By Cleona Kinahan M.Sc CFP® QFA FLIA
1. Spend less than you earn – This is a discipline. In order to achieve this goal, you have to know where your money is going each month. Everyone hates the word Budget but given that we all work so hard for our paycheck, taking a little bit of time to see where your money is going every month is worthwhile.
2. You don’t need a reason to save – Saving for a particular goal in mind is great in a predictable world, however, if the last 12 months have taught us anything life is not predictable. Saving is boring but having the protection and flexibility against uncertainty will definitely make it worthwhile. Pay yourself first. Put money aside before the rest of your bills are taken from your account.
3. You are your most valuable asset! – If you are anyway reliant on your income, you need to think about insuring it. Rent, Mortgage payments, food, broadband etc, if you can’t get up and go to work, how will you continue to pay for these things or even how would you continue to save for your next holiday/car/retirement?
4. Good Debt v’s Bad (crappy) Debt – Create a distinction between the two. Borrowing for your home is considered good debt, the expectation is that the value of your asset will rise as you pay off the loan thus increasing your net worth over time. Bad debt is generally unsecured debt, allowing you to buy something now and pay for it in the future. Credit card debt, overdrafts or personal loans can be difficult to get away from, but it is a downward spiral of wasted money.
5. Saving and Investing – what is the difference? Savings is short term in nature – think of saving for that Holiday, next Car, home improvements? Do you need the money in less than 5 years – this is a good guide.
Investing is putting money away for future consumption, generally, in funds linked to stock markets (growth assets). You are hoping to increase the value of your money over time, at the very least beat Inflation. The core mandate for the bankers at the ECB is to use Interest rates to control Inflation. They have a target inflation rate of 2% per annum. This means that the purchasing power of your money over a 10-year period would decrease by 18%. (€10,000 would have the purchasing power of €8,200)
Mentally these things are very different, get your Savings in order so that you can Invest, as investing is what can grow your money.
6. Starting early is better than finishing strong – Compounding is like Magic! The more frequently your money earns interest, the faster and bigger your balance will grow. Setting up your retirement account when you start work may seem a ridiculous idea, but by putting small amounts away early, the hard work will be done when you are really starting to think about retirement.
7. Cash is not always King – Thinking that Cash is safe is the biggest mistake that I see people make. It is really difficult to beat inflation without some kind of investment strategy. The value of your money is being silently eroded over time. Have your Emergency/buffer fund and your savings in cash but no more.
8. Investing isn’t gambling when it is done right – Investing should be like watching paint dry; buying Bitcoin is not investing. By investing you are taking a level of risk with the aim of being rewarded for taking that risk. Your capital is not guaranteed. By Investing in a globally diversified fund, you are tapping into the ingenuity of the best companies in the world. This quote from British Financier James Goldsmith sums it up brilliantly “if you see a bandwagon, it’s too late’
9. Don’t neglect the basics – There are 2 big documents that you need to have – A WILL; we all hate talking about Death but unless you want your family to pay exorbitant legal fees and have a ton more paperwork, organize a Will this week. The second document is an Enduring Power of Attorney; this allows someone else to act on your behalf if you are temporarily unable to make your own decisions through illness or disability. Its particularly important for health and financial decisions. Both documents can be organized by your Solicitor.
10. Money doesn’t give you happiness, but it can give you choices. I have never met a client that regretted being financially secure. With a few simple steps, that can be you.