What do you want to be when you grow up?
I wanted to be an actor and a footballer. Simultaneously. Sadly, neither of my dreams was at all realistic, and predominantly because I wasn’t actually very good at drama or sport, but that was part of the fun.
When asked the same question in 2014, however, 1 in 5 children up to the age of 10 said they “just want to be rich”. VoucherCodesPro.co.uk after carrying out the survey, found that the desire for fame and fortune was a more popular answer than that of professions such as a police officer, zoo keeper or fire fighter.
So how can we prepare our kids for the future? And what’s the secret to hitting the jackpot?
Well, there isn’t one – its mostly all common sense.
1.You only need a tenner to start out
Financial terms can sound terrifying but can help turn your pound coins into piles of cash if you make the right decisions about where to put them.
One of the most important things to remember about banking your money is that different types of accounts will give you different deals.
A vital detail to look out for is what kind of interest your money will be accruing.
There are two key types of interest to look our for: simple interest and compound interest.
Simple interest is interest that your earn on your first deposit. For example, if you put your £10 into the bank with a simple interest rate of 5%, you will earn 50p in your first year which will bring your total to £10.50. In the second, third and fourth years of your account, you will also get 50p each year and, after 50 years, you will have a sum of £35 in the bank as opposed to just £10 when you started.
Compound interest is altogether more exciting however, as it’s the interest that you earn on the entirety of your account. This means that you get interest on your initial deposit and the total, with the interest that accumulates over the years. If you put your £10 into a bank account with a compound interest rate of 5% therefore, you will also earn 50p in the first year. In the second year, however, you will earn 52p. After 50 years of using a compound interest account, you’ll end up with £114.67 – that’s an additional £79.67 when compared with simple interest!
The above calculation has only outlined how much you would earn if you saved £10 a year – start saving £120 a year or break it down into £10 a month and in 50 years time you could have almost £1,000 more in savings than if you’d opted for a simple interest rate. Start saving more now and in a few years, you could be rich.
2. Buying secondhand helps
Everyone has a memory of the first time they ever got their first pay packet and that feeling of the world opening up.
I know from personal experience that when you’ve suddenly got money in your hands, it’s very difficult not to spend it but one of the secrets to making it last is not spending it all at once.
It sounds silly but in The Millionaire Next Door, two US economists, Thomas Stanley and William Danko, spent years researching the behavior of millionaires (U.S. households with net-worths exceeding one million dollars) and discovered something surprising – that millionaires are more likely to be middle-class and live in so-called blue collar neighborhoods than have a so-called white collar job and live in a fancy neighborhood.
The authors divided households into three groups, Under Accumulators of Wealth, Average Accumulators of Wealth and Prodigious Accumulators of Wealth and asserted that the key difference between them was not the size of their income, but what they spend their income on. Most of those classified as Prodigious Accumulators of Wealth (aka millionaires) did not lead extravagant lifestyles or spend stupid amounts on holidays or handbags.
Instead, they lived below their means, spending money on second hand cars and furniture which enabled them to have a decent amount of money left from their pay packet each week. By spending more money in Primark (true story) than on high end fashion brands that would soon depreciate in style, this meant that they also avoided the financial black hole of the status label lifestyle and stuck to staples they could wear anywhere. As Stanley and Danko point out, this lifestyle choice also set a good example to their children as kids tended not to expect nor demand outrageous purchases from their parents and learnt how to budget.
But, Sanley and Danko emphasize that the wealthiest do not get their millions by solely scrimping and highlight the need to invest money for good returns (see below) and the importance of a little risk to get the biggest rewards.
Despite being first published in 1996, as Stanley’s 2010 preface underlines, The Millionaire Next Door is a book that is worth the initial expense and one whose ideas might make you think a little bit more about whether you are making the most of your money.
3. You need a bit of knowledge
For the majority of us who aren’t natural financial whizkids, finding out what the word “investment” really means is vital to cracking the puzzle of what to do with the money you don’t want to spend.
There is a wide range of different investment opportunities out there and they range from shares and bonds to investments in property and commodities. Here’s a quick break down of these 4 key areas:
- Shares – Shares are the most conventional form of investment and are a stake in a particular company. You can buy shares in most companies on your local high street and so you could become a shareholder of Boots, should it take your fancy. You can make money from shares when they increase in value and you sell them on, or when they give you dividends (they make a profit).
- Bonds – Bonds are basically a loan to a company looking to make some money and so can be compared with IOUs. Investing in bonds is usually considered less risky than investing in stocks as the time period, rate of interest and value of the loan are set in advance with a guarantee that it will be paid back. But this does also means that they are potentially not as lucrative an investment as shares.
- Property – Investing in property does as it says on the tin. While you can invest in housing, such as buy-to-let homes, there is also the option to invest in commercial property like shops or factories. Property investments also tend to offer more security as while the stock market can collapse, the practical and monetary value of your house (as long as it remains standing) is ‘set in stone’ whatever the financial weather.
- Commodities – Commodities are physical substances that are mined or manufactured such as gold, silver, oil or even art and are also often a stable investment.
Once you have taken the time to decide in which area you would like to invest, you need to make an informed decision on how you will do it. As it takes a considerable amount of time and energy to research individual companies and shares, and as it can be very risky putting all of your eggs in the basket of just one firm, it is often advisable to invest via a fund (although there are other avenues to explore as well).
Funds professionally manage your money and pool it with that of other investors to procure a significant number of assets and make the most of your savings. They make investing a lot easier as they keep an eye on the stock markets and make sure you’re getting a bang for your buck.
Getting the services of a fund manager does not come cheap, however, as they will charge you for things like stockbroking fees and send you a management bill.
This is why it pays to do your research and to make sure you get informed before you make a decision. Here are some good sites to get you up to speed:
- Hargreaves Lansdown
- Interactive Investor
- Charles Stanley Direct
Remember that getting clued up is a great idea for becoming more financially savvy in general, and you should take advantage of every opportunity you have to expand and develop your knowledge, whether it be be subscribing to the Financial Times or gritting your teeth through the Radio 4 business news!
4. Talent helps
When it comes to getting rich in the arts, sport or business, (unfortunately for me) talent is actually important. While it sounds like a cliche, this means that the best investment you can make in your life is setting aside some serious time to figure out what your special skills are.
If you’re stuck for ideas then don’t worry – here are three things to try to help you uncover your hidden talents:
- Go find yourself!
When was the last time you got away from the daily grind and put yourself in a truly challenging situation?
Book a one way ticket to Berlin or Lagos and you might find the inspiration and fresh outlook you need to start from scratch.
- Go test yourself!
If you’re really at a loose end and need some career guidance, try yourself out on a career test and see what it recommends. You might be told you should stop everything and become a fish farmer (my 18 year old self was ecstatic) but you might also be presented with a career idea you never imagined.
- Go network!
Make a list of your favorite people and their jobs and do what you can to get out and meet them.
As celebs such as Ashton Kutcher found out, make the most of local creative competitions and, even if you don’t win, they might give you the contacts you need to become a star.
5. Persistence and hard work are essential
Not to put a damper on your post-epiphany celebrations but once you’ve nailed your star quality, along comes the hard work which is translating that skill into a marketable reality. If you really want to get rich by doing what you love, then you’ve got to psyche yourself up to overcome the obstacles and setbacks that will inevitably come your way (Murphy’s law, right).
If you need a hero, J K Rowling is a personal one of mine and a great example of someone who didn’t give up, despite the fact that it seemed the odds were against her. Although previously employed at Amnesty International, the Chamber of Commerce and as a foreign language teacher in Portugal, she found herself at a low point in 1993 when she moved to Edinburgh, a single mum, broke and diagnosed with depression.
Seven years after graduating from university, Rowling said that she saw herself as a failure but still continued writing, her faith in her own talent enabling her to get herself through.
Two years later, with a finished manuscript under her arm, Rowling was signed by a literary agency but still had to face the difficult environment of the business as her draft was rejected by 12 different publishers. Her grafting paid off however, as she was eventually taken on by Bloomsbury and preceded to become one of the most successful writers of her generation.
J K Rowling is only one example of someone who put her life and soul into her dream to make it come true.
Ask yourself if you’re prepared to do the same for what you do.
6. Keep a balance
There’s no two ways about it – making money can be stressful.
That’s why it’s important to look after yourself and your mental health, especially when confronted with the ups and downs of the markets.
And that’s also why it’s a good idea to spend some of the money you are trying to make – you deserve it!
These don’t have to be extravagant purchases that set your life goals back by £100,000s but little luxuries like a new pair of shoes or a weekend break in Rome that make you feel good about yourself and put your life into perspective.
7. Some people are so poor that all they have is money
Focusing your life on becoming rich is not only shallow and narrow, it’s also generally not the way to get the money in. When it comes to making it through your work it generally comes as a side-effect of doing your best to give to others in terms of talent or products/services in business.
Don’t follow the money all the time if you really want to be rich.
And anyway, money in itself is not riches.
Over time we find out that a ‘richer life’ involves far more of love, family and serving others. Might sound trite but it’s true.