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THE EARLY BIRD CATCHES THE FINANCIAL WORM!

In the modern world, there is a lot of emphasis on the importance of finance. Of course, this makes sense. Without money, life can be very hard. And, the only way to ensure that you will have money into your later life is by starting with your finances early.

 

When you’re young, though, it can be very hard to focus on this area of life, however important it is. With your career and independent life just starting, you already have loads on your mind. But, in reality, this is, even more, reason to start working on this now. To help you out, this post will be going through some of the reasons you should start early. And, some of the ways you can put your money away.

 

savings and investments

 

SAVINGS AND INVESTMENTS

For most, the aim of saving and investment is to try and make more money out of what you have. Most of the methods you’ll use to do this are based on interest, though. So, you know exactly what you can expect to make, long before you ever make it. Unfortunately, the nature of interest-based saving and investment means that the longer you have it in place, the more you will make.

 

Failing to save when you’re young will limit the amount of interest you can gain. With some services, like life insurance, you’ll find that the price only goes up as you get older, too. And, this will make it harder for you to save. Starting on something like this early will make it easier for you to make more money, along with helping you to learn everything while you’re still young.

 

LIFE INSURANCE

Life insurance is one of the best investments a young person can make. Of course, you will never see this money again. Instead, it will be given to your loved ones when you pass away. But, this doesn’t make it any less important. In most cases, your insurance company will expect you to put forward a certain percentage of the policy, and they’ll cover the rest. So, regardless of your age, you will always have to contribute the same amount. A website like http://www.insurancehero.org.uk/types/500-000-life-insurance.html can help you to understand this better. But, basically, the longer you leave it, the more expensive this sort of service will become.

 

 

PREMIUM BONDS

Of course, you probably won’t want all of your savings and investments to be slipping past you and into someone else’s pocket. And, this is where bonds and ISAs come in. In a lot of cases, these sorts of accounts are tax-free. This means that you will be given 100% of what is made from your money, without the government taking their own slice. Along with this, bonds, like the ones found on https://www.nsandi.com/premium-bonds, are usually covered by your local government. This makes it impossible to lose money on them, at the cost of a lower return. Because the return on this sort of investment is very low, it’s good to start early to make the most of it.

 

Hopefully, this post will inspire you to start getting on top of your finances as early as possible. The skills required to go far in this sort of area will take a long time for you to learn. But, with the right effort, you’ll be able to start nice and early.

 

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WHAT YOU NEED TO KNOW ABOUT COMPOUND INTEREST

Compound interest

Guest Post by Retired Broker.  Follow him here and read George’s Blog here.

 

Cash savings are dire; there are no two ways about it. Once inflation is taken into account, the buying power of almost all the accounts currently available will be less than when you started. So is there any point in using them? Well, probably!

 

The fact of the matter is that a home for spare cash, no matter how modest, will always be required. So how do you make the best of this not so great situation?

 

There are a couple of ways to approach it which require a little effort and some patience. The first thing to grasp is the magical powers of “Compound Interest”.  Compound Interest is where your savings accrue interest, and then that interest will also accrue interest and over time the rate of growth gets faster.

 

It’s a slow process, but worthwhile, especially if you have long term goals. A little while ago I posted a blog about how much is spent over a year by buying a take away coffee every day for work, here’s the link  http://theretiredbroker.com/coffee-mugs.

 

You might need something stronger when you read it! For the purpose of a compound interest illustration, let’s assume that you are going to give up one coffee a week and put that money away in a regular savings account.

 

That’s £2.55 a week or £11 a month (yes I know it works out at £11.05, but I’ve rounded it down ok?) A quick look at some comparison sites will see that a few regular savings accounts will pay 2% or more, so for the purpose of this exercise we’ll use 2%.

 

The table below shows how much £11 a month will grow at 2% over different numbers of years.

 

 

1 yr £133.22
3 yrs £407.77
5yrs £693.52
10yrs £1459.92
15yrs £2306.84
20yrs £3242.77

 

While fully understanding that interest rates will change and that inflation will erode the actual buying power of the money, the point here is that it is money that you would otherwise not set aside. Even a modest amount such as £11 a month may be really useful in all those years time.

