Consider that at this moment in time, you are financially secure which is contributing towards a happy and satisfactory life. You are not facing any financial issues and are very self sufficient.
But ask yourself this, will you continue to be so financially happy three years down the line? Can you be confident about continued financial security in your future?
No, You can’t, at least not definitively. No matter what an individual’s financial status currently is, there is no certainty that the coming months or years will stay the same.
You never know what you have in store, and it can hamper your financial stability anytime. Most of such issues arise suddenly, without a warning beforehand.
Hence, you should always be prepared for such unforeseen circumstances, and make sure that you have enough money in future, in order to meet certain financial needs.
Financial Stability (Definition and importance)
Financial stability is the situation where you are not dependent on anyone else for any financial matter. It is the stage where the assets that you have are more than the liabilities you are paying, and you also have enough for you to save for the future. In order to save and provide for your future, it is necessary for you to have financial stability. You can’t do any financial activity without being financially stable.
There are various ways in which you can make your future financially sound. Most of these ways involve banks and various financial institutions, which have come up with a number of policies and practises that are focussed around helping you care a little less about your future. Following are a few of such tips which would not only help you make your future financially sound but will also help you deal with any financial issue recurring thereafter without any worries:
#1. Turn your house into a source of income
One of the most basic and valuable properties a person can hold is their house. It is also a great financial asset, which bears a magnanimous value. However, in order to secure your future and make sure that the money keeps rolling in, you can use your house to generate a secure flow of income. Following are some of the ways in which you can use your house as a monetary source:
- Take in a tenant – One of the simplest ways of using your house to generate income is to find a tenant for the place. It is the best option if you have one or more empty rooms in the house that are not being used in any way. This is also very advantageous if you have your place in a prime location in the city. This will ensure a steady income for a fairly long period of time, without you having to make efforts to earn money. It is a fairly prevalent practice in the country these days, where the rent is tax-free up to £ 4,250 per year.
- Rent out your garage/parking space – If you own a house at a fairly popular spot in the city, and you have nice and presentable garage/backyard/parking space, you can rent it to various parties, provided the space is not of much use to you. This space can be used by parties for purposes like opening a mechanic shop, making it a public parking place, setting up a small car wash area, making it a little public ground etc. Just like inviting a tenant, this ensures a steady flow of income without much effort.
- Renting the entire house – This is suitable for two major reasons – if you are desperate for quick money, or if you have a house which is of no use to you. Renting the whole house helps you rope in a lot of money. It gives you a great deal of money for a fairly long period of time. You can look for students or families in need of a house, and charge them according to the amenities available and the area of residence. So, if you have a house where no one really lives, and you want to generate a safe and regular inflow of money, you know what to do.
- Holiday Home – If you have a house in a city which is a tourist spot, a holiday destination or is situated in a beautiful location, you can use it to rent it as a holiday home. This is the best option if you do not want to rent your place for a long period of time. This can be used as an asset which can be used to earn money at any point of time if you are in need of money at the time of emergencies.
#2. Use your time wisely!
In order to make your future financially secure, you need to use your time very wisely. It is very useful to make the most of the limited time you have, and either save money for future, or find a way for an inflow of money in future. Following are some ways in which you can use your time in the best possible way to secure your future:
- Go for overtime – If you feel that you can work more than your current working hours, you can always choose to work for paid overtime. There is always a scope to earn a little more which can help you to save for your future. Hence, always look for an opportunity to work more and earn more than your usual earnings, saving money for your future.
- Go for a second job – One out of every ten working people in the country has a second job. You can opt for a second job if you feel that you have more free time after the job you’re already doing, or if you want to add to your existing income. You can choose to work on weekends or go for a night job as your second job. You can also work for more casual jobs like cab drivers, bartenders etc.
- Direct Selling – Another option of using your time wisely is making sales from home. There are various organisations which earn a handsome amount of money through direct marketing and sales. This helps you to get rid of fixed working hours and infrastructure. It also adds to your income which can be used in future for emergencies.
#3. Monetise your skills!
Another tip to secure your financial future is to use your skills in order to earn more money. You can make the best of your skills in the following way and save money for future:
- Freelancing – One of the best ways of monetising your skills is to work as a freelancer or you may set up your own freelancing company. If you work independently, without any restrictions of fixed working hours, you can make the best use of your creativity. This is a way in which you can be free from bounds and work in a more conducive environment. This ultimately helps you build your monetary base.
