Wonderful Wealth Boosters: Break Through the Barriers to Wealth - 2nd Edition by Edwin Palmer

Author:Edwin Palmer [Palmer, Edwin]
Language: eng
Format: epub
Publisher: Pond Publishing
Published: 2013-12-29T06:00:00+00:00

(a) Current Use Fund

You will need to begin by creating a ‘Current Use Fund’. This will usually take the form of your current or cheque account and will be where you (or your company) pay in your income. If you budget well and have a full and detailed understanding of all your monthly incoming amounts and outgoing amounts, you will know how much you need to keep in this fund each month to meet your expenses. The amount required to meet your expenses each month, plus a small ‘buffer’ amount to cover unforeseen expenses can then become your ceiling amount. Any more money accumulating in this fund can be transferred into your ‘Emergency Fund’.

(b) Emergency Fund

Decide on an amount of money that would cover all your expenses for a realistic period of time if you should lose your job or income. This will depend on whatever makes you feel more comfortable. Three months income is probably the minimum, but six months would be better. Once you have saved and ‘ring fenced’ this ‘Emergency Fund’, you should not touch it unless you are in an emergency situation. This fund should sit in a savings account with good interest rates, but with immediate access should you need to get at it.

This will allow you to feel more financially secure and will be a good basis on which to build additional savings and investments. Initially you might use this as a ‘Rainy Day’ fund for financing emergencies such as bills for unexpected repairs to essential items such as washing machines, fridges, freezers, cars etc. This will help you to absorb unexpected cost without impacting on your other saving and investment activities. As your fund builds toward your target amount, it will become the cornerstone of the ‘Financial Fortress’ that you will begin to build to protect you from financial emergencies and worry.

There may be a case for overlapping your ‘Emergency Fund’ with your ‘Investment Fund’, for example where a high interest, instant access account is used (such as a Cash ISA). Just because you may require instant access in an emergency, you should not miss out on high interest rates or protection from taxation in the meantime. Hopefully, the emergency will never happen and you can watch your money grow.

(c) Investment Fund

Transfer any money over your ‘Emergency Fund’ target amount into higher interest savings accounts or other investments - your ‘Investment Fund’. These may require extended notice periods for withdrawals in order to qualify for higher returns. This shouldn’t become an issue provided that your ‘Emergency Fund’ is set at a sensible level.

(d) Retirement Fund

When creating your ‘Retirement Fund’, consider long term investments as well as pension schemes. As with all investment plans, it is better to spread your money across multiple investments in order to maximise the potential for return and reduce the risk involved. As you get closer to retirement age, you should consider moving any funds with a medium to high level of risk into low or no risk options to protect your retirement pot or income.

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