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Financial Fitness Plan – Savings and investments  

 

Last time we looked at why you should have an emergency fund and cash reserves, and how best to manage these. In the next part of the Acuma financial fitness plan, I will focus on savings and investments.

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This is a huge area of planning, and arguably the one that most people spend the most amount of time planning for – sometimes to the detriment of other areas of financial planning. When we refer to savings and investments what do we mean? Generally this is referring to longer term savings, which may be for a particular goal or aim, such as retirement, children’s education, or property purchase. How long the term is will obviously depend on your age, and what goal you are looking to save for, but as a guide it is generally for 5 years or more so that the investment has a chance to grow, and shorter term market movements start to be filtered out by longer term market trends.

investment-optionsThe key difference is that rather than simply saving into a bank account, the savings are placed into other asset classes. There are a huge number of assets that can be invested into, with the most popular being equities, bonds, property and precious metals. All of these assets have their pro’s and con’s and often personal preference will decide which to invest into.

I generally advocate a well-balanced, diversified portfolio that takes into account all of these and indeed many other asset classes. In the 15 years that I have been involved in this industry it has been almost impossible to predict which asset class is going to perform best, and so having a small amount in many is the best way to smooth out the peaks and troughs that can come with investing.

Establishing what is the right investment for you is vital to ensure that your money is invested in the right place, and that you are comfortable with where it is invested. To do this we need to work out what your attitude to risk is. There is no right or wrong answer and it will vary between all investors. Attitude to risk simply means how much volatility you are willing to accept with your money in return for the potential for higher returns.

Another way to look at it is predictability. If you leave your money in the bank the returns are very predictable – an amount of interest will be added each year, but it is often quite a small amount. So to try and improve that number you may have a less predictable return, but hopefully one that is higher – and generally the longer you are able to invest for, the better the returns will be.

There are two main ways to invest – on a monthly basis and by way of a lump sum. It is often the case that you may have a different view on regular saving to lump sum investment – investors can be keener to take more risk with a regular contribution but with a lump sum are more concerned with maintaining the initial investment, so wish to be more cautious.

This is obviously a brief guide to savings and investments, but I hope that this has given an insight into what to consider, and the right solution will depend on your personal circumstances. Next time I will look at in more detail at saving for education. If you have any queries please do not hesitate to contact me at jthomas@acuma.ae or on 0508543983.

Financial Fitness Plan – Emergency Funds & Cash Reserves

Moving further through the Acuma financial fitness plan, this time I will focus on emergency funds and cash reserves. By way of brief recap, we have now considered how to manage debt and why a will and putting protection in place is crucial for your financial well-being.

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Emergency funds – what do I mean by this? This is simply having a buffer of available cash so that in the event of being hit by an unexpected bill or cost, you have the cash available to pay for it. I am not referring to normal monthly expenses but something that is out of the ordinary, such as having to book a flight home, or an issue with your car, or maybe an issue at home. All things that you hadn’t normally budgeted for, and could upset your cash flow if you are not careful.

By having an emergency fund that is readily available, this means that you can cope with these unexpected surprises and deal with them without having to resort to borrowing money and potentially amplifying the issue with additional interest.

 

E fundWhen I say readily available, by this I mean that the money is in a bank account that is immediately accessible, and can be accessed easily. Now this means that you need to show some level of restraint, as it can be easy to dip into this money for other purposes and find yourself short of funds at the worst possible moment.

How much should this amount be? I recommend between three to six months’ salary, so that it is enough to cover most eventualities, but not be so much that you feel like it is simply money sitting around. Indeed a question that is often asked is where should I put this money? Should I invest it? But the purpose of the emergency fund is to be immediately available and not be invested into anything that can fluctuate in value, as it generally the case that when you need the money most is the most inappropriate time to sell an asset.

Following on from the emergency fund is the cash reserve. These can be one and the same, but while it is best to have the emergency fund in a no notice type bank account where there is little or no interest paid, money above and beyond this can be placed into accounts that offer better interest rates. Generally in return for these increased returns there is often a notice period applied to these accounts, or they be for a fixed period of time, and if you need to break the term you will be penalised. This shouldn’t be an issue, as these funds should need to be called upon urgently, and so can be managed in a more structured way.

There is no guideline as to how much cash you should have in reserve, as it will be depend on an individual’s personal circumstances, what their longer term plans are, and indeed their attitude to risk. If the money is not needed for any particular purchase then other longer term strategies could be considered as a source for improved returns.

As with all investments, as the amounts involved grow, it is wise to consider diversifying where the money is held, and especially for expatriates, consider an offshore account, so that large amounts do not get caught up with any Sharia’h law issues should anything happen to the account holders.

As with most aspects of financial planning, the right emergency fund and cash reserve will depend on your personal circumstances. Next time I will look at savings and investments. If you have any queries please do not hesitate to contact me at jthomas@acuma.ae or on 0508543983.

 

Financial Fitness Plan – Wills & Medical Insurance

In the next part of the financial fitness plan, I will cover wills and medical insurance. Last time I covered how to manage debt, and hopefully you will have put some of the basic tools into place to manage your income each month. Following on from managing your money, wills and medical are essential items to have in the Middle East.

