- Living for today is fun
- But not having much to live on in the future is not funny
Are you one of those free spirits who live for today and think tomorrow will look after itself?
Well, I have got some bad news for you…
It won’t! Not in the real world!
Going forward, if you are not going to look after your future, don’t be surprised if it’s not exactly bright, prosperous and happy.
There was a time when most of us ended up six feet under not too many years after our retirement. Then, even if pensions were not amazing, we didn’t have to live too many years on them before kicking the bucket.
It was tough, but at least it was relatively short.
These days things are different. We are living much longer. Office for National Statistics data for 1951 showed men lived to 66.4 years and women to 71.5 years on average. By 2017 ONS figures showed life expectancy for men in the UK was 79.2 years and for women 82.9 years.
Back in the fifties the average man, reaching retirement age at 65, only had to survive on a pension for a handful of years. These days it is closer to 15 years.
To make things worse, the state pension age for both men and women is going up.
From 2010 to October 2018 the state pension age for women rose from 60 to 65, the same age as men.
By October 2020 the retirement age for both sexes will rise to 66. A further increase to 67 is expected by 2026 and, with reviews thereafter, additional increases are very much possible.
The general picture is clear. We are going to have to get by without a state pension for longer, and survive longer on one.
The basic State Pension is currently (May 2019) £129.20 per week.
Could you cope on that for 15 plus years?
Are you reckless enough not to explore ways to augment your state pension?
Not investing for your future is a high risk strategy.
Are you crazy enough not to be bothered about your financial future? Do you think investing is for boring people too concerned about the future and not the present?
If you don’t want to leave your financial future to chance, there are several simple and sensible things you can do to improve your position and lessen the risks.
This blog looks at 5 areas of money where you can take steps to make sure your future is bright…
3. Workplace and private pensions
5. Investment Property
See savings as money kept with a savings provider which you can access at short notice without penalty or charge. You can save for a specific thing – such as a deposit to buy a house – or you can save generally, creating a financial reserve.
Saving is probably the most basic skill for future financial well-being.
Saving money, having a big lump sum, is highly beneficial to be able to deal with big ticket items you may want to buy at some point – such as a house, car or special holiday.
Having money in reserve is also important to be able to deal with unexpected events, such as a period out of work, or personal or family emergencies.
The important thing about saving is to make sure you do it – regularly and continuously. It is also fundamental to identify the best interest rates, especially in these times of modest rates.
Don’t look to save at the end of the month; chances are there will be little left in your account. Save immediately after your earnings or income have hit your bank account, and look to save as much as possible.
If your savings target is not hurting, it’s probably not working!
Ideally, save with a specific amount of money or target in mind.
Determine the length of time it will take you to save for your target by dividing the financial amount by a realistic but challenging number of months.
Save to make sure you have a “rainy day” reserve or a specific sum you need over the relatively short-term.
See investments as like savings but with a better rate of return or investment performance – perhaps because you are expected to leave the money in place for a long time (such as bonds or fixed term savings) or because the investment can achieve large gains over time – such as shares.
Invest for things you will need in the longer term – especially as investments normally performs best over the medium to long term.
Investing for your children’s education or your retirement are good examples of long term investment.
If you buy your home with an interest only mortgage, you will need to pay off the outstanding capital debt at the end of the mortgage term. If you don’t have the money to pay off the capital, you will have to sell your home and move.
Investing to pay off your interest only mortgage is therefore very sensible.
If you take out a repayment mortgage, the interest and capital will be paid during the mortgage term, leaving you with nothing to pay at the end of term.
Where you don’t invest, you may be able to secure funds for the purpose you need by borrowing. However that may not always be possible and borrowing is typically expensive.
By investing for your retirement, you will have funds in place for things like:
Sickness or ill-health
Financial help for children or grandchildren
Long and regular holidays.
Investing is the way to save money over the longer term, especially where your savings goal is large or long-term.
3. Workplace and private pensions
With the state pension being unspectacular, it makes sense to ensure you have a workplace or private pension.
If you are enrolled into a pension scheme at work or you are signed up to a private pension, it is easy to think that you are set for life so far as your pension is concerned.
The reality of course may be different.
The key point is the amount you are putting into your pension and whether it will be enough to meet your future capital and income requirements.
It is essential to review your likely pension benefits on a regular basis.
If you skimp on your pension contributions today, you may be leaving yourself short or in financial danger in your retirement years.
A huge benefit of pensions is that they are very tax efficient, with your pension contributions receiving tax relief.
One big drawback is that you normally cannot access your pension benefits until 55. This inflexibility makes pensions relatively unattractive.
It is all well and good having a large pension pot, but what if you can’t access it where you need it before retirement?
A possible solution is to roughly equalize the various sources of money or capital you can call on at any one time.
Instead of storing a huge sum in your pension, spread it among other savings vehicles such as savings, investments, your home and investment property.
Pensions are an excellent way to save for your money requirements when you retire – especially if you take into account the tax benefits and any contributions from your employer.
Buying a home is one of the best ways to provide for your long-term financial future – even though you may not think so when you are struggling to make the mortgage payments!
Some people say a home is a liability because you have the burden of making the mortgage payments from your income or earnings.
However the reality is that it is also an investment since house values increase with time, typically doubling every 10 years on past performance.
For most people perhaps, it is their biggest and best-performing investment.
There can be many short term advantages to renting, including cost and flexibility – but over the longer term buying a home is likely to result in far greater financial gains or benefits.
As well as the long term security of a roof over your head, a home gives you the opportunity to acquire substantial capital wealth, as well as the flexibility to access that wealth by renting, selling, mortgaging or remortgaging.
Plug into people power to succeed (channel the strength of others to excel)
5. Investment property
Perhaps the most effective way you can provide for your financial future is by investing in property – especially at the basic level of renting out a property or doing it up and selling it on for a profit.
An investment property has the advantage of two possible sources of gain – rental income and capital gain or growth – an advantage lacking in most other mainstream investments.
You are able to increase the value of a property by taking various steps – including building, refurbishment, changing the use or splitting into units.
There is also the powerful opportunity to leverage, using a deposit or down payment to borrow and buy a property several times the value of your deposit, multiplying your rental income in the process.
By leveraging and forcing appreciation on a long term basis, property investment can readily lead to you having retirement assets worth millions of pounds.
Investing in property enables you to acquire assets of enormous value, but with greater flexibility as to use when compared to say a pension fund or shares.
Living for today is fun, but not forgetting about tomorrow is wise.
To give yourself a great chance of enjoying the good things in life long into your retirement, don’t overlook investing.
It may at times be difficult, challenging or even a bit boring, but in the end it will secure your financial well-being – possibly the most important ingredient for happiness.
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Are you investing? If not, why not? If you are, what are some of the difficulties or challenges you have faced? Please leave your observations or comments below.
You may also find the following blogs useful:
How to master time (a look at the fundamental ingredients to rule time)
The 5 secrets of success (fundamental stuff you must know to succeed)
Think like a property millionaire (the millionaire mindset of property investors)
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Rebel Property Coach
My website is: www.rebelpropertycoach.com