Five practical steps to Zen peace around your finances. Step Three: Be clear on the purpose of each ‘pot’

If you have missed the two earlier blogs from this series on finding a place of Zen around your finances, written by Carbon’s Director Glasgow Richard Wadsworth, we encourage your to read Step One: Understand your current financial position and Step Two: Choose where you spend your money.

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Looking at your capital – cash, investments and pensions – what are these for?

While not the perfect analogy, I often think about the system that many used a generation or two ago of keeping old jam jars of money on the mantelpiece; one to pay the rent, one to pay the electricity and so on. In terms of step three we are not talking about different pots to meet tomorrow’s rent or electricity, but the principle is the same: know what your various pots of money are for. Is there cash to meet this month’s costs and enough for an emergency fund in case the roof needs repairing? Are your investments to help fund university costs for children, or are they, perhaps, to form part of your retirement funding (having a couple of different purposes for them is fine, it’s knowing what they’re for that’s important)? If your money has a clear purpose, you are likely to be more committed to building and maintaining it.

And knowing the purpose of your ‘pots’ allows you to then ask questions such as: do you hold too much or too little in each? Are the investments in the ‘right’ funds? Should the investments be put into your pension, if your investments are for your retirement? What is this thing called retirement? Do I want to retire or do I want to have a different life? Do I have enough?

Some of these questions are hard and require a lot of thought that you might not ordinarily commit to. Other questions might lead you to re-review your spending and saving to align it with what you really want in life.

There’s no harm in a re-review of our finances. Finding peace often requires a bit of application. Step Four (in my next blog) gives some encouragement on this.

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Richard Wadsworth is a Director at Carbon and can be contacted at richard.wadsworth@carbonfinancial.co.uk

The value of investments and the income derived from them can fall as well as rise. You may not get back what you invest.

This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue & Customs practice. You are recommended to seek competent professional advice before taking any action.

Tax and Estate Planning Services are not regulated by the Financial Conduct Authority.

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