My much older colleagues have been telling me my thirties will be great fun. I trust them and while I can’t really do anything about getting older anyway, it seems like a good time to have a look at something I can control, my money.
I’m not looking at where I can trim the fat and be a bit more frugal, I think we all have an idea of how to do that. Rather, I’m focusing on what I need to do now to help my future self - I can always cut back on the frivolous expenses but I can’t make up for lost time when it comes to long-term savings, I have to act now.
Like a lot of people my age, buying a house is top of my wishlist but it’s likely to stay there for a while. The housing market is a key example of why our finances look very different from our parents’.
In 1997, the youngest age at which more than 50% of people were homeowners was 26, rising to 34 in 2017, according to recent figures from the Office for National Statistics (ONS). As a result, 55% of 25-34 year olds were renting in 2018, compared to 35% in 1998.
And it’s not just house prices putting a dent in our savings. The average cost of a UK wedding topped £27,000 in 2017, with parents no longer the sole financial contributors - 32% of those surveyed funded their big day through their own savings.
The misconception here is that this generation isn’t that concerned with long-term financial planning but, faced with hurdles like these, we do need to be smarter about how we go about saving for deposits and wedding bands. If you had put £100 a month into a Stocks and Shares ISA, and invested in the FTSE All-Share over the past 10 years your portfolio would now be worth £18,162 - over £6,000 more than your original investment of £12,0001 (Past performance is not a reliable indicator of future returns). So, start early, save often and be smarter about where you put it.
Something else I’m looking at is making sure my retirement savings are as uncomplicated as possible, and that I’m doing enough to help myself later on.
We’re much more likely to switch jobs than our parents, and with that comes the inevitability of various pension pots building up over time. Bringing them together in one account takes the hassle out of possibly forgetting one or just not knowing where it is in 30 years.
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More important is looking at how much we’re putting in each month. Your employer might match your contributions if you decide to add a bit more, it’s worth checking. And if you’re self-employed, which our generation is increasingly turning towards, it’s a good idea to look into starting a pension because no-one else will do it for you. And again, it’s best to do it now - delaying it can have an incredibly detrimental effect on the end result.
For example, Danielle starts investing £100 a month when she is 25; Mike invests £200 a month from the age of 45, so they both save the same £48,000 by retirement. Assuming a 5% annual return, the effect of compounding has longer to work on Danielle’s investments, and so she ends up with £153,000, almost twice as much as Mike’s £82,0002.
The order and timing of life’s big expenses shouldn’t be underestimated. With no guaranteed income lined up for retirement, more than ever we need to get the snowball effect of compounding started as soon as possible to give us a chance of funding the lifestyle we want later in life. The longer the first part takes, the shorter the savings have time to grow interest on interest.
For me, the important thing is knowing that I’m doing what I can with what I have, and being as smart as I can be about it all. I’ll check in again next year and see if I can do anything more then too.
Five year performance
As at 28 May
Past performance is not a reliable indicator of future returns
Source: FE, as at 28.5.19, in GBP terms with income reinvested
1 Fidelity International, May 2019
2 Fidelity International, July 2018
The value of investments can go down as well as up so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment on ISAs depends on individual circumstances and all tax rules may change in the future.This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.