Posted by Allison on 4 April 2009, 10:07
No matter what country you live in or what type of currency you use, we all have different ways of handling our money.
What we may not realise is that the way we choose to handle our cash can have a big effect on how we live in the future. Some issues such as inflation and the economy can have a direct effect on us today, while others such as savings and pensions can affect us years into the future.
But even today's events can affect us more than we might think – an idea which was seen and felt in recent events connected with the various banking crisis at UK's Northern Rock. One survey of people not long afterwards found that a whopping 11% of them thought their money would now be safer kept under the bed than anywhere else.
While it is quite rare for a huge bank to go through the troubles that Northern Rock has, there is no doubt that it has a huge effect whenever one does. Anyone who has currency or interests with a major bank would be forgiven for starting to wonder how safe it all is. But while such a large number of people are thinking about resorting to their mattress to provide a safe haven for their future it has to be the least secure place of all.
Clearly we should all take responsibility for our futures and a big part of that lies in deciding what to do with our money. But how should we invest it to gain the best financial position possible?
The answer is to think about how much risk we are happy with shouldering. When you compare the idea of putting your money under a mattress (where it will earn no interest and possibly get stolen as well) you are obviously better off trusting your money to one of the large financial institutions that has a long standing history of serving its customers very well.
The experiences of Northern Rock have obviously left us all feeling a bit fragile as far as our relationships with banks and building societies are concerned, but perhaps this is the best time for us all to take a long hard look at our finances and see how we could put them to better use for the long term.
There are various ways that you can invest your money for the future, and there is no right way to do it. It all depends on how much you have or are willing to invest, what kind of risk you feel comfortable with, and what you know about. Most of us have at least a bank account and a savings account of some kind, but even these won't necessarily be the best ones that you could have in each case.
People used to stick with the same bank account for most of their lives, but nowadays things are much more competitive. For example, some banks offer to credit your account with a certain amount of money when you make your first deposit with them. Temptations like this aren't always the best motive though; make sure you take a look at what the long term benefits are, including a high rate of interest on balances which remain in credit, and preferably an interest free overdraft (or at least a low rate of interest on it).
The upshot of all these features is that if you choose your basic accounts correctly you will end up saving more money each month that you can funnel towards your long term savings.
Lots of people don't actually have any long term savings to speak of at all, yet they are the best way to make sure you are fully prepared for anything the future may throw at you. The first stop should be any tax free savings that are on offer; this will vary from country to country, as will the amount of currency you can put away into each account.
After you have made the most of your tax free allowances, start thinking about the possibility of putting money into the stock market or property. These are riskier propositions, which is why it's worth speaking to someone in the business that is able to give you proper financial advice on where your money is likely to get the best benefits. This is a real long term proposition though – although in theory you could invest in a stock and see it double or more in value overnight, that rarely happens in practice and even when it does you need to be on the ball to buy and sell at the right time.
Lots of people are sceptical of investing in a pension for their retirement years, and indeed more people seem to be turning to property and stocks to build a better nest egg for themselves. Many people have made significant amounts on property in a much shorter period of time than an investment in a pension would take place over, and invested it elsewhere to come up with a better income for their retirement.
In the end it all depends on what you personally believe is the best option for you, and things are certainly changing in that respect. A lot of people are now turning to the internet to generate a second income for themselves – one which often becomes residual and can continue to flood in even when you are not actively working yourself.
Perhaps pensions will eventually disappear altogether, as people find better ways to provide for themselves in the future. The most important thing to remember though is that you do take care to look at what you do with your money – not only on a daily basis but also on a weekly, monthly and even yearly basis. That's because it is these habits that have an effect on the outcome of how much cash you will get to enjoy in your later years.