As the end of the financial year rapidly approaches, many people understandably start to get sweaty palms at the prospect of thinking about their finances.
There are many financial issues people would rather avoid, but hiding away often does more damage, or results in you missing out on investment opportunities that could set you up for your retirement.
While fears about dealing with financial issues are common, there are some things you can do to overcome them.
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Understand your risk profile
In his book, Retirement Made Simple, YourLifeChoices finance guru Noel Whittaker explains that there are at least two meanings of risk in the investment world.
“If you regard yourself as a ‘low-risk’ investor, you may be uncomfortable with investments like shares, which can be highly volatile,” Mr Whittaker explains in his book. “The catch22 is the risk-return trade-off.
“If you can only achieve your goals by achieving above-average long-term average returns, but you consider the investments that will provide them too risky, you will have to either set fewer ambitious goals, or accept a more risky asset mix.”
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According to Mr Whittaker, the best way to handle risk is to make choices about how you live your life and invest your money based on the balance of probabilities.
“This means you combine what you know to be true with what is likely to happen,” he explains.
“Apply this to investing for retirement, and you’d have to conclude that you will probably live past 85, and that growth investments will give the highest and most tax-effective returns.
“Therefore, your least risky strategy would be to have a substantial part of your assets in growth investments.”
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Tackle your debt
Research shows that all too often people ignore their debt because they are embarrassed or anxious about it, and many would rather discuss relationship troubles than talk about problems with debt.
There are solutions available to tackle repayments, and debt consolidation is just one option people should investigate to get out of debt sooner.
ING’s David Breen says that people’s refusal to talk about their debt often sheltered them from finding solutions.
“The problem with not talking about debt is that options to solve the problem don’t then readily present themselves,” he said.
“For those struggling to manage multiple debt repayments, consolidating debts into one low-interest loan can reduce the stress of multiple repayments and high interest rates.
“A personal loan can be a great way to put all your debt in one place, so you know when, and how much, you are paying off.”
Creating a budget
It is the thing no-one likes to tackle, looking closely at your finances to see how much money you have coming in and how much you have going out.
While it is a joyless task, it is critical to getting on top of your finances.
Once you have created a budget, it is essential to do regular check-ups to make sure it remains relevant.
Working to a budget makes it less likely that you’ll spend money you don’t have, but it’s knowing exactly where you stand financially that creates a feeling of optimism, security and happiness – which are also important ingredients for a healthy, happy life in general.
Don’t ignore estate planning
No-one wants to think about their inevitable demise, so often estate planning gets left on the backburner, but this is always a mistake.
You don’t want your loved ones fighting or struggling in what will already be a difficult time, so this is a very important financial issue to address.
YourLifeChoices estate planning expert Rod Cunich explains that it is never too early to start planning, but it can be too late.
“In some cases, people need a long lead time to arrange their affairs, so that their assets are in the best structures to ensure that on passing away their assets go to the right people with the minimum of fuss and tax payable,” Mr Cunich explains.
“In other cases, it is simply to avoid the risk of losing mental capacity through accident or ageing [by] leaving it too late.”
What are your financial fears? Share your fears and how you overcame them in the comments section below.
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