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Starting with wills, let’s start with the basics. What is a will? Simply put, a will is a document that is legally recognised as your written instructions as to what you wish to happen with your estate in the event of your death. Sounds simple doesn’t it?  And in most cases it is. The difficulty arises when there is not a will. When this occurs, there are no instructions as to what you wanted to happen to your estate, and so most governments have set out rules that are to be followed.

And this is where the problems can occur, as these rules may not be what you want to do with your estate, but as you are not able to argue the case, they will be followed. And more importantly than assets, if you have children who do you want to look after them? Again unless you have documented this, how can your wishes be followed?

I appreciate that this can be a difficult subject to discuss, and none of us want to think about our own mortality, but if we don’t the alternative is potentially much worse, with no instructions in place, and a far more slow and difficult process that our loved ones will have to endure. In summary, a will is an invaluable document that we all should have in place and then should be reviewed regularly.

Health Insurance Policy brochure

Interestingly, the majority of queries that I receive relate to what I would call relatively minor issues – that is to say claims relating to smaller claims for some medications or treatments. While I appreciate that these can be serious issues, and it is annoying if not all of a claim is covered, equally the cost is generally relatively low in comparison to inpatient treatment, and it can have a huge impact on the cost of your cover. An analogy that is often used is in relation to car insurance – if you knew that you were going to have an accident would the insurer cover you? Probably not, or they would charge a huge premium, and the same is true of medical insurance.

As with most aspects of financial planning, the right plan will depend on your personal circumstances. I hope this has given you a brief summary of why you should have a will, and also why medical insurance is so important. Next time I will look at life insurance, and why it is essential part of your financial fitness plan. If you have any queries please do not hesitate to contact me at jthomas@acuma.ae or on 0508543983.

 

Financial Fitness Plan – Life Insurance

They say there are two certainties in life; Death and taxes, although the latter seems to be holding in abeyance in this market for the time being. So here in the Emirates we are lucky enough to only have to deal with one certainty, that being the former; death. The fact that we will all die one day is no surprise. We have no real control over when we die but we can take charge of some of the circumstances in which we leave our dependents should we die too soon.

AcumaThere is no denying that this is a bit of a grim subject, but the consequences of not planning could be even worse. And as part of your financial fitness, this is arguably the most important part of the exercise.

By way of an example let us assume a husband and wife with two children, and the issues that they may face. Why do you need life cover? There are probably a whole host of reasons, but the main one will be to replace you financially in the event of your death. That may sound harsh, but that is what life cover is for. It is to replace your income that you would have earned if you were alive to support your family.

Therefore to begin to calculate the actual amount of cover that you require by establishing your income now and how much of that your family would need to continue to enjoy the lifestyle that they currently have. Once you have this figure for one year, it needs to be multiplied by the amount of years the cover is required. This may be until you retire or until your children are financially independent. Again this will depend on your individual circumstances.

life insurance

With this figure now established, you can deduct assets that you may have already accumulated and life policies that are already in force, assuming that these are competitively priced, and cover the desired period of time to reach the final figure.

The next question is to review the type of life cover to implement. There are two main types the first is term assurance, and the second is whole of life. Term assurance will provide life cover for a fixed period of time and will no accumulate a fund value.

Whole of Life assurance as the name suggests can offer cover for the whole of your life without a fixed completion date, other than when death actually occurs. This type of cover can build up a fund value which can be returned to you as and when you decide cover is no longer required. This type of cover is generally more expensive for the same level of cover, because it has no end date, and there is the investment content as well.

Generally I would suggest that term assurance is the better option as the cost of the cover is usually significantly lower, and is designed for one purpose only – life cover.

In addition to considering life cover, I would always recommend reviewing the rest of your protection requirements such as critical illness cover and income protection. Indeed it could be argued that ‘financial death’ is more painful than actual death as you would still be alive but unable to work and look after your family.

Financial planning is an art not a science and be considered on an individual and bespoke basis to get the best value for you. If you have any questions or queries please do not hesitate to contact me for further information or advice. Next time I will look at emergency funds and cash reserves. If you have any queries please do not hesitate to contact me at jthomas@acuma.ae or on 0508543983.

 

 

 

Financial Fitness Plan

Over the next few months I plan to cover a number of aspects of financial planning, to build what will hopefully be a useful financial fitness plan. In much the same way as when you go to the gym or ride your bike and start a physical fitness plan, you will not see results immediately, but over the course of weeks and months, by sticking to your goals and plan the benefits will start to show, and build as time progresses. And your financial health is very similar – a lot of people become disillusioned when they do not see immediate results, or suffer a setback, but the key is to stick with the plan and carry on building for the future.

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To start with I will cover managing your money and some of the key things to be aware of and the best way to manage your finances.