- Teaching a skill – If you master a specific skill, you can choose to teach others the same in your spare time, and make money out of that. For e.g., if you are a yoga expert or a trained singer, you can use your weekends to teach others the concerned skill, take classes and earn money.
- Hand-crafted sales – If you have a skill of making things by yourself, you can make additional money by selling them. Be it selling your home made cakes or handicrafts; you can always earn some extra money by selling things you created yourself. This will add to your income and ultimately make your future more secure.
One of the best ways of making your future secure is getting insurance. Insurance is a plan which assures your future by paying you money in case of any crisis. It helps you to be sure about your future and minimises the damage that occurs. There are various types of insurance which can be offered to you. Some of them are as follows:
Life insurance is the policy in which the buyer’s family or nominees are paid a mentioned amount if he/she dies unexpectedly. This amount can be either paid all at once, or in regular intervals. This helps you to be sure about the fact that your family will be financially secure after your death.
Income Protection Insurance
Income protection insurance is the policy which ensures the buyer to be paid the difference in the income if they suddenly fall sick or are severely injured which prevents them from working and the income reduces. It makes sure that the buyer gets a steady income even under harsh circumstances. This insurance is usually purchased by people who are self-employed and/or do not get enough paid sick leave. There is also a short-term income protection insurance, wherein there is a fixed amount of sum which is allocated to be paid for a month if the buyer is not able to work due to a health emergency.
Critical Illness Cover
This policy covers you in the case of a specific illness. It pays the buyer money covering him/her for a particular disease, which is mentioned by him/her in the contract. Such diseases are often chronic and life-changing.
Payment Protection Insurance
Payment Protection insurance or PPI is a type of protection insurance which assures the buyer to be paid his mentioned credit if he cannot continue to earn his income due to reasons like him falling ill, developing a critical medical condition, getting handicapped, losing his job or death, in the case of which the amount is paid to his family or nominee. PPI is a great way to make your future financially secure, as it makes sure that you are not falling short of money even if you lose the job due to uncertain circumstances.
However, PPI was often sold incorrectly or mis-sold to the buyer by the financial institutions. The buyer was often tricked into purchasing the policy along with a loan sanction or taking credit.
They did not inform the buyer that it is optional to buy PPI and that it is an independent policy to buy. (The customer is also often forced to buy the policy, by claiming that it is mandatory to buy it along with the loan and credit.) Also, while selling the policy, the lenders tend to glorify PPI which gives an extremely favourable image of it in the minds of the buyer.
The lender distorts the purpose of selling the policy. Instead of selling the policy for the purpose of covering the buyer, the financial institutions mis-sold the policy in order to earn more and more commissions arising out of the sales.
If you were sold a PPI policy with any of the greedy and manipulative tactics mentioned above, it means that you were mis-sold and are eligble to reclaim compensation from it.
However, if you have already been mis-sold a PPI policy, you can claim your compensation from the lender. There is a set procedure which is to be followed to complain and get compensation. You are firstly required to check the policy properly and make sure that it was mis-sold.
Then, you write a letter to the lender complaining about the issue. You can also try solving the issue over the phone, because most of the issues arise out of simple misunderstandings. However, if the lender does not respond properly, or does not respond at all, or if the compensation amount is not feasible, you can approach the Financial Ombudsman Services (FOS) for final assistance.
FOS has the final authority to decide if the policy was mis-sold or not, and sorts the issue between the buyer and the banks/financial institution.
PPI is a very useful policy when it comes to securing your future. However, the policy is not suitable for everyone. People or groups of people who are not eligible to claim the benefits of PPI are called exclusions. Following are some of the major PPI exclusions:
- Students working or pursuing higher education
- Casual workers
- Self employed of people working on a contract basis
- Part time workers
- Joint borrowers
- People claiming for existing medical conditions while purchasing the policy
- People suffering from chronic stress
- People suffering from mental health issues
Hence, though not suitable for everyone, PPI is a good option for securing your future and making it financially sound. Also, you stand to gain a substantial amount via compensation if you were mis-sold a PPI policy at some point in time in the recent past.