 

If you look at the 20 year period, the actual amount paid in amounts to £2640, so that is an actual growth of £600. Could be ideal if you have a young family and want to set something away for university, car or travel.

 

The other advantage of regular savings is that you can adjust what you save as time goes on or add any spare windfall you may get. This brings me to the second advantage, which does require a tiny bit of effort. A lot of these regular savings accounts offer a rate of interest for a set period only, usually a year.

 

After this the rate will either tumble or collapse. If you don’t stay on top of it, your savings will stagnate. So you need to remember that Cash Rates Are Portable. That’s right remember interest rates are C.R.A.P. So you need to treat them like your annual home or car insurance and review them every year.

 

Once you have come to the end of a good interest rate, shop around’ find another good rate and transfer your savings over to the new account and continue with the monthly saving, you may just be glad you did!

 

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GROWING YOUR NEST EGG: TOP TIPS FOR BEGINNER INVESTORS

Tips for Investing

A guest post by The Retired Broker, visit his blog here: http://theretiredbroker.com/

Please follow him here: https://twitter.com/retiredbroker

 

 

Thinking of investing some of your cash?  Below are some hints and tips to think about before making a decision.

 

Paying for Financial Advice

First, you have a choice of whether to take financial qualified advice regarding where to invest your money.  The key factor here is cost as you will be required to pay for this advice which could cost you 2% which means if you get a return of 2% in the first year you are back to square one!  There are a lot of websites out there that can provide you with generic information, it may be best to make the most of these if you decide not to seek qualified advice.

 

Investment Term

The length of time you want to invest depends on when you might require your money back.  The timescale of 5/10 years is regarded as medium to long term, anything less than this is considered short term.  Generally speaking, the shorter the term the less risk you should consider taking.

 

Risk

Broadly speaking, there are two places to put your money, deposit and investment.

Deposit accounts of all varieties while reassuringly boring you will know exactly where you will stand and how much you will get with this type of investment.  So for example say a fixed bond of 5 years with a fixed rate of 2.4% you will get a return on your investment of 2.4% which could either be paid annually or month.  However it may mean in ‘real terms’ it could be lower depending on inflation at the time.  The main point to make is that if the interest you are earning is less than inflation then the buying power of your savings will be reduced.

 

With investment there is no interest, instead you are taking the risk that over time the value of your investment will go up.  It can also go down and almost certainly will fluctuate in the middle.  Check to see if the advantages of an ISA are worth investing in.

There are good reasons to consider it, but the main decision you have is the underlying stocks and shares themselves. One that invests in blue chip UK shares is generally considered to be a lower risk than one that invests in the shares of India or China. The attraction of the higher risk option is the chance of a greater return over time, but the risk of greater loss is also there. When you invest a lump sum into a stocks and shares ISA, you buy “units” of that investment at the value they are on that day. If this is the route you are considering you may want to look at regular savings options. By “dripping” in your investment you can take advantage of “POUND COST AVERAGING” Here is an article that explains it.
Now let’s me take a step back. There have always been a few guidelines when considering investments:

 

Clear non- mortgage debt. If you have any non-mortgage debt, then the interest you are being charged will outweigh any returns you may get on your nest egg by far. Consider clearing this debt.

 

Emergency fund. An emergency fund should be sufficient to sustain your family if the main earner is unable to earn for six months.

 

Consider clearing mortgage debt. Paying off part of a mortgage will create a monthly saving which then can be used to drip into an investment if you wanted to. You need to play with the figures to see if that is a runner for you.

 

Make a will. Whatever you choose to do, making a Will most certainly will ensure your plans are likely to go on even if you don’t!

 

Review your life cover.  If you have a family, there would be costs on death so it’s an idea to spend some time thinking about the financial consequences, sort it out to your satisfaction, then forget about it for a few years and then review it again.

 

Look at pension provision. The pension market has changed beyond recognition over the last few years, but the tax relief still makes pension plans worth looking at.

 

Children’s future. Think about whether you want to put any savings in your children’s names directly.
Finally, spend some and have fun. None of us knows what’s around the corner and time is a vicious thief, banking a memory now will give a guaranteed return forever!

 

Happy Investing!

 

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Tips for Investing

 

 

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