Tonight, I have the honor of introducing an article by My Money Blog’s first guest-poster, Alban. Please visit his website at the following link to read more of his articles! – Home Loan Finder. To become a guest poster on My Money Blog, simply email me at the address in the Contact Me section.
As you go through life, your financial needs will change, but there are five important financial products that most people will need at some point. As a result, it is important that you know why you need each of these products, and that you know how best to use them to make the most of your finances no matter what stage of life you are in right now.
A savings account is something you can have from the time you start school and a good savings plan will make it easier to achieve every important milestone in your life from a new bike to a new house. With the best savings account you can:
• Live within your means by saving for purchases and avoiding credit
Spending less than you make seems like a simple plan to follow, but for most people credit is so readily available that it is just as easy to make purchases which don’t fit within the budget with the intention to repay them later. Unfortunately it is also easy to forget about putting the extra amount from next week’s wage onto your credit card when you can roll over your balance for the next month and the next. However if you get into the habit of saving for your purchases then you won’t have to worry about accumulating bad debt or rising interest and without crippling credit card debt you’ll more easily be able to preserve your credit rating, apply for a home loan, or simply enjoy the freedom of not owing anyone anything.
• Plan for emergencies
Emergencies happen and unexpected bills arrive and whether you need extra funds because one of the kids is sick, the car broke down or that last heatwave shot your power bill through the roof, you need to have an emergency savings fund to cover these emergency expenses. Again, having the funds available in a savings account can mean you don’t have to resort to your credit card and you can rest easy knowing you have a secure financial plan no matter what happens.
• Teach your children good financial habits
You can lead by example, but you can also open a savings account for each of your kids to teach them the importance of saving. Most savings accounts will allow account holders as young as 12 years old, while younger savers can have their account held in trust, or in your name. Teaching your children how to stick to a savings plan is a lesson which will serve them for life.
2. Credit Card
You may have heard a credit card referred to as a necessary evil and while a credit card isn’t always necessary and it doesn’t have to be evil, it does make sense to have a credit card at certain times in your life:
• You can build a responsible credit history
Being able to hold a credit card account and make regular payments to maintain control of your credit limit makes a positive impression on your credit report. If you maintain your responsible credit card use it can be helpful when it comes time to apply for a home loan or personal loan.
• Spend the bank’s money and earn interest on your own
If you choose a credit card with a long interest free period, you can spend on your card during this period, while you leave your wages in a high interest savings account. Before the interest free period ends, you transfer the amount you need to pay off your credit card purchases and you don’t get charged interest, and you continue to earn interest on your savings.
• If you can’t control a credit card, use a debit card
A debit card looks and acts like a credit card in that it allows you to make purchases online, over the phone or in person by choosing the ‘credit’ function. Unlike a credit card, a debit card accesses your own funds each time you use it, so when your money runs out, you can’t spend on the card anymore. This means there are no interest charges and no monthly payment to make, plus it allows you to budget your purchases for what you can afford with the money you have available.
3. Term Deposit
A term deposit account was typically for large, long term investments, but you don’t have to wait until you have the corner office or the company partnership to start investing in a term deposit because just about anyone can enjoy a secure, guaranteed savings account. A term deposit account allows you to:
• Save for long term plans without having to manage your savings
Once you have chosen the term and investment amount you can afford within your budget, you don’t have to monitor or manage your term deposit account. It goes about earning interest and keeping your money save, so it can grow towards your future plans of children, a house or further investments.
• Choose the best term and investment amount so you don’t break the term
If you access your funds before maturity you will be charged early access fees and the interest you are paid will be calculated on a lower rate. However, before your investment is fixed you can invest just the amount you can afford, and you can choose a term between one month and five years to invest.
• Grow a guaranteed investment amount calculated for the future
During a term deposit, your rate of interest is fixed so you will earn the same guaranteed rate every day of your term. This means your returns are also guaranteed, so at maturity you have a principal amount, plus interest returns, which have been calculated to keep up with official rate rises and the costs of inflation.
4. Home Loan
Another necessary evil, since most of us would be saving our whole lives to accumulate enough to buy a house, and just as few are lucky enough to borrow or be given enough to buy our first home. Instead, we need a home loan, however a mortgage is much more than just another monthly bill if you know how to use it:
• Borrowing money for your house and leave your savings free to live
If you were trying to save up all you had to be able to afford to buy a house, there would be no money left to live. However, when you take out a mortgage on your home, you buy a property you can afford, with a loan you can afford and you are then free to use the rest of your savings to live out the other dreams you have.
• As you pay off your loan you build equity
As the value of your loan decreases, the value of your home is likely to be increasing – as property prices do over time. This builds equity because the bank will now be willing to lend you more money, up to the value of what your house is now worth. You can leave this equity in your loan to grow for a time when you want to sell and use it to go towards the price of your new home, or you can apply to have the equity available for a family holiday, a renovation or an investment.
• Choose a feature packed loan
You are going to have a home loan for a substantial portion of your life, so you want to make sure it is working for you. Therefore, consider the features you could benefit from, such as an offset savings account where the funds in your savings account reduce the interest you pay, a payment holiday option where you can pause your payments when you have kids and less spare cash, or a redraw facility where you can pay extra into your home loan each month, but have the option to redraw it if you need it.
5. Retirement Plan
This is the point that all your other financial products have been working towards; a time of your life when you are free from work commitments and so you also want to be free from financial commitments too. You have worked hard to get to your retirement, so make sure it works hard or you:
• The pension is increasing but you want to live the best you can
Since you’ve worked hard for the majority of your life, you want to be able to enjoy your retirement in the comfort and style you’ve always dreamed of. This is why you need a solid retirement plan so that you really can rest and enjoy your golden years.
• Plan your retirement budget
Be clear about the type of retirement you want to have and you will be better able to map out a financial plan, and pinpoint the financial product you need. Whether you want to live six months of the year overseas or you want to buy a bigger house so your family can stay with you when they visit, if you make a budget for the life you want to live, you will be able to work out how much you need to make that dream a reality in the future.
• The future can be an expensive place
This means your retirement plan needs to not only meet the budget for the life you want to live, but also needs to grow at a rate which stays ahead of inflation costs. If you work out your retirement budget now, the amount your plans will cost in 30 years when you retire will be much greater.
Planning your future and the financial products doesn’t have to be difficult, and if you take the time to map your needs, and match them with these five essential financial products, the future may be more expensive – but you’ll be prepared.
Thanks for reading.
Alban is a personal finance writer. He provides budgeting and personal finance tips and helps people to find the best home loan online.
If you are interested in becoming a guest poster on My Money Blog, please email me at email@example.com.
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