It is generally accepted that those on the other side of the pond are ahead of us Brits when it comes to engaging with their finances; the ‘401k conversation’ is a staple around US dinner tables, and that is born of necessity – the cradle-to- grave pledge that comes with the welfare state is not present Stateside – you either make provision for yourself, or you go without.
Whilst the lucky few of a certain vintage in Blighty once picked up their beer tokens and trotted off to university, those in the US were used to racking up hefty student loans; now, just in case you disbelieve just how much things have changed, the average US student graduates with $37,000 worth of debt, whilst those in the UK are lumbered with debts of £50,800, and interest racking up at 6.1% p.a.
Having first encountered tuition fees of £1,000 p.a. just 20 years ago, more than three-quarters of students currently incur fees at the capped maximum of £9,250 p.a. – a financial headwind that many will battle throughout their adult lives.
the average US student graduates with $37,000 worth of debt, whilst those in the UK are lumbered with debts of £50,800
In the States it is common for groups to come together to share their experiences as they seek to clear student debt and plot a course to financial freedom; one such movement is the FIRE movement – those seeking to be Financially Independent, Retired Early. With its roots in the States, FIRE is now spreading over here.
And just in case you’re feeling pretty smug about having dodged the bullet of student debt, how confident are you that the state is going to be there for you when you need it?
Later life care? Retirement? Healthcare? – do you know what the basic state pension is? If you check here it might surprise you.
Anyone believe that the retirement age is going to do anything other than rise? Anyone believe that the wave of populism that has swept across Europe has no connection to years of austerity and the promise of even tougher times to come?
Muckle and sister site DIY Investor believes wholeheartedly that financial self-reliance simply has to replace state provision and seeks to deliver a level of financial education and engagement appropriate to all.
Whether you want to go the whole hog and put in the necessary ground work required to make individual investment decisions as a DIY investor, are inclined toward letting professional investment managers do the heavy lifting, or simply want to make a regular contribution to your retirement fund via one of the many automated investment platforms, you’ll find a service with the level of engagement you want, as a price you consider acceptable.
Do it Yourself, Do it With me, Do it For me – just don’t do nothing!
financial self-reliance simply has to replace state provision
There are plenty of clichés in personal finance, and most will be found peppered around somewhere on the sites, predominantly because they are founded in common sense and best practice – ‘time in the market rather than timing the market’ – yep, be in the market for as long as you can to take maximum benefit of Einstein’s ‘eighth wonder of the world’ – compound interest.
We’ll not visit each of them now, but how about – ‘the best time to start investing was 20 years ago, the second best is today’; you really can only start from where you are – do as much as you can, for as long as you can – even little and often is rarely worse than doing nothing and never.
So, however tough millennials may have had it, and they are likely to be identified as the most indebted generation, they do at least have time on their side to make positive progress towards the holy grail of financial independence; you don’t have to tell the boss to shove it and open an organic cheese shop, but it’s nice to know you have the option.
In a recent article for Forbes, Greg Herlean, founder of Horizon Trust, a custodial company that educates Americans about the power of self-directed accounts, set the scene for millennials looking to embark on a financial odyssey and set about creating a retirement fund:
Since the Great Recession, hard-working Americans have been trying to rise above the growing gap between the wealthy and the middle class. A slowly improving job market and new technology has seen millennials – born between 1981 and 1996 – casting off burdening debt, growing in their careers and finally starting to invest in their futures.
The largest group since the baby boomers, this generation is facing stagnant wages and record amounts of debt; it is tough to look to the future when you can’t see past today, but perhaps it’s time to start preparing for life beyond the workforce. Here are my top 15 tips to help start your new year off saving:
- Get started
The best way to get ahead with investing is just to start; you can’t accumulate funds if you don’t set any aside. The longer you wait to start investing for your retirement or your livelihood, the harder it will be to catch up.
- Invest in what you know.
Whether a person, an assets or a financial decision, don’t invest in anything until you know something about it; be in the know when it comes to investing your hard-earned money. As you survey retirement options, start in a field you are familiar with and expand from there.
- Look after No 1.
There is no sure-fire way to make millions from an investment; just because your friend hit on a big idea, lightning may not strike twice. Be smart, and watch the market; ‘bubbles’ such as dotcom or bitcoin can set you back if you jump in when an investment has become popular, and therefore expensive. In some instances if you don’t have a buyer for your investment, you could be stuck with it.
- Avoid ‘experts’.
Avoid the ‘expert’ down the pub or at the water cooler with the latest ‘no brainer’ or pyramid scheme; if it sounds too good to be true, it will be – don’t buy into anything, particularly the ‘next big thing’ without researching it first.
Once you have selected your stocks, funds or other investments, be sure to keep an eye on them; there’s no guarantee that any investment will continuously grow and you do not want a poor investment weighing you down. Know when to change tack and move your money where it will benefit you most.
Plucked for the list alluded to above – ‘don’t put all your eggs in one basket’; the best way to secure your funds is to spread them around among the various options. If all your funds are focused on one sector, territory or asset type, you could be vulnerable if the value of that investment should fall.
Don’t pick a few random investments and hope for the best; construct a plan based on your personal knowledge and research and have a goal for the future and how much you want to earn by a certain point.
- Invest for the long term.
Work out what you need to do to reach your goal, and compound that with diverse investing; don’t get emotionally attached to investments – let them go for the greater goal if they no longer work for your purposes.
Keep a watching brief on opportunities for tax advantages, rising and falling markets and what kind of account you want to have; select an asset that will grow over time, such as property, and let it build up money for you. If a particular asset type of sector no longer performs, move on.
- Set short-term objectives.
Whilst you are ultimately playing the long game, setting up a system with little rewards along the way can also be beneficial; build up small amounts of cash to start so you can make bigger investments for the future.
- Balance debt.
Student loan debt is a looming issue that weighs many down, but it shouldn’t cripple your future; balance loan repayments with saving for your retirement. While it’s important to pay off your debt – and you’ll want to do it fast, particularly if it’s expensive – but you also want to have something that can grow. Avoid building up more debt and avoid ‘easy credit’ – take long term gain over short term gain.
Apps like Mint can help you balance your debt and show you how much you can save; a tool that keeps all your financials in one spot can alert you to your spending habits so you can redirect your focus and eliminate bad (costly) habits.
Sometimes the only way to learn a new market is by experiencing it; dip your toe into different investments by starting small, doing your research and seeing if it’s right for you.
- Investing tools.
Easy access, online tools and finance apps can give you a taste of investing: SigFig, FutureAdvisor and other apps can give you investment advice, while E*Trade can give you constant reports. Try digital investing, especially if you want to be hands-on with your personal finances. (see the UK equivalents at www.diyinvestor.net and www.muckle.online).
- Save; don’t charge.
Where you can, save before you make expensive purchases; unlike home or car purchases, where a good down payment will keep you from accumulating more unwanted debt, choosing saving goals over instant gratification fits your bigger picture as you put money aside for retirement and your account won’t take a big hit from an upfront purchase.
The best way to handle future investments is to perform your due diligence. Research, explore and create a plan; every individual’s experience is different, so form a retirement plan that works for your life and financial situation.
If you have any thoughts, stories to tell, questions to ask or experiences to share we would be pleased to hear from you at any time – firstname.lastname@example.org
Remember none of us is stronger than all of us.