Basics of Investing
(yes, per the photo, wine is an investment...see below)
Current you is the person you are now.
You either lead a financially good life or you aspire to lead a financially good life.
You like and want to maintain this lifestyle, or you are looking to attain this lifestyle.
The number 1 question I'm asked is "where do I start with savings and investments"?
My answer...future you. My financial goal is future me.
What Does That Mean?
For me that means financially affording (without credit card and personal loans) the lifestyle you want in 1, 2, 5, 10, 20, 40 years time.
How Do I Do That?
Before investing in future you, I follow the below steps:
Step 1: Clear Debt
Pay off your debt. NOW. This money is owed to someone else. It comes with a significant interest premium. It's not working for current or future you. It's probably mentally destroying you trying to pay it off.
Interest paid on debt is *normally* more significant than interest received on savings; pay off debt first.
If you need help now, seek the National Debt Advisory Helpline and be proud that you took the first step to living debt free.
Step 2: Build Emergency Funds
After clearing debt, build the "Just in Case Fund"; this is your cash buffer for emergencies. Repairing the boiler (they are expensive!), loosing your job, financially assisting your family, paying medical bills; they are all "emergency items" for me.
My emergency fund is 4 months of salary in a high interest ISA (government tax free; to be discussed in another blog) savings account; it's easy to access in case the boiler breaks (mine broke on Saturday).
Due to the current incredibly low UK interest rates, cash sat idle in the back is not earning you any returns. I try to keep only my 4 month requirement.
Step 3: Investing
People deem investing scary or difficult. It's not! You do not need to understand EVERYTHING in order to invest. Keep things simple.
Investing does not just cover stocks and shares. It covers anything (assets) from:
- starting a business
All the above involve putting money away in the hope your assets will appreciate, but with the risk you may loose your cash (i.e there is an element of risk involved; the risk also varies dependent on the asset)
Start by writing down what you own that is an investment asset. It's ok not to own anything and it's easy to get started.
Lets start with Pensions. Pensions, workplace or private, are one of the easiest assets to “invest” in. It greatly impacts future you. Why…?
...the state pension is terrible:
- it's ONLY £159.55 a week (just over £8k a year); you only get this amount if you work your entire life. Take a career break (i.e don't contribute to NI (national insurance)) and you get less.
- 68; this is the official retirement age for our generation which is when you receive the above amount...
- it will probably change in our lifetime and in one direction; increased retirement age and decreased amounts.
Workplace / private pensions are TAX FREE (to a point). It's free money from the government. No one normally gives you free money...particularly the government...
70 year old me intends to go out for dinners, coffees, bars / bridge classes, on holiday, to Whole Foods...and pay for a broken boiler.
Next blog will look at work and private pensions and show you how EASY it is!
Photo from the beautiful unsplash.com