#5. Claim the unclaimed amount
There is often a good amount of money which is available to you but you often do not pay attention to it. These so called reserves or claims also act as ghost assets which you can use to fetch benefits in the times of emergencies. Following are some of the claims which can be utilised in order to rope in money:
- Unclaimed Assets – These are the financial assets which are forgotten after the purchase and you don’t really think of them later. These assets can be unclaimed benefits of life insurance policies, pensions, investments, Premium bond prizes and free shares from mutual building societies. You should always look up for any unclaimed assets like these, especially if you have shifted to a new place or changed jobs.
- Overpaid Tax – Every year, a lot of citizens pay more tax than they’re required to. You can always check the amount of tax you are required to pay with the help of various records. If you have paid more, you can claim for a tax refund. The government is obliged to consider the claim and make necessary payments if it is confirmed.
- PPI compensation – As mentioned earlier, if you have a PPI policy currently or have had one in the recent past there is a strong chance that it might have been mis-sold to you, and as soon as you realise this, you should file for your claim. This claim can also be an asset which was not discovered by you. There are times when the buyer is unaware about the policy sold to (him/her). The lender often takes advantage of the buyer’s innocence and ignorance, and sells the policy along with the loan or credit sanctioned. Hence, the buyer might not be aware of him being sold PPI policy, and the fact that they can claim compensation the moment they know about it. While taking a loan or credit from any financial institution, you should always read all the documents very carefully, and ask the lender whatever queries you have. It is extremely important to see if the lender has secretly sold the policy without your knowledge.
#6. Make a budget
One of the most important tips to make your future financially sound is to make a budget of all the estimated expenses and income. You may want to make a monthly budget or a yearly budget, depending on the nature and need of your savings. Making a budget gives you a plan of the areas where you’re likely to spend, which in turn makes you estimate your savings as well. Hence, you can plan for you future and make it financially stable.
#7. Keep a check on the mortgage market
In order to save enough for your future, you need to have a sound knowledge of the current market. This will give you the idea of the prevailing market forces, which will help you make decisions and in turn help you make the budget. This will also help you to make favourable assumptions of your financial activities and will allow you to provide for your future.
#8. Make investments
Perhaps the first thing that comes to mind when asked about securing your future is certainly making investments. Investing blocks your current lump of money and allows you to claim it back (often with added benefits) whenever the need arises in future. You can choose from a variety of investments – be it investing in shares, debentures, government bonds, policies, real estate, jewellery etc. This way is extremely useful if you have ample money with yourself currently and wish to spend part of it to look after your future.
#9. Don’t leave insurance coverage gaps
Along with purchasing the correct and the most suitable insurance, it also very important to make sure that there are no coverage gaps. This means that you need to make sure that the people who are covered by your policy (including yourself) get sufficient amount of money through the policy. If you’re taking a life insurance policy, make sure your family gets a sufficient percentage of your annual income as a cover. If you purchase a PPI policy, make sure you are given enough benefits to suffice your needs after losing your work. However, if you feel that the coverage amount is not enough, you may want to buy another policy which adds to the amount and fills the gaps. This would in turn help you to have enough money available through insurance cover.
#10. Open a brokerage account
Often, people make more than one investment in order to play safe, which is a great thing. However, it gets difficult to keep a track of all the investments you’ve made. You may forget or get confused about your multiple investments. Opening a brokerage account solves this issue for you. Brokerage account is an account which helps you to keep a record of all your investments at a single place. This account gives you a monthly statement of all the investments you’ve made, and their status. This helps you to get a comprehensive knowledge of where your money is and its value. This further reduces the chances of any unclaimed benefits that you could have earned. It also helps you avoid any lost benefits which could have been claimed if you were constantly informed about your investments. A brokerage account does it all for you.
#11. Tax-favoured retirement plans
One of the most important aspects of securing your financial future is to make the best retirement plans. In order to make the most reliable and beneficial retirement plan, go for the plans which offer tax benefits, like a workplace pension plan. Such plans will deduct the money right from your paycheque and help you avoid the burden of paying regular premiums. Also, plans like these offer a good deal of tax benefits and reductions by reducing your taxable income. Hence, along with planning for retirement and securing your future, you should also look for plans that offer handsome tax benefits. More savings always lead to a better future!
