If you suspect you’ve been conned by the banks for years, you’re right – we’ve been sold rubbish products that make money for them rather than us for far too long. However, as the French proverb goes, “success is the best revenge”. My new book Beat the Banks shows you how to make money the easy way without their ‘help’.
The reason I wrote Beat the Banks – and why I’m doing more and more workshops and seminars in managing your money and investing for your future – is because we need to know how to take control of our money and create our own wealth. No one else is going to do it for us.
The good news, though, is that IT’S NOT HARD!
Really, that’s probably the biggest message I want to put over to everyone. Investing for yourself is quite straightforward and doesn’t need to take more than a few hours a year.
In fact, on the whole, the simpler your approach to saving and investing, the better you’ll do in the long-run.]
Simple investing rules
If you just follow these simple rules and don’t do any more, you’ll do better with your money than most people in this country:
- Live below your means. This is what the majority of us really need to get our heads around. Not only should we not continue to live above our means – constantly borrowing on credit cards to fund overspending – but we should do even better than live within our means. We need to live below our means so that we have money left over to invest for our futures. So, if you make £1,000 a month, you should only be spending £900 a month or, better, £800 a month. The rest needs to go into savings and investments. Yes, really!
- Set up regular standing orders into savings accounts and investments. Make it so that the money goes out just after you get paid so that you don’t have a chance to spend it first. This is what I call ‘paying yourself first’. You set an amount each month – however small – to go automatically from your account to a savings account and, ideally, some form of investment like a pension or stock market fund, and learn to live on what’s left over. After a while you won’t even notice the money going out. You will be so used to living on the smaller amount.
- Invest in a range of simple products. Two key words there: ‘range’ and ‘simple’. It’s really important to spread your money across at least three different ‘asset classes’ (like pension, stocks and shares, property, bonds etc) so that if one of them tanks you have the others to fall back on. Also, go for simple, cheap products – not complicated, expensive ones that you don’t understand. The simple ones (like index-tracking funds and stakeholder pensions) tend to perform better anyway so you’re quids in all round.
- Don’t go for get-rich-quick schemes… ever… and don’t invest in anything peddled to you by your bank or a free financial ‘adviser’ (i.e. salesperson). Use these rules: “If it sounds too good to be true, it probably is” and “never invest in anything you don’t understand – particularly after it has been explained to you more than once”.
- Leave your investments for years and don’t get spooked by big lows or over-excited by big highs in the markets. This goes for the property market as well as the stock market. Most investments that give you a good return over the long-term are likely to go up and down in the short-term. Keep your nerve. Unless the underlying value of something seems very wrong to you, you are generally best just leaving your money there during the downs as well as the ups. In fact, when the market is in a dip, that’s when it’s a really good idea to put more money in because it’s cheap.
Seriously, that’s pretty much all you need to do – oh and stay debt-free where at all possible, including paying off your mortgage as fast as possible.
Time and compound interest are on your side
It’s particularly true for young people. All I hear from people in their 20s and 30s is that they think they have no hope of a rich retirement and that they will never have property or financial security unless they manage to inherit a decent amount.
It’s not true. As I’ve been explaining to many of them, it doesn’t take a lot to build up a really decent pot of money over the years – and that’s what they have more than anything… years… time for that money to grow!
As I show in Beat the Banks, thanks to the joy and wonder of compound interest (another thing that everyone should get their heads around as early as possible), putting a relatively small amount of money every month into a well-performing investment product and leaving it there for years will give you a tidy sum at the end.
How compound interest works…
When you invest money you earn interest on it (or you should do anyway). The following year you earn interest on both the money you originally put in plus the interest you made during the previous year. The next year the same happens and so on and so on. Each year your money grows by a greater amount.
For example, if you put £100 into something that gives you 10 per cent return each year, at the end of the first year you will have made £10. If you keep that money in there then you will make 10 per cent on £110, which is £11 – this is added to your total, meaning that you now have £121 earning interest. Then in the next year you will earn 10 per cent on £121, which is £12.10. So you can see that each year it goes up just that bit more.
The two things you need to know about compound interest:
- Small differences in interest rates make a big difference in the long term.
- Saving regularly over long periods of time can build up a big sum of money. For example:
Imagine putting £100 a month into something giving you 10 per cent a year for 40 years. Over forty years your meek £100 a month would turn into a roaring £559,461. Seriously – over half a million just by regularly putting £100 a month in. Makes you think eh?
There’s nothing to stop you saving and investing now. Just use the information on how to make money and save money on MoneyMagpie and in Beat the Banks and you’ll be able to invest for yourself better than any City boy in red braces could!