I am pleased to introduce Chris Evans of Hilltop Finance. Chris has been kind enough to write a guest post for The Money Builders on his area of expertise. In this post he offers invaluable insights into what advice he would offer his 20 year old self on pensions and saving for the future. Thanks Chris!
A few words of advice for 20 years old me
Hindsight is a wonderful thing. You would never make a wrong decision in life or financially if you could keep going back and starting again. But, if you could tell a young 20 years old you, what financial lessons would you give?
If we ever had a chance to talk to our 20-year old self about money, we would offer a few essential tips:
1 Talk about money
For some reason, talking about money can sometimes be frowned upon, but taking life or money advice from a parent, mentor you respect or a financial adviser, could save you from a financial pitfall. Possibly, they have already been through the financial issues you are facing and have the experience of how to overcome the problems you’re facing. A parent or family member may even offer to help loan you some money, interest-free, so saving you from expensive interest-rates.
2 A budget that includes saving
One thing we’ve learned since our twenties, it’s essential to budget. We might have thought we were good at budgeting; we never spent above our income, but, we never thought about saving for a rainy day or the future either. Putting a small percentage of our wages aside to build up a savings pot, might have seemed an extravagance, but over a ten to twenty-year period, we’d soon have a nice little sum built up for a house deposit or a luxury we always wanted.
3 Take advantage of your workplace pension
Now, as a twenty-something employee, you may get auto-enrolled into the workplace pension. Saving in a workplace pension is an excellent thing to do, and we wished we had started investing in a personal pension a lot earlier than we did. To reach a comfortable retirement pot of say £280,000, saving into a pension in your early twenties could mean you only need to invest small amounts that you’d barely notice out of your wages.
For example, you’re 21 years old and can save £140 a month from your salary of £21,000 (this equates to 5% from you and 3% from your employer into the auto-enrolment pension) and continue to invest the same amount over a full career till 66; you could have saved over £284,000*. In your forties even fifties, that pension pot size might seem a million miles away. Now you need to save a more substantial chunk of your salary (over £475 a month over 25 years) to reach that £284,000 figure, so you may need to work longer than you would have liked.
4 Start investing earlier
When you say, I want to start investing; people automatically assume you will be playing the stock market. But investing can also mean putting money into a stocks and shares ISA and having an experienced investment manager invest your money for you. With a stocks and shares ISA, you can also take advantage of tax-free savings and the ability to grow your wealth.
We would always recommend speaking with a financial professional if you have a larger chunk of money to invest in an ISA. Still, getting started with an ISA is reasonably simple, and plenty of high street banks now have options for you.
5 Don’t misuse credit
A credit card can be a great way to build up a credit history that will allow you to get loans and mortgages in the future. But, we’d always be cautious of spending on a credit card and never overspend against what you can afford to pay back.
In 2019, the UK’s credit card debt was around £72.6 billion!^ which equates to an average of over £1,300 debt per credit card.
If given a chance to talk to our 20-year-old selves, we’d probably say avoid a credit card until we’re a bit more financially secure. The temptation is to put those more significant purchases on a credit card, and the debt and charges can build up quite quickly, particularly, if you can’t afford to pay it back the total balance at the end of each month.
Could you do with a little guidance?
We’d love the chance to give ourselves a little guidance on the money front, and set-up a clear plan of how we could achieve what we desire. But, if you’re a little further down the line in terms of your career and life stage, then speaking with a finance professional today, could get you back on track to achieve the retirement you desire.
The independent advisers at Hilltop Finance are available today for a free, no-obligation chat about your pension and investments. Learn more about Hilltop Finance pension service here or call them on 0161 413 7051.
*figure based on regular monthly contributions of £140, over 45 years, an annual growth rate of 5% and no withdrawals or deductions.