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Preparing for financial disaster

We all have expectations, but things don’t always go to plan. We can lose our jobs, have investments fail, have disasters on holiday or have a unexpected expense that leads to spiralling debt. Can we and should we prepare for the worst? Have you put some money away for a rainy day or is it raining already?

Interest rates

Interest rates in most countries are very low at the moment and so it’s hard to save. You need to have some money in the bank for annual bills and holidays and to cope with sudden disaster. Once you have some savings, then you can think about longer term investments.

Taxation

It’s hard to save in the UK because we have high taxation. Virtually all the money we spend on petrol is tax, there is 20% tax on most purchases in the form of VAT, then there are things like the TV licence which is a tax to fund the BBC. Even taxes on businesses like business rates and corporation tax are passed onto us. Of course we might think it’s worth it, we have social security and much of the health care is free. We can’t rely on social provision though, it can be taken away on a political whim. We can see now that the government is willing to spend billions providing the wealthy with new runways on the airports they use, new roads to drive their luxury cars on and grants for the ‘cultural’ pursuits that they enjoy. The poor in stark contrast have their benefits and healthcare cut.

Facing reality

We have to face reality and realise that disaster can happen to us. We might feel secure and think we’re comfortably off, but if financial disaster strikes can we survive it? Many financial pundits advise people to have enough savings to last for 3 months. Is that enough? I think maybe we need savings to last into the immediate future, but we need investments to last very much longer. You can use you holiday money or that money you’ve been saving to replace the car in the short term; but what of the long term?

Saving

Saving is difficult with low interest rates. I’ve been saving with Zopa for a while and although the interest isn’t as good as it used to be, it still beats the rates offered by banks. Although saving any money is hard, you can think carefully about what you spend and make the essentials a priority. Remember that many of the things that you buy will one day need to be disposed of, when they are no longer required. You not only have to buy the goods, you have to eventually pay to hire a skip to get rid of those goods when they become junk.

Investments

Investing is difficult. I prefer the stock market, but although bonds are safer, they offer poor returns. There are funds to invest in that offer a reasonable return, but those returns are often below inflation. You can try to learn about investing by having a ‘virtual portfolio’ and ‘pretend’ to invest in stocks and shares to see how well you do. You can do this on Yahoo Finance or a site like London South East. The latter website also offers a share dealing service. Buying and selling shares can be like a roller-coaster ride though, so take the time to learn and monitor the forums. You might want to deal through an ISA too, to save on tax.

In case of disaster

In case of disaster, I would prefer cash in the bank, a credit card with no outstanding balance, a good credit rating so I can borrow if need be, an overdraft facility and investments that can be cashed out to give me an income for a considerable amount of time.

Security

Just knowing that you can survive the worst case scenario, gives you financial security and aids restful sleep…

Is it time you thought about your financial security? Please share your thoughts in the comments box. You can also follow me on Twitter.

One Response

  1. Pingback: Fags, faggots and Facebook | Mike10613's Blog

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