The idea of saving is all very well and good. But if you want to create wealth or financial freedom – you need to be investing.
Ideally everybody should have an emergency fund to cover any unexpected events.
But if you are holding lots of cash on poorly performing interest rates.
Then you are missing out big time !
Getting past the emergency fund !
I personally like to have around £ 1,000 sitting in an interest access account. Which can be accessed in seconds via online click or visit to cash machine.
This sum is set aside for emergencies only.
Although many experts reckon you should have between 3 to 6 months of living expenses. For the vast majority of people, who are living pay check to pay check this is unobtainable.
But some key things to consider moving forwards.
Inflation is eroding your savings
If you are putting money in back or building society account. It is usually subject to a very low rate of interest. As it is considered risk free, the rate is extremely low and most of the time it fails to keep up with inflation.
So over the course of time that sum of money saved is actually being eroded away and it losing money in real terms.
Give consideration if you are saving, make sure you shop around and get the best rates available.
So keep the amount saved to a bare minimum that you are happy with.
Then make sure any additional funds are working in your best interest.
banks make money from you !
If you are depositing savings or funds into an account with a financial institution. They pay you a level of return known as interest to reward you.
But what they are then doing is taking those collective funds and investing them in other assets giving greater returns for that bank.
So they can increase profits and returns for shareholders.
By doing such actions, they are making money and profiteering from you.
It’s the banks that are getting rich and not you.
We don’t teach people how to invest
Unfortunately, the vast majority of people have never been taught how to start investing.
Whether it’s in school, our parents or in the workplace by our employer.
The government want you to stay poor so you pay taxes to them.
So make a conscious decision today to learn about investing.
We think that the world of investing confusing and complex. It’s only for the elite or wealthy.
But thanks to the internet in recent years, the process of investing is open to all. It can be done quite easily and simply online or via an APP.
So instead of watching Netflix or soaps, all evening. Make a decision to set aside some time to teach yourself.
It’s not really that daunting.
If you are enrolled into a workplace pension through your employer. You are already investing unknowingly but that pension provider is doing all the work for you.
See my blog post bout how investing should be simple to get started.
https://moneyminted.co.uk/the-world-of-investing-should-be-simple-and-easy
you can’t save your way to financial freedom
If you want to create wealth, financial freedom or legacy for your family. You will never attain it by simply savings.
You have to buy assets that grow in valve one time.
This could be stocks and shares, funds / ETF’s, property, commodities etc.
Simple examples:
FTSE 100: has produced annual return of around 8% since inception in 1984.
S&P 500: has produced annual return of nearly 10% since inception in 1926.
These are just 2 simple asset classes that you can buy and hold over the long term to build wealth and beat inflation.
You will have some years where you lose moneyed then make money. But the aim is to stay invested over the long term. Avoid short term market noise and sentiment.
The old saying states: Time in the market will always beat trying to time the market.
You will be rewarded over the long term. Isn’t not a get rich quick scenario.
I’ve applied these principles to build a 6 figure investment portfolio. See my Youtube videos for further details.
http://www.youtube.com/@moneyminted7010
savings is a poor mindset
The hardest part for most people is getting started – and making that 1st step. For the vast majority the idea of investing is outside our comfort zone.
So when starting, take gradual steps and set aside £ 50 or £ 100 per month. As your confidence grows you can increase payments.
Learn to automate your monthly sum by direct debit or standing order.
I personally have them set up for the 1st of the month. But it could be each payday.
Get into the habit of paying yourself 1st.
Most get it the wrong way around they decide to put funds away at the end of the month. If they have any funds left prior to the next payday.
So set aside some time to automate your investments, which you can set and forgot. But review them if you receive pay increase or bonus.
The average savings rate for individuals in the UK is between 5% to 10% of income.
But most of those funds are sitting in poorly paid bank accounts or cash ISA’s
put your investments in tax-free wrappers
If you are going to get investing – take advantage of the tax-free wrappers available to you.
So any profits, gains you make or dividends you receive are competes tax-free. Plus they don’t have to be declared to HMRC through self-assessment.
At present you have an annual allowance of £ 20K per tax year.
Most people will never invest that full entitlement. But as your portfolio grows and compounds in future years, it will benefit you greatly. Plus it will save on future admin and recording and declaring.
So take advantage of what’s on offer, through ISA vehicle or personal pensions.
See blog post of following subjects:
https://moneyminted.co.uk/what-is-a-stocks-shares-isa
https://moneyminted.co.uk/how-to-set-up-a-pension-in-the-uk
Create effective compounding
In the early years of investing, it may seem very slow and gradual.
In that your assets are growing mostly by your contributions. But as time progresses and your portfolio increases in value.
It will act like a snowball in that it creates momentum and will grow vastly in later years.
Don’t be disheartened when starting out. Set some attainable goals for the short (1 yr), medium (3 to 5 years) and long term (10 years+).
As you reach specific targets and gaols if will spur you on to rich that next target.
You can achieve wealth and riches if you think long term. get focused and disciplined all with the tax-free wrappers available to you.
A simple example:
It took me 12 years to reach £ 100K for my stocks & shares ISA. But only took me 2 years to get to £ 200K. Thanks to increasing my contributions, investing more focused and reinvesting all dividends.
Remember:
If you found this blog post useful and informative. Check out my other posts on savings, investing, pensions and investing books I recommend on https://moneyminted.co.uk
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