Let’s say you’re 20, your life is before you. You have a good job. You’re earning a reasonable wage. You’re healthy. Life is great, and planning ahead means sorting out next Saturday. There’s fun to be had, things to buy, life to live.
And that is pretty much exactly as it should be when you are young. Enjoy it!
At this point “retirement” is only a vague concept for most. It’s something for old people – like your parents – to worry about. Why “save” yet?
Mistake number one is to keep thinking this way, and keep putting it off. Just by doing a few very simple things though you can put yourself totally on track to become a millionaire.
That’s right...a millionaire.
First allocate a couple of hours of your youth – just a couple of hours – to getting some initial money management advice. An adviser worth his or her salt will offer you a number of alternatives once they have established you position and cash management ability. They may help you work out a budget that will show you how you can do what you want, both today and tomorrow. By the way: budgets do not mean “no fun”.
You have a huge advantage being young: You have time on your side. Use it wisely. You don’t have to save great amounts, because you have the power of compound interest working for you. You can get interest on your interest for a very long time. You don’t actually need to save very much – the money you save while young will work harder than you have to over the long term.
A dollar saved and working for you now will be worth 15 times that in forty years time, at an average return of 7% after tax. Save $1 now, and watch it turn into $15...saving doesn’t get any easier than that.
Even if you aren’t earning very much at the moment, make a start. Here’s a working example: If you take home $400 a week and decided to pay yourself first by saving $25 per week, that is only 6.25% of what you earn – after tax. There is still $375 per week for fun and living now.
Even the roller coaster ride of investment markets going up and down is good for you – the trend over time is for markets to continue going up. Don’t let world threats distract you. We have had many wars and disasters – we will probably have more before you retire. Clever saving can take advantage of these times and generate even better long term returns. So keep going – and review it regularly.
Start of by being serious with 6-8% of your cash – and be silly for a little while with the rest. Your later life will be much more active, enjoyable and meaningful. - and you can keep having fun for longer.
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