Young Professionals – Six Tips To Become Wealthy?
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I don’t know about you, but it seems that every time I’m on social media, there are people telling me how I can make millions by setting up an Etsy store (Mangu Mugs will be ready by Christmas everyone so place your order now!!*) or by placing a currency trade and going for a run or by reading 150 books and magically becoming rich!
The thing is, becoming wealthy is something that doesn’t really happen over-night and laying the right foundations can take time. Being wealthy doesn’t just mean having lots of money but also means having the peace of mind and financial stability should anything unexpected happen.
So here are my six top tips for becoming wealthy if you are a young professional.
Please remember that this doesn’t constitute financial advice and the value of your investments can go down as well as up.
#1 - Track your spending
Knowing where you spend your money each month is extremely important especially if you are looking to put money away for longer term financial goals such as a car, big holiday or a deposit for a property. This will enable you to determine how much you can save each month.
#2 – Manage debt wisely
Having debt is not necessarily a bad thing but it is important that you manage it effectively. Many people will take out a personal loan, for example, to buy a car and it is important that loan repayments are made on time. It is important that credit card debt is repaid as soon as possible, preferably every month, because of the high interest rates charged.
#3 – Join your Workplace Pension
It is important that you start making provision for your retirement as soon as possible. Not only will you receive tax relief on your contributions but your employer will also contribute each month.
If you are in your twenties or thirties you will have decades before you can take your retirement benefits so it makes sense to take a degree of investment risk. Over the long term, equity investments have tended to outperform other asset classes and by investing regularly you can benefit from the smoothing effects of pound-cost averaging as well as the long-term benefits of compounding.
#4 – Check your other Workplace benefits
If you are an employee it is likely that your employer will provide you with additional workplace benefits as well as a Workplace Pension. Typically, this might include Group Death in Service which will pay out a lump sum in the event of your death. For a young professional, one of the biggest risks is not being able to work due to an accident or illness. Check to see if your employer provides an Income Protection policy and, if not, this may be something to consider taking out yourself.
If you have a young family or have taken out a mortgage, you might find that the Group Death in Service cover might not be sufficient. You may also want to consider Critical Illness Cover which not all employers provide.
#5 – Build up an emergency fund
Having a financial buffer in place is important to provide a degree of protection in the event of an emergency. For example, the car might break down, the cooker blows up or you lose your job. Having an amount equivalent to three to six months’ worth of expenditure is a good place to start.
#6 – Start making long-term regular savings.
One of the most tax-efficient ways to save regularly, after your Workplace Pension, is through an Individual Savings Account (ISA). There are various types of ISA but where you are investing in a Stocks & Shares ISA for the long term, there are a few things to consider:
Time in the market is almost always better than trying to time the market - you should view becoming wealthy as a multi-decade endeavour.
Invest in shares of the great companies – with a long-term time horizon, you should consider taking on a degree of investment risk which means typically having most of your portfolio in equities.
Be well diversified – over the long-term it is impossible to predict which sectors or geographical regions will outperform from year to year and so it makes sense to be as well diversified as possible.
Control costs – costs and charges will eat into your investment performance so it makes sense to keep these under control.
Ignore market noise – many people panic and sell their investments when markets fall and become overly optimistic and buy when markets rise and this is often fueled by the financial media. Ignore the noise, markets will fall and markets will rise but you just need to stick to the plan.
Foundation Financial Planning Service
As a young professional, you are probably working long hours building your career as well as trying to fit in a social life or juggling a young family so planning your finances is likely to take a back seat. This is where we come in.
Our Foundation Financial Planning service is designed for young professionals and those early on in their financial planning journey. It helps you to lay solid foundations now so that you can benefit from greater financial security in the future.
Please contact us using the button below to find out more.
*probably not this Christmas!
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