It’s that time of year when many are about to break up from school for the last time and thousands of new graduates receive their degrees from colleges and universities across the world. Most of these young adults will enter the workforce. If this is you, then read on! If not, intersting reading for you to advise, counsel and teach. When you get your first job, you might be inclined to focus on your take home salary and advancement opportunities and ignore, or put off for later, the mundane, boring stuff about pensions and saving plans. But wakey, wakey…pay attention! That’s your future and the start of your first million. Yes, please read that very slowly…your first million.
Unfortunately, it’s widely known that most young people don’t think about saving for the future. Why? Well, it’s not because they have faith in the state and that the government will provide in your later years. The real reason and challenge, is that there’s a whole wide world out there and it’s for exploring and living in; not thinking about and working out details regarding dreary savings and pensions. If you’re in your early twenties, late sixties is just too far in the future to be worth the bother.
A very important point is that there isn’t much left at the end of the month when you’re starting out in life. Rent for your living accommodation, rates and direct taxation (probably for the first time). Don’t forget a nice car, trendy clothes and of course…food! And, I nearly forgot, tickets for the theatre, sport team you follow, cable, drinks at the bar at the weekend and other days too.
Wait a minute. Just take a moment…what if I told you that you were practically guaranteed to be a millionaire…if you would start saving by age 25? It’s true! Thanks to the magic of compound interest, relatively little investment today, can mean enormous wealth in the future. And even if you can’t afford much, there are strategies, a 3 Step Plan, you can follow to make sure that you put something away and make your million.
3 Steps to Happiness
Regardless of which tax-deferred savings (“defined contribution”) plan you have, here are 3 Steps that will help you:
1. Start right away
Yes, start right away. Ideally, you’d sign up for a payroll contribution or deduction from your wage on the very first day in your new job! Why? No one initially likes saving, because at first it’s as though your losing money you could spend. But, if your first paycheck or wage already has it coming out; it’s just one deduction on a pay stub or wage slip, that already has half a dozen or more deductions listed. You won’t even know how much you’re missing. Maybe hard to believe but true. This applies to both the public and private sectors. I started my working life in the public sector and I signed up for a ’10 Year Money Spinner’, before I’d even got my uniform.
2. Take all of the free money
Many employers offer a matching contribution of some sort, typically either a dollar-for-dollar or a 50% match, in which you’ll be credited extra money based on what you contribute up to a certain value. In other words, if your company offers a 50% match on contributions up to 6% of your pay, if you contribute 6%, they’ll pay another 3% for a total contribution of 9%. That can add up fast, and it means that even if your investments don’t perform well, you’re already got a 50% return, just for contributing! If in the UK, as I am, there is all the advice you need at https://www.gov.uk/workplace-pensions/joining-a-workplace-pension
3. Increase your savings each year
Everyone likes to get a raise. Raises mean more money in your pocket ? But, if you’re really smart, they’re also opportunities to increase your savings and/or pension contributions. When you get a raise, just like when you start a new job, you don’t know what your net increase would be anyway. So, if you get a 3% raise, boost your savings/pension contribution by 1.5%. You’ll still see an increa
se in your take home pay and you won’t miss the difference. It’s also a habit now with you and that is becoming your philosophy and as such, you’re million is guaranteed.
Notwithstanding your pension contributions, it is understanding how to invest your ‘saved’ money and future contributions, so they have the maximum return on investment. I would advise that you speak with a qualified and regulated, financial advisor. They may start you on a mutual fund to start with and once that’s set up, you can forget about it! You will get regular updates on your fund’s performance. They will also advise you on their fees and any other deductions.
Have your account set up, so you put as much of your contribution as you can afford, towards your selected investment each month.
So, what’s next?
Just keep increasing your contribution each year, and if you start a new job, start saving at or above the level of your last job. When you turn 50, ask a financial planner how you might want to shift some of your money into bonds or income-generating investments. But, for the next few decades, you can just relax.
You’re going to be a millionaire. Congratulations.
It’s easy…but it’s also easy not to do – so be warned.
Just a final word from Jim Rohn, “To become financially independent you must turn part of your income into capital; turn capital into enterprise; turn enterprise into profit; turn profit into investment and turn investment, into financial independence.”
Now start investing in You!
Richard G Brown