Everything You Need To Know
- We live in the present and tomorrow is not guaranteed.
- Time goes quickly (contrary to the Madonna song). Not only are we likely to live for a lot of years, those years will pass by more quickly than we think.
- Time is your friend when it comes to compounding. The earlier we start saving for the future, the better. Starting earlier means we can expect our money to grow far longer. If you start saving a fixed monthly amount at age 25 rather than age 35 and save until age 65, the extra ten years will increase your end result by a third. To put it another way, by saving for only 30 not 40 years, you’ll give up a quarter of your total return.
Everything You Need To Do
- Pay yourself first. This is a Golden Rule of personal finance. Whenever you are paid, make sure that before you pay your bills, rent, mortgage, buy food, clothe your children – you pay yourself first. See the Financial Operating System season for more about how to order your finances.
- Debt reduction beats investing. Join your workplace pension – pay the 4% minimum into it. If you’re self-employed then start your own pension and put 5% of your income into it because you don’t have a boss to do so for you. After that, then make sure you have £500-1000 behind you as an emergency fund against something untoward happening. Then pay down bad debt – personal loans, car finance, overdrafts and the like.
- Short-term saving over long term investing. Focusing just on the savings element of this, if you have, say £200 a month to put away, and a holiday in six months to pay for, then prioritise having the money that holiday put aside in plenty of time before you get there.
- Look for reasons to do things sooner rather than later. Remember, tomorrow is not promised to us, so live in the now as well as save for the future. You have to be intentional about this.
