3 Crucial Steps Before You Invest

As a financial adviser, I am often asked by friends, family, and clients about whether they should invest their cash. Around half of the time, I discover that, before embarking on this fruitful endeavour, the following essential steps still need to be taken:

1. Pay off Debts

Mortgages and student loans can often be viewed as ‘good debts’. But if you’re behind on credit card payments, you could be paying 20%-30% per year in interest. Avoiding these interest costs is far superior to putting the money in a savings account that pays 5% per year. By paying off your outstanding credit cards, you’re effectively getting a guaranteed tax-free return of 20%-30% per annum.

2. Build up an Emergency Cash Fund

The trouble with corners is that you cannot see around them - you never know what’s coming. Look at how much money you need to live on each month; multiply this by at least 3, but ideally aim for 6 or higher. The result of the calculation is how many months of expenses you should have set aside in easily accessible cash for financial emergencies.

Investing involves taking on volatility and committing for the long term (minimum 5 years but preferably at least 10 years). By having adequate cash on the sidelines, you reduce the risk of needing to sell your portfolio in the short term, which helps to avoid turning a temporary decline into a genuine investment loss.

3. Get Life Insurance

Do your kids or partner depend on the income from your job? In that case, the ethical and responsible thing to do is to take out a suitable life insurance policy - at least this is true for most working adults.

If your investing goal is to build wealth for the future security of your loved ones, having the right insurance in place will ensure that an untimely death does not stop you from achieving this.

Insurance gets a bad reputation for good reason: It seems insurance companies are always trying to mess us around on the terms and conditions when making a claim. But life insurance is genuinely different (at least in the UK). Life insurance policies are so airtight that usually even suicide is covered once you’ve held the policy for more than 12 months.

And life insurance does not need to be expensive. For example, a 40-year-old non-smoker in good health could pay £23 per month and get £350,000 cover over a 25-year term. For £47 per month, the cover would be £750,000 at the time of writing.

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You can go to comparison websites for life insurance. But that’s the second-best option to speaking with an independent financial adviser like myself. This is because we get the same or sometimes even better insurance rates than comparison websites.

Plus we do not charge extra fees despite the fact that we provide a truly personalised service by tailoring the right policies to your circumstances and objectives. Moreover, we can even put your life insurance policy into a trust to keep it shielded from Inheritance Tax - again free of charge.

Financial advisers are paid commission for recommending insurance - the same way comparison websites are remunerated. It is up to you who you think deserves the reward for helping you pick the right policy.

Please feel free to send me a message if you are interested or have any questions.