Financial Planning for Millennials
If you are in your 20s and 30s, you are probably encumbered by student debts. You probably have credit cards and other loans, and it is not unfair to say your personal finances could be in better shape.
That said, savings towards your retirement is a must have and should not be neglected. Although you may feel saving now for money you will access in four to five decades time is ridiculous, the good news is that retirement planning is easier than you think and it can be juggled around your current debts.
Free Money from your Employer
If your employer contributes to a pension scheme, even if it seems like a tiny sum, it is advantageous to you. The system works by matching your contributions to a maximum percentage. Worst case scenario the ceiling is 1 or 2% of your pension contribution although some employers offer a better deal.
Nonetheless, a 1% contribution is still free cash. Take advantage of all pension contributions your employers give you.
Start as Young as Possible
A key aspect of pensions is that the younger you are when you start one the better your pension will be when you retire. This can avoid horrible pitfalls of having no money when you leave the working world in your 70s. Finance experts advocate that saving 10% of your salary towards your pension is best. Increasing this percentage as your salary improves.
Most of your pension contributions via an employer will be automatic. This is good because you do not see the money in your bank account and you do not have to think about actually saving the money. If you wanted to invest further consider contributing to financial vehicles such as mutual funds and stocks.
Investing in the Stock Market
Although there are plenty of horror stories of investors losing ‘everything’ playing the stock market, there are plenty of good financial products available which minimise risks, and are designed to be used over the long term. This is perfect for retirement planning, as any dip in performance will be compensated over time.
Adopt Good Financial Habits
If you can adopt healthy financial habits in your twenties, you will have a better retirement. For example, if you spend £3 per day on a cup of coffee, over time this adds up. Over the course of a year that is £780. In five years that’s £3900. The moral here is that buying things you do not need is not a good idea. If you put that coffee money into your pension or another financial investment vehicle, in ten years you’d have over £7500 invested working away behind the scenes.
It is a good idea to use apps or go old school and write down where you spend your money. This will help you cut out the frivolous spending, and have more money for retirement.
Use a Financial Adviser
To make sense of financial products it is a good policy to use the services of a financial adviser. They can make your investments achieve their potential and give you the best possible returns for your retirement.