Personal Finance 101
To help us all learn more about the importance of investing and saving, we asked two kickass “money doctors” to crash course us through the world of finance at our last event. Camilla Klemme and Rebecca Tunstall, both investment managers from Rathbones, walked our FGC attendees through the practical ways of financing future lifestyles, understanding equities and building an investment strategy. Missed out? Don't worry, we always got you! Here are some of their top tips.
1. START SAVING NOW!
“The sooner you start saving, the more you’re going to have at the end”.
Think about your financial aspirations. What kind of house do you want, how many children would you like, do you have any plans for retirement? Wanna guess how much that will all that cost you? It might seem far off right now but the average cost for an individual’s general life aspiration (based on a UK sample) is approx. £2,000,000!!! So the sooner you start saving, the better!
2. DON’T PANIC!
“It’s possible…You’ve got 40-50 years to work it all out”.
How? Invest! If you invest £100 a day in equity for 100 years, your net returns should be approx. £1.3M!! *Warning!*: Never invest in markets if you need your money back in 3 years!
3. BEWARE OF INFLATION!
“Inflation is the thief in the night, nibbling away at your money”.
Inflation is the average rate that prices are rising. It's the increase in the cost of living (e.g. goods and services) over time. How to avoid it? Turbo charge your investments! Reinvest any interest on you savings, so as to compound your money e.g. create interest upon interest.
4. EVERY PENNY COUNTS!
“Even by just putting away a little every month, things will build up”.
Remember those lifestyle aspirations: the nice house, the well-educated kids, the Caribbean cruises at 65? You need to put money towards it whenever you can. As a general rule, saving 15% of your disposable income is the ultimate goal but if you can put a little aside this month and a lot next month, that works too. But PHUR-LEASE just put something aside!
5. SET UP A PENSION!
“Whether in full-time work or freelancing, this is really important”.
When in full-time employment, your employer would normally organise a pension scheme for you. As a freelancer, it’s even more important to get this sorted asap. Your bank is usually the first port of call in how to set up your pension, which pension providers to use and the best investments for your future.
6. FREELANCERS GOTTA SAVE TOO!
“It’s worth being a tiny bit more broke today in order to be richer when you retire”.
When running your own business, it might be really tempting to put most, if not all, of your profits back into your company but proceed with caution ladies. Really, your savings should be on your balance sheet, just as much as paying employees.
7. PLAY THE LONG AND SLOW GAME!
“When it comes to investments, the best we can hope for is maximising your return and minimising your risk”.
Where do you start when considering investments? It depends on the lifestyle you want and how your business is going but you need to be comfortable with the amount of financial risk you are willing to take. The return (e.g. income) you’re getting on your investment needs to be more than your risk! Risk, reward and time all work together, so it’s about being patient and investing over longer periods.
8. THE HIGHER THE RISK, THE BETTER THE RETURNS!
“Equity is where you’re taking a risk”.
Purchasing equity is effectively buying part of a company e.g. shares. So, if the company makes money, you should be making money too. When thinking about investing in a company, weigh up how established the brand is, how long it’s been running for and how big it is. Investing is about managing risk so never put 100% of your money into one thing. Spread it out a little! By building a smart investment strategy, you can balance out some of the risk.
9. NEVER INVEST MONEY THAT YOU’RE AFRAID TO LOSE!
“It’s down to you as an individual to decide”.
Sure, you want to be able to maximise your investment as much as you can but you also want to be able to sleep at night!
10. USE AN ISA!
"ISAs are the most tax effective way to save today"
Check if your ISA is in cash or in stocks. It’s better to open a stocks and shares ISA because over time, you’ll get that turbo charge and compounding. But if your time horizon is less than 3 years, then keep it in cash!
11. MONEY SUPERMARKET IS YOUR FRIEND!
“If there's a queue at the till, you buy"
Look at the different financial products online to help decide on potential investments. A lot of investments are based on your own personal experiences too. There’s no harm being curious about investing in a sun cream company, if we’re experiencing a particularly hot summer lately, let’s say. Common sense is always a winner!
12. READ UP!
“You’re looking for patterns across different resources”.
It may seem scary but try and pick up the Financial Times. Read the front page, and back page (got all the stuff on the market), then go to the company pages in the middle. The business section of the Times, the Telegraph and BBC are also useful.
