Financial Advice I Would Give To My Younger Self
October 3, 2022
My school years taught me many things but money management wasn’t one of them. Strange really when you consider how important this becomes for all of us in adult life. This article doesn’t profess to provide all the answers, or the next get rich quick scheme (bitcoin free content!), but rather a few personal reflections which hopefully you may find helpful.
So here are 5 pieces of advice I’d give my younger self, while recognising I’m still learning which goes to prove it’s never too late to benefit from financial advice!
Save as soon as possible
It’s never too early to start saving for the future. You might not be able to save much at the beginning, but regular contributions can build into a significant pot over time. Governments and employers often offer generous financial incentives to save, particularly with pensions.
For example, in the UK, savings into your pension are tax free (up to a limit). With tax rates as high as 45% being directed to your pension pot instead of the taxman, this level of return is extremely difficult to beat and far ahead of bank interest rates. To make pension saving even more attractive, personal contributions can be boosted by contributions from employers (free money!) further increasing returns. Rules and incentives will of course vary by country but definitely worth researching.
The magic of compound interest
This may sound a bit abstract but bear with me, compound interest really is quite magical. Compounding happens when you earn earnings on your earnings creating exponential growth. The more time you have, the bigger the impact.
A good example of this is saving for retirement. Assuming a 6% annual return, investing £200 per month from the age of 25 would realise a pension fund of £393,000 by the age of 65. Starting at 35 would result in only £200,000, almost half the value from starting 10 years later.
Compounding applies to other types of saving too and brings us back to point 1 above, it’s never too early to start! Of course, this can happen in reverse with unpaid debt interest so be careful.
The debt, the good and the bad
Debt is not always bad. Good debt can be an investment in longer term wealth such as student loans or property mortgages On the other hand, most debt transactions are to purchase consumables which depreciate in value. This can be sensible to spread payments of larger value items but always have a payment plan to pay it off and research the most appropriate type of debt.
Credit cards often provide 30 days free interest but then penalise you with very high interest rates in excess of 20% making them one of the most risky types of debt. Pay off your credit card debt in 30 days or look for cheaper debt such as a personal loan. And always first ask yourself whether you could wait and save up to make that purchase.
Sticking with the plan, make a budget
A budget and regular review of expenses will support your financial plan. What are your savings targets? Are you still using all the services you’ve signed up for? Are you getting value for money?
Tip: Customer loyalty is rarely rewarded. In fact significant savings are often available from switching to new suppliers across credit cards, insurance, energy providers, mortgage rates and phone deals.
Tip: A lot of banking apps now provide free analytics tools to help you budget and track spending.
Invest in yourself and others
Invest in professional development and continue to upskill throughout your career. Investing in yourself can be the most profitable investment you will ever make and when it comes to improving life skills and career prospects.
Equally, taking care of your physical health can make financial sense too. Can you walk to that meeting to save pounds and pounds?!
And finally, have you ever considered how your financial choices drive decision making of organisations and their environment, social, fair trade and ethical policies? From the high street, to groceries, to financial investments, your spending choices influence market demand and consequently decision making of organisations, especially in a data rich economy. Your spending counts, so spend wisely!
If you want to learn more you can check our Financial Wellbeing webinars with NatWest Bank UK: