Financial security

cheerfulcat

Hi, Tayus,

Going back to your original post -

How much money do we need to be financially secure? i am only 19 but worry a lot about my cash situation i am currently 1000 overdrawn in my current account, owe 1000 on a credit card and have a loan for approx 1300. but i also have 800 in an egg savings account, 100 in a halifax websaver with cashcard and 4140 in a halifax websaver without cashcard. how much would you recommend having saved to feel financially secure??

I think that it is less a question of how much money we need ( so much depends on your lifestyle )than a question of what we do with what we have. If you spend less than you earn ( whether that be salary or investment income is immaterial ), stay out of debt and save enough to allow for future inflation, unforseen events and eventual ( early?) retirement , then you will be financially secure.


Hi, Reaper,

That would be nice, but when you start to work out the figures you realise how unrealistic it is. The 2% real growth figure sounds correct. Let's say you decide you need £20,000pa to live off. To achieve this you need savings of £1 million!

The returns on equities are considerably higher than 5% IME...

Cheerfulcat

Walletwatch

Absolute Financial security = Interest from savings & investments exceeds total expenditure. With savings pool also growing by 3%. So on a 5% yield 2% would cover total expenditure, 3% added to the pool for indexation. Though I doubt I will reach that state BEFORE I retire.

Still, the closer I get to absolute financial security the easier life feels, i.e. work is a hobby rather than a necessity . Or do some work that produces little or no revenue but is very enjoyable.

Maybe one day I'll decide to scrap it all and go on a spending binge  ;D

Agree with your assessment, roughly in line with mine. A rough figure that I would need per annum is £30000, which would mean, going by your figures, I would nead £1.5 million in the Bank TODAY, earning interest at 5% to consider myself independant.

What is crucial here is that this is a figure as of today, and as such, is not something that can serve as a target to aim for. This will have to be derived by suitably adjusting this figure for indexation / inflation. I daresay I see myself having savings of £1m in my lifetime, but I have my doubts on whether I will ever consider myself financially secure, as the target itself will have multiplied maybe tenfold by that time.

Another thing to consider is the psychological aspect of the thing - progression of necessities, comforts and luxuries as I go on with life. Today, a car maybe a luxury for me, or at best, a comfort, but I'm sure it will become a necessity in around five years time, and adds to the target I would have to set myself to feel financially secure.

It is always a moving target, partially due to the way macroeconomic factors work and partly due to our own greed ;D

deemy2004

Hi, Tayus,



The returns on equities are considerably higher than 5% IME...

Cheerfulcat

cough, cough, splutter, equities have done nothing for the last 6 years - nothing.....

Its too high risk for more than a small % of the portfolio, okay so you can get the good years, when the return ups the overall return to say 7 or 8%, but the bad years have also to be taken into account. The fundementals are not good for equities as they were in the past i.e.
low inflation, pension funds still dumping stock in exchange for fixed interest securities, and ageing poplulation....

deemy2004

Another thing to consider is the psychological aspect of the thing - progression of necessities, comforts and luxuries as I go on with life. Today, a car maybe a luxury for me, or at best, a comfort, but I'm sure it will become a necessity in around five years time, and adds to the target I would have to set myself to feel financially secure.

It is always a moving target, partially due to the way macroeconomic factors work and partly due to our own greed  ;D

At the moment I am in the capital accumaltion phase, full steam, at some point I will probably think theres enough there, to be enough, regardless of the calcs and %'s i.e. enough of a buffer between me and the world.

So future income will go to expenditire, so I doubt I will ever have the fantasy figures I mentioned earlier, i.e. enough for 2% plus 3% indexation, at worst as Reaper mentioned, can start consuming a portion of the capital, so as to ensure not too much is left to my decendants.

cheerfulcat

cough, cough, splutter, equities have done nothing for the last 6 years - nothing.....

Its too high risk for more than a small % of the portfolio, okay so you can get the good years, when the return ups the overall return to say 7 or 8%, but the bad years have also to be taken into account.

Deemy, share investments form the biggest part of my income and I can assure you that while the FTSE 100 may have seemed to go nowhere ( though it has of course in fact been a bit of a rollercoaster ), the FTSE 250 has performed splendidly this past year and individual shares have done extremely well. Also, of course, there are other indices both here and worldwide, where performance has been stonking. My portfolio is up 30% this year, and over the last four years has averaged 25% p/a. The secret is share picking, of course - I would not suggest unit trusts. I might add that I'm not some sort of genius :-) because many other people are showing gains as good and even better.

The fundementals are not good for equities as they were in the past i.e.
low inflation, pension funds still dumping stock in exchange for fixed interest securities, and ageing poplulation....

An ageing population does wonders for drug makers' shares, a booming oil price ditto for oil co's...low inflation ( that's if you believe GB, of course; it looks on the high side from where I'm sitting ) would be good for all sorts of manufacturers. You cut your coat according to your cloth. If one were sufficiently cynical, one could invest in debt advice specialists and companies which lend money to the sub-prime market as they will surely do well over the next few years ( but I would draw the line at that ).

Regards

Cheerfulcat