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I get asked this question all of the time and it is often from people who are hitting a mid point in their lives and they are perhaps behind the curve a little.

The question is this.

Should I being saving up spare money/cash that I have now or should I be saving for retirement?

The simple and short answer is both, but you probably guessed that I’d say that. But a little explanation is required on why I think that they are both really important.

Well no.1. for me is this – When it comes to retirement, no one is going to help you solve that problem – our financial future is up to us as individuals to sort out. So if you have the opportunity to join your company workplace scheme, you should join. And it goes without saying, you really should be investing as much as you can afford to into a diversified portfolio of investments. Even the best investors in the world have broadly spread investments. They certainly don’t have all their eggs in one basket.

We should all be focused on retirement, because no one is going to do it for you. The only people that don’t need to be focussed on this are those that have already retired.

So short term savings. Why is this also so important? None of us can be certain of our futures and our ability to bring in a pay check every month, so we all need a back-up plan. If we can’t work because we are either ill, have an accident or for some reason your income stops, we all need some back up reserve to help us get through some tough times. To pay the mortgage, the pay your bills etc.

So how much reserve do you really need?

The amount is obviously different for all of us, but I would suggest a minimum of 3 months income to cover your expenses. You may want to hold even more depending on how comfortable and secure you want to feel. Having a year’s salary or more available in your savings account certainly should see you through a tough period for most people.

In summary, how much we allocate to retirement planning and short term savings is an individual choice and the question to ask yourself is this.

“The purpose of the money is the key to making the decision”

But for sure there needs to be savings going into both short terms and retirement savings.

This article does not provide specific advice and you should always seek professional advice from a qualified adviser before making any decisions.

Contact Martin Dodd on 01902 742221 or email him at martin.dodd@miadvice.co.uk if you would like talk about money issues.

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