Do It Yourself
A handy discipline to adopt when it comes to your retirement is to assume you must make your pension provisions on your own and work out a savings and investment plan from scratch. Yes, there are state pensions, but realistically the payout won’t be enough to fund the lifestyle you have been working for. Needless to say, it is certainly still worth contributing to; you should view it as a “bonus” around your own pension provisions. UK Expats, be sure to check out about paying National Insurance Contributions from abroad here — don’t miss out if you can.
That said, how much do you need for retirement? Naturally, this depends on the kind of lifestyle you want to be living when you hang up the gloves. A traditional figure suggests $1 million for retirement, yet really that won’t get you far nowadays, nor in the future. Another recommendation is 10 times your final salary in savings or a 4 % rule — check out the various methods to fund the worry-free retirement here.
My thoughts? To get going, aim to save 15% of your annual income each year. Get in the habit of regularly saving each month; set your savings up automatically so you don’t even have to think about it. Even if it is less than 15 %, at least get started if you haven’t already and reassess at different stages of your life.
Manage Your Debts
I’m sure I don’t need to tell you about the importance of managing debt and addressing this first. Notably, Credit card debt is rife and should be considered carefully; a large chunk of Millennials are adorned with the debt from our student loans, much more than previous generations, and are spending years paying this back for our Higher Education.
But here’s an interesting consideration: if you received your loan from Student Finance UK, what if I told you that it may be best not to prioritise paying this back first?
Yes, you heard me right — instead, focus on amassing your wealth and then letting this grow itself, building up your overall wealth. Your UK student loan is one of the cheapest loans you could have; focus on keeping on top of the interest as a start and slowly pay it off, not with large lumps of money. See how this makes sense in a great article from MoneySavingExpert.
Pay what you need to keep ’em happy and cover the interest — simple!
Got it? Good, which leads us on to…
Investments
Fun yet frugal — I try and live by that. As for my financial goals, there’s a reason I love that motto.
Now, I am a firm believer of work/life balance and how important it is to our general state of being, but I also want to be able to stop working one day and have a fulfilling retirement before climbing the stairway to heaven. To achieve this, my actions now will greatly influence just how “awesome” my retirement can be.
Any form of saving is a great discipline, but you should make sure that these savings are actually growing and not just simply lying in a bank account.
Why?
Well, for one, banks aren’t completely safe…we need only look back to 2008.
But generally, the public puts a lot of trust in banks, though they can (and famously) go bust. As a matter of fact, do you know how much of your hard-earned cash in your UK account is safe? No, not all of it — £85,000. If a bank fails, you’ll get that much guaranteed. Anything over, gone. Eek.
For comparison, in Australia and the US, the guarantee is $250,000. However, it is wise to remember that the government could take away this guarantee…
After all, no financial investment can offer complete certainty.
Simply amassing all your wealth in one bank account can be risky. Read more into this here — it’s worth your while!
Secondly, it’s important to understand the effects of inflation and the real value of your savings. Simply put, if your savings account pays about 2% interest, yet inflation is at 2.7% — what is the real value of your savings? Whilst your funds have grown, so has the general cost of living: you’re actually losing out.
…but that doesn’t mean keep it under your mattress!
So, what’s best to do?
Spread your investments — don’t keep your eggs in one basket.
When you invest, invest smartly. You need to beat inflation for your savings to have their worth. If you’re unsure, seek the advice of an expert as your financial plan should be tailored towards your needs — where and when you are in your life needs to meet different goals. Aspects such as living abroad can open up great opportunities to invest offshore, too.
To start, be sure you’ve got your emergency fund in check and that your short-term needs are accounted for. Any excess money can then be allocated to a long-term plan to help build up your retirement pot. Again, it is best to start early and let the wonders of compound interest work in your favour.
For more help, check out this great article from the team at Bankrate for more guidance on getting started with your investments: Investing Guide for Millenials.
For any questions or advice, why not send me a message?
And if you’re living abroad, why not hear more about the returns you can get with offshore savings?
Contact me at thomas@absolutefsl.com to learn more.
