. Especially in these troubled times we have seen wild swings in market indices (Dow Jones, FTSE, etc) but more so your principal balances. It would be inappropriate for me to say that the market will come back — but there is every reason to be believe that some form of normality will reign once again. It may take a little while so be patient.
5. Speak to your financial adviser. Without sounding cheeky, your pensions and savings may not be high enough to seek the professional advice from a financial expert — and pay for it. The benefits may not warrant the cost. However, speak to your pension company about your pension fund investment options. You will already be in mutual funds and there are guiding principles for mutual funds — low-risk, moderate risk, high risk. You should know what your current mix of mutual funds is, so a review may be worthwhile. If the review shows you are by and large fine, then no changes. And if your investment portfolios are substantial then by all means contact your financial adviser if you have one — or find one if needs be. These folks know their stuff. Don't second guess the markets. Good advice makes good sense.
So, there we are. I'm sure there are many other ideas that folks smarter than me can come up with, but hopefully these ideas may be useful. I hope so.
• Bill Storie is CEO of The Olderhood Group Ltd, a Bermudian-domiciled and owned company. Olderhood produces and hosts weekly webcasts about lifestyle and financial planning along with Martha Harris Myron. Details at http://www.olderhoodgroup.com/