Don't be in the donkey derby in the savings race
THE Christmas stock is in the shops, and during the week I happened to notice some cute cuddly toys, perfect for stocking-fillers if you have young kids (when I was young they'd have been perfect as the main present, but we won't go into that).
The one that really caught my eye was a cuddly Eeyore – do you remember the sad little donkey friend of Winnie the Pooh?
When I saw him, he reminded me of one of my favourite mottos in business: “A donkey is a racehorse that was designed by a committee.”
This will touch a nerve with anyone who has ever been in a committee-like situation, with a group all putting in their tuppence-worth to shape a project, but often pulling in different directions according to their opinion.
It can be the same when taking advice on money matters, especially if you are in your early 20s, and just starting out on your career. It appears that for so many younger workers, the initial source of financial advice comes from the ‘committee' of family members around the Sunday dinner table.
In fact, the insurer Aviva did some research on this that found nearly half of us (43 per cent) in all age groups listen to family members first. However, those of us in the 18-24 age group are much more likely to do so – here, a whopping 70 per cent of us take our first financial advice over the roast beef and spuds, from well-meaning relatives rather than going to a professional independent financial adviser (IFA).
No wonder the result often looks more like a donkey derby, than a two-mile steeplechase.
The first advice an IFA might have for someone in their early twenties is very simple: “it's never too early to start”. Retirement may seem so far away, but saving into a workplace pension is a great way to save – and if your employer is also contributing, together with tax relief from the government, it's an all-round great way to get your money working for you today.
They say that the first pound you put into your pension is the one that works hardest for you – in fact it has been calculated that over the years, under typical circumstances that first £1 could mushroom into £28 by the time you come to retire. Sure where would you get it?
Another great option is a stock market investment in a Stocks & Shares Isa. You can invest up to £20,000 this tax year, you may not have that much but anything you put into your Isa can grow tax-free - again, money working hard for you.
As with all stock market investments however, the old warning applies: the value of your investment can fall as well as rise – so it's important to sit down with an IFA to find the right fund with the right risk level for you.
A few years later, as you turn 30, your salary has increased, but this is the time when you may take on the major debts that come with buying a house, getting married, or starting a family.
Aviva has a nice tip in this regard: if you had become a regular saver in your 20s, you may be in the happy position of having 3-6 months' salary tucked away in your Isa by now.
Not only does this cover you for unexpected expenses, it means that if you're trapped in a job you're not enjoying, you could walk away and take a little break for a month or two to find a job that suits you better. Saving can result in freedom!
The early years are crucial, because the money you save in your 20s has a good 40 years to grow, and can give real financial security, for both you and your family, with each passing decade.
So don't be an Eeyore. Take the best advice you can, from an independent professional adviser. Make sure you're in the steeplechase, and not the donkey derby!
:: Michael Kennedy and Shaun Doherty are independent financial advisers and pensions specialists, and can be contacted on 028 71886005. Further information on Facebook at “Kennedy Independent Financial Advice Ltd” or at www.mkennedyfinancial.com