by
Wojciech Adamczyk
Investment and Insurance Products Department
Financial security of yourself and your family is a broad subject. You need to consider many aspects and prioritize them based on, to a great extent, your age. The key solutions, however, are always the same and worth implementing whether you are 25 or 65.
First, find out how much you can save
The first step to financially secure your family is a kind of an examination of conscience, aiming at establishing the actual state of your finances. If you do not keep track of your expenses, it would be beneficial to dedicate one month to check what you spend your money on and how much (if at all) you save. Anyone can save their money, and the amount – PLN 50 or PLN 500 – is of secondary importance. Any sum put aside can improve your future situation.
Secondly, get rid of bad debt
As the next step, you should get rid of all bad debts – usually these are cash loans with an unattractive interest rate or, God forbid, from parabanks, which can burden their customers with costs equal to the loan amount itself. There are several techniques to deal with debts, and this is a topic for a separate entry; however, the most popular of them consists in overpaying the loan with the highest interest rate as soon as possible. Thus, you will get rid of the debt that burdens your family finances the most. Every repaid debt is a success, which not only makes you feel better, but will also improve your finances.
Thirdly, build a financial cushion
From the very beginning, already at the stage of repaying debts, it is worth putting aside even the smallest amounts toward the so-called emergency fund. It is a part of savings that should be maintained in liquid assets (a savings account, short-term deposits) to use in case of emergencies such as a broken washing machine or car.
The so-called financial cushion will let you cover unexpected expenses from your own funds instead of taking out another loan, which, in the end, would be a much greater burden for your budget. The amount of the emergency fund is a matter of individual preference and capability, but it is recommended to have at least six times your monthly income at your disposal. Here you will find out more how to build you financial cushion:
The so-called financial cushion will let you cover unexpected expenses from your own funds instead of taking out another loan, which, in the end, would be a much greater burden for your budget. The amount of the emergency fund is a matter of individual preference and capability, but it is recommended to have at least six times your monthly income at your disposal. Here you will find out more how to build you financial cushion:
How to Build an Emergency Fund | Investopedia
Tips for putting aside money for a rainy day – or, to be precise, three months' worth of them. Learn how to build an emergency fund.
Fourthly, adjust the strategy to your age
Only after you have fulfilled the conditions above can you relax and start thinking about the future financial security of your family. In most cases, this means investing. What you invest in and how should depend on your age. If you are lucky enough to have a stable financial situation at 20-30 years old, you should not be afraid of stock exchange. Shares bring the highest rates of return in a long term and, in many cases, the “buy and hold” strategy can grant you better profits than e.g. deposits.
Let’s take this opportunity to disprove the myth that you have to be very familiar with all listed companies. The most successful financial investors such as billionaire Warren Buffett recommend buying index funds regularly, without worrying about the fluctuation of their valuation. An index fund is a type of an investment fund which tracks and follows a certain fund, e.g. the Polish WIG20 or the American S&P500. Since it does it almost automatically, its management costs are very low, which exerts a great influence on its long-term results. In Poland, you can buy index funds following WIG20, S&P500 and the German DAX. They allow you to diversify your investments across different markets, also outside of Poland, at a low cost. To find out more you should contact the brokerage house that will help you build your investing strategy.
Let’s take this opportunity to disprove the myth that you have to be very familiar with all listed companies. The most successful financial investors such as billionaire Warren Buffett recommend buying index funds regularly, without worrying about the fluctuation of their valuation. An index fund is a type of an investment fund which tracks and follows a certain fund, e.g. the Polish WIG20 or the American S&P500. Since it does it almost automatically, its management costs are very low, which exerts a great influence on its long-term results. In Poland, you can buy index funds following WIG20, S&P500 and the German DAX. They allow you to diversify your investments across different markets, also outside of Poland, at a low cost. To find out more you should contact the brokerage house that will help you build your investing strategy.
The older you are, the safer your portfolio should be
As we get older, we should also gradually change the composition of our portfolio. At 40, most long-term funds can still be invested in shares/index funds, but you should also invest in bonds.
This financial instrument is not very popular in Poland, which is a pity, since it is a very effective protection against inflation. Four-year and ten-year treasury bonds, for instance, pay out interest calculated as the value of inflation for the past year + fixed percentage margin. Thus, the interest rate is variable, but always above the inflation, which prevents your savings from losing on value. A 50-year-old should slowly shift to safe financial instruments. At this age, you might also need cash, e.g. to finance the education of your children, who are slowly leaving the nest. Therefore, you might want to have your savings at hand. At 60 (a few years before the statutory retirement age) it would be good to deposit a majority of your savings in safe instruments. This will allow you to avoid potential turmoil on the financial markets just years before the autumn of your life, and exploit its charms without any concerns. More about preparing for retirement you can find here:
This financial instrument is not very popular in Poland, which is a pity, since it is a very effective protection against inflation. Four-year and ten-year treasury bonds, for instance, pay out interest calculated as the value of inflation for the past year + fixed percentage margin. Thus, the interest rate is variable, but always above the inflation, which prevents your savings from losing on value. A 50-year-old should slowly shift to safe financial instruments. At this age, you might also need cash, e.g. to finance the education of your children, who are slowly leaving the nest. Therefore, you might want to have your savings at hand. At 60 (a few years before the statutory retirement age) it would be good to deposit a majority of your savings in safe instruments. This will allow you to avoid potential turmoil on the financial markets just years before the autumn of your life, and exploit its charms without any concerns. More about preparing for retirement you can find here:
Najważniejszy finansowy cel w życiu to... - Citi Handlowy [PL]
Każdy z nas ma jakiś cel w życiu. Ten najważniejszy z punktu widzenia każdego człowieka na pewno nie jest związanych z finansami (a przynajmniej nie powinien być), ale jeśli skupimy się na tej jednej kategorii to nie mam wątpliwości, że najważniejsza jest… emerytura.