#12. Never make a single big investment
When it comes to making investments, people tend to put all their money in a single scheme of investment. This is because it is believed that doing so would reduce the load of looking after multiple investments. However, this is not always the best option to choose. Instead of making one big investment, it is advisable to make several relatively small investments. This would not only increase your chances of getting more benefits, but also help you minimise risks. If push comes to shove, and you need money urgently in future, you may have one of your investments not giving you sufficient return due to unfavourable market conditions in the concerned sector. However, if you have multiple investments, you will always have a backup which will help you with the balance, and you will always have enough money for yourself if faced with an urgent crisis.
#13. Make annual assessments
It is very important to go through your financial statements and documents at least once a year in order to make sure that you are on the right track financially. On an annual basis, you should check all your investments, policies taken, premiums paid, refunds received and various miscellaneous income and expenses. This shows you your financial position and acts as an important factor for all your actions, and it will also let you know if you can afford to set aside for your future and how much money you can allocate for the same. You can make more investments if you have a handsome surplus and you lack assets. You can liquidate current assets into cash if there is a need to do so. You can reduce your expenses and make more savings if you feel the need to save more. Hence, keeping an annual check on your financial activities is always a good option to be financially happy – in the present and also in the future.
#14. Make and increase savings
As simple as that! You need to save and accumulate money over time if you want to buy your favourite car. Similarly, if you want to make sure that you have enough money in the future, you need to start saving. Even if you start saving a small amount and do it for a long period of time, you will have enough money in the long run when/if you need it for an emergency. You can go about saving usually by cutting your costs. Make sure you do not spend way more than you require, and save to provide for the future. Making such savings is the first step to making investments, as you need enough money to invest which would help you later.
#15. Take calculated risks
If you can make more money which can fund your future, why not take a risk? It is always good to take risks when it comes to dealing with the financial environment. You also often have no other option but to take risks, as the market and business environment of the country is very volatile and dynamic, which keeps changing in real time. However, the risk you’re willing to take should be a calculated one and not a blind one. You should be aware of what you’re adding your money in or the policy you’re buying. The money you put in may reap you great profits in future, but you should also be wise enough to know the possible downside of the situation as well. Always check the policies and investments you make and make an objective and rational decision. Do not fall into the traps set by various financial institutions which glorify the products and sell them to you for selfish reasons. Read all the documents in detail and after you’re well versed as to where you and your money are going, only then be ready to take a risk!
#16. Ascertain inflation-plus returns
It is great to make investments and they often prove to be strong sources of income in future, (but there is one thing every investor should keep in mind). The returns or benefits from the investment should be higher than the prevalent inflation rate in the market. This would ultimately give you returns which are more than your investments. Otherwise, you will stay stagnant. There will be no benefit of investing your money and you will hardly get the same amount you added. Hence, you need to make investments which provide inflation-plus returns in order to gather funds for your future.
#17. Hire a good financial advisor
None of us are experts in managing finances. We tend to be ignorant and lack all the knowledge which is required to make wisest and the best decisions. For this purpose, you should always have a sound and capable financial advisor with you, who helps you to make all the decisions which are the best for you. You can hire a financial advisor to get advice and guidelines for matters relating to buying and selling of financial assets, such as:
- Taking a loan or credit
- Dealing with the financial institutions
- Selecting which policy to buy and which is the most advantageous,
- Understanding various terms and conditions for all the policies and documents,
- Understanding where and how much to invest, where to spend and where not to,
- Keeping a track of your financial activities
However, you should be careful while selecting a financial advisor for yourself. It is your duty to make sure that the person himself has ample knowledge about his job and is a credible source. He should be smart, quick and updated with the current financial environment in the market.
Hence, along with being financially happy in the moment, it is also very important to make plans for a safe and secure future. There are many ways by which you can provide yourself with this security– be it using your house to ensure steady income, buy insurance, reclaim compensation for policies like PPI, making investments, keeping a check of annual financial activities, preparing a budget or hiring a capable financial advisor. Following all these tips will not only make you satisfied currently, but would also sufficiently provide for your future financial needs, so that you care and worry less about the days to come and enjoy the ones you’re living presently.