Unless you are very fortunate, most people will have to use debt during their lives, and debt itself is not a bad thing, as long as it is used and managed correctly. It can easily get out of hand if it is not carefully monitored. For large purchases such as property a loan is often used, and referred to as a mortgage. The interest rate is generally relatively low for this form of borrowing, as the term is generally long and the debt is secured by an asset, so the lender is confident it will make money over the long term and it has control over the property if you should stop paying back the money.

FinancialFitness1-600x401Where many people can quickly get themselves in difficulty is with unsecured debt, such as credit cards and personal loans. These forms of debt have a higher interest rate applied to it because the lender has nothing to hold as collateral, and the loan is often over a shorter period of time. Using a credit card as an example, you can spend each month, and pay a portion off, but the interest will be charged on the whole amount, and interest rate charged by credit cards can be up to 40% per annum, but is likely to be shown as 2% per month, so you may not realise the true cost of the borrowing, and then over time the debt builds up to a point that it is difficult to repay.

It can be helpful to look at a couple of terms that you often see quoted after interest rate numbers. The first is the flat interest rate – this is an interest rate calculated on the basis of the stated initial principal amount of the loan irrespective of the term of the loan. The second term is the Annual Percentage Rate or APR which is the annual rate that is charged for borrowing, and expressed as a single percentage number that represents the actual yearly cost of funds over the term of a loan. This includes any fees or additional costs associated with the transaction. The APR is generally a higher number and is a much more accurate measure of the cost of any loan.

This is a brief summary of the debt situation, and next time I plan to look at wills and other protection solutions. If you have any queries please do not hesitate to contact me at jthomas@acuma.ae or on 0508543983.

James

Cleaning And Lubricating Your Bike Chain

Changing times

In an ideal world where we were only concerned with long transmission life we would completely contain the chain in an oil rich environment – with the dirt kept out. This approach was popular at one time with Sturmey Archer hub gears and a fully enveloping chain ‘bath’.

These days most of us are more concerned with keeping the weight of our bike down and our expensive gear changing mechanisms on show – in order to keep it running efficiently and enhance its useful life. How do we do that? The answer is simple – keep it clean and lubricate it well. This sounds a simple process too but can be contradictory when the lube acts as a dirt-magnet.

A few tips

1. Clean your chain often and well – I tend to leave the chain in situ on the bike and use plenty of good quality degreaser to get all the dirt and old oil off. We have found a paint brush coupled with degreaser is the best combination.

We also use a cut off water bottle which can be placed in the seat tube bottle cage, this keeps the degreaser close at hand and also reduces the chance of it getting spilt. Clean the ‘rings, jockey wheels and sprockets too. Wash the degreaser off and dry the chain before lubricating.

2. Lubricate the chain with a good quality bike-specific lubricant. The Tribologists (people devoted full-time to the science of reducing friction) have developed oils and additives which when used properly will make your drive-train more efficient and last longer.

For wet or dry conditions we always use a ‘wet’ lube. Wet lubes penetrate the chain and get to the crucial roller/pin interface and stay wet resisting rain and mud intrusion to the chain – but they do attract dust (so wipe off any excess). In hot, dry conditions this can lead to a ‘paste’ developing which can increase friction and wear – hence the importance of step 1.

3. ‘Dry’ lube reduces the attraction of dust by using a light solvent carrier to get the friction reducing additives into the chain – the carrier evaporating once it’s done its job. But I’m told by Tribolology experts that the additives aren’t as effective as wet lubrication so I tend to use wet lube all year round. In summer I spend a little more time wiping off the excess and a bit more care applying less in the first place.

4. Check your chain ‘stretch’. This isn’t actually stretch but wear to the chain pins and internal surface of the roller will make the chain longer – hence the term stretch. You’ll need a chain checker to do this but they don’t cost much.

The simplest ones slot into the chain and measure 0.75% extension on one side (over the nominal original length) and 1.0% when flipped over to the other side. 0.75% extension means your chain is showing signs of wear – you should check out your local bike shop for a replacement.

1.0% means change your chain for a new one or you will also quickly wear out your chain-rings and cassette – a stitch in time… saves money.

 

Q&A

How do I apply the oil to the chain?

If you don’t have a work stand handy – hold the bike upright with the rear wheel between your legs, rotate the left crank backwards with your left hand (holding the centre unless you have very long arms!), apply lubricant to the inner surface of the rollers with your bottle static and the chain moving.

You need to apply enough lubricant to flow into the space between the rollers and the side-plates – and then hopefully it will get between the rollers and the chain-pins. Run the chain round a few times – I ride round a few meters and change up and down the gears to get some oil on the sprockets.

Then wipe off the excess with a rag pulling the rag along each section of chain. Take care not to get lube on brake rims or discs – I don’t use a spray for this very important reason.

Should I lubricate a dirty chain?

If you think you can get oil into the roller/pin interface without carrying some dirt and grit along with the lube then go ahead. Please let me know your technique and if you can perform any other miracles! If like me you can’t do it – go to step 1 – clean the chain!

Should I clean a new chain?

No – it’s already clean and very nicely lubricated. Add more lube and wipe off the excess if you like.

What oil/lubrication should I use?

If you only buy one get a bike specific ‘wet’ lube.

Article via British Cycling