With apologies to our older readers, this post is not for you. It’s aimed at Millennials — particularly those born since 1985.
I’m sure you’re tired of older generations telling you what you should be doing. But if you’re not yet saving for retirement, start now. And if you are already saving, try to save more.
I don’t envy you from a financial point of view. My generation and the one before have messed things up for you in many ways. You may well be saddled with student debt. No doubt you’d like to buy a house but successive governments have allowed prices to spiral out of control. And, thanks to the global crash, average income for Britons in their 20s is still 8% lower than it was in 2008, while most of those who caused it are wealthier than they were before.
I’m not talking about saving to be rich. I’m talking about having enough to do the things you want to do. About being self-sufficient, being able to support other people, and not having to rely on loved ones or the state to support yourself.
The single most important thing you can do to secure your financial well-being is to start investing. In fact, the sooner you start the better. Why? Because investment returns compound over time. In other words, the gains you make generate gains of their own; those in turn generate more gains and so on. The longer you invest for, the bigger the effect that compounding has.
Just look at the figures. On average, investments return about 8% a year. That means, even allowing for inflation, that one pound invested today will probably be worth ten pounds in 30 years’ time. Or, to put it another way, for every pound you don’t invest in your 20s you’ll need to invest ten of them in your 50s.
“Ah,” you might say, “I’ll be wealthier in 30 years’ time. I’ll be able to afford it.” But who knows what financial commitments you might have then? The chances are you’ll still have a mortgage and perhaps school or college fees to pay. Or you might want to buy your children a car or help them onto the property ladder. There may, in fact, be all sorts of things you’ll want to do but won’t be able to because you didn’t start investing earlier.
I’m not suggesting it’s going to be easy. I’m sure there are many competing demands on your money. But just imagine being able to talk to your future self. What sort of things would the future you say to you today? Particularly about your spending priorities and how much you’re putting away?
The biggest problem young investors face is a lack of self-control. But you owe it to the future you to show a little self-discipline. As the famous investor Warren Buffett once said: “Investing is forgoing consumption now in order to have the ability to consume more at a later date.”
Try to make an emotional connection with the older you. Learn to love that person and look after them. Do what you can while you’re young to ensure that, whatever happens in the intervening years, you’ll celebrate turning 50 and 60 financially secure.
Even the little decisions we make each day affect our future lives. So think carefully about how much that daily caffeine fix is costing you. Do you actually need that designer T-shirt? That concert would be fun, but can you really afford to go? And could you delay that skiing trip until your bank account looks healthier?
Go on, do it. Set yourself a savings target and make sure you stick to it. Remember, your future self will thank you.
There was an excellent article on this subject by Aime Williams in the Financial Times last month. If you haven’t yet read it I can highly recommend it: