Before you can start saving or investing for the future, you need to work out what your aims are. Only if you know what you are saving and investing for can you choose the best products to help you realise your goals. Otherwise, you’re likely to end up with completely unsuitable personal finance products.

Some of the financial goals you have may include clearing your debts, buying a house, starting a pension or helping out your children.

Most people have short and long-term personal finance goals. In the short term you might want to buy a new car or pay for a summer holiday, while in the longer term you may be keen to build up savings for retirement. And, you may have more than just your own future to consider: If you have children or plan to have them at some stage, they may want go to university or need help getting on the housing ladder, and you need to plan to fulfil those personal finance goals as well.

Different personal finance goals require different investment vehicles so it’s important that you work out what you want and then prioritise them. If you are investing for the long term for retirement, for example you should invest in equities because, historically, they produce the greatest returns over time.

However, they aren’t suitable for short-term investment goals because they are extremely volatile the value of your shares may plummet just when you need the cash to buy your new car. But if you don’t need the cash for many years you have plenty of notice as to when you need to sell your shares so can do so when you stand to make a profit. There may well have been times during the years you own them when you suffer losses at least on paper. But it doesn’t matter as potential losses aren’t realised unless you actually sell up.

How to Save Without Sacrificing

If you are saving for a holiday or new car, investing for the short term, stick to a savings account paying the highest rate of interest you can find. At least you are guaranteed to get your capital back, plus some return. You aren’t risking your cash. You won’t make the big returns you might have made on stocks and shares but at least you know there won’t be any losses either.

If you are saving for a holiday or new car – investing for the short term – stick to a savings account paying the highest rate of interest you can find. At least you are guaranteed to get your capital back, plus some return: You aren’t risking your cash. You won’t make the big returns you might have made on stocks and shares but at least you know there won’t be any losses either.

Creating a Personal Finance Emergency Fund

Before you consider investing for the longer term, you need to set up your own personal finance emergency or rainy day fund for contingencies that you can imagine but couldn’t pay for out of your purse or wallet.

The fund should contain enough money to pay for events such as a sudden trip abroad if you have close family in distant lands, any domestic problem that wouldn’t be covered by insurance, a major repair to a car over and above an insurance settlement, or a vet’s bill not covered by insurance.

It may be prudent not to put your emergency fund money in an account that offers a higher rate of interest in return for restricted access such as not being able to get hold of your money for five years. The problems and penalties associated with getting your cash on short notice outweigh any extra-earning advantages.

An emergency cash reserve serves as reassurance so you can ride out investment bad times more easily. Know that you’ll rarely be able to access investments in an emergency. You shouldn’t be put in a position where you’re forced to sell. And your credit card can be a temporary lifeline, giving you breathing space to re-organise longer-term investments when necessary.

By: Elizabeth Mathers Stankovic