With the beginning of a new year comes new resolutions and goals to set and pursue. Some people might set a goal to lose weight or go to the gym, others might say they want to spend more time with their family. But the one type of goal that seems to be disregarded most