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Finance Advice that Could Benefit You in Later Life

Finance Advice that Could Benefit You in Later Life

With the UK economy still in recovery and a volatile stock market, many people are more concerned than ever about securing their financial futures.

Whether you are just starting your career or looking to retire in a few years, there are steps you can take that may pay off down the road.

The following is essential financial advice that could benefit you in later life.

Know Where All Your Money Goes

This starts by making a detailed monthly budget and sticking to it.

There are all kinds of apps and programs available for organising your finances.

Simply making a budget and paying attention to it on a regular basis will cause most people to more carefully evaluate their spending habits.

Many people are amazed to see just how much they spend each month on non-essential items when everything is carefully tracked.

Spend Less Than You Earn

While this may seem obvious, it’s extremely difficult for many people to live by.

Living within your means will translate into avoiding most types of debt, not paying high interest rates, and being able to save consistently until retirement.

Spending less than you earn will be a lot easier after making a budget and knowing exactly how much income you’re bringing in and what expenditures must be paid each month.

Save for Retirement

Whether you’re 23 or 53, you should be considering saving for retirement.

It’s not too early to start, even if you’re in your twenties.

Start an IRA and contribute the maximum amount. Once you’re past 50 the amount you can contribute increases.

It’s important to think about taking advantage of every financial opportunity, especially taking a look at the pension options available in your workplace.

The advice is often to contribute as much as you can to these types of employee based retirement programs – but be sure to be well informed before making a commitment.

Pay off Debt

It should go without saying that it’s smart to carry as little debt as possible.

So which should be a priority, saving or paying off debt?

Mathematically it almost always makes sense to pay off debt before adding to your savings.

This is especially true of high interest debt that can’t be deducted on your taxes. On the other hand, paying a traditional mortgage loan early will only reduce the outstanding principal and the interest.

Paying extra won’t lower your overall monthly payments, which is what happens with most credit cards when you pay down the overall amount.

You should also pay off private student loans before government loans.

Diversifying Investments Can Be Safer

Not having all your eggs in one basket often means your money is safer.

It’s usually recommended to have a variety of assets that includes cash investments, stocks, and bonds. But even within these primary groups diversity can help.

For example, you could include both corporate and government bonds in your portfolio.

There could also be bonds with different maturities and ratings.

Diversifying can also mean investing in real estate or even a hobby such as collecting art.

It’s sometimes a good idea to have tangible investments that don’t rely on the volatility of the stock market.

Make an Appointment with a Financial Advisor

This is often the first step many people take when getting their finances in order.

Knowing what types of debt to carry and which investment plans are right for each individual isn’t always easy to determine.

It’s important to choose an advisor with extensive experience working with a variety of clients, but equally looking for a company that clearly cares about its customers is important.

Social media can be a great way to find financial advisors so look for companies that regularly post useful information and have a big, engaged following. A quick look on Facebook returned Fisher Investments in the UK, a finance company who has over 10,000 followers and post commentary on current economic conditions. You can also look to financial publications, like the Financial Times, who post their top-rated advisor list and timely news articles. It’s information like this that can help finding information when looking for an advisor that fits your financial needs and goals.

You can also look to financial publications, like the Financial Times, who often post top-rated advisor lists and timely news articles. It’s information like this that can help finding information when trying to find a suitable advisor.

Appropriately managing your income can allow you to remove the stresses of debt and pension concerns when you retire, so start making a plan and apply the advice that is most suitable to you, your work and your lifestyle as soon as possible.

The Magic of Compounded Interest

The Magic of Compounded Interest

I often find myself thinking back to my high school days and feeling a bit sorry for those kids who elected not to do maths as a subject. These are the people to whom it’s very hard to explain concepts such as compounded interest and the magic behind what is essentially the best instrument one can use to steadily grow money which they otherwise don’t plan to touch for a long time to come. We all know that merely putting money in the bank via something like a savings account is nothing short of shooting yourself in the foot, quite simply because the interest you earn on money stored in this way falls far behind inflation and, together with the banking fees you’ll be subjected to, it ultimately works exactly the same as spending some of that money each month.

That’s why there’s some magic to compounded interest, but naturally the magic only works if you are indeed planning to leave that money in the bank for a considerable amount of time to come. For this compounded interest magic to work, you’d have to leave your money in the bank without touching it, otherwise the exponential formula used to work out the compounding interest you earn basically resets to your starting point.

Exponential Catalyst

I simply cannot emphasise this enough – if you have some money lying around which you don’t know what to do with, talk to your bank about the options you have for a savings pocket which offers compounded interest. As insiders working in the financial industry, we’re often prohibited from engaging in investments which allow us to profit from what is deemed to be an unfair advantage over regular consumers, but I think they missed one investment avenue in compiling the list of what is prohibited. We’re fully allowed to take advantage of compounding interest and that’s exactly what I’ve chosen to do myself.

The terms (and the exponential formula) used naturally differ from bank to bank, but basically if you understand the basic principles of an exponent, you’d be crazy not to want to take advantage of compounding interest. Basically if you just look at an exponent in its simplest form, you’ll realise that at some point along the way, each monthly (or annual) iteration of the formula means that your money grows at an ever increasing rate.

Think of it as a dam into which you decide to throw a certain volume of water. Based on this initial amount of water you’ve decided to pour into the dam, for as long as you don’t draw any water, someone comes with a little bit more water to pour into that dam. Each time they come with more water, the amount increases incrementally, with the new amount to be added calculated according to the amount of water currently in the dam and not the amount of water you originally poured in when you started out.

Essentially, an exponent grows infinitely as it gets closer and closer to infinity, but infinity is well infinite, so basically your money grows forever by an ever growing percentage each time, until you decide it’s time to draw on it of course.

The best living example of the power and magic of compounded interest is its very widely touted ability to double your initially invested money in no more than a period of seven years. Judging by how quickly time tends to fly that’s not a long time at all to double your money and there’s perhaps no other way of achieving the same effect with the limited risk associated with compounded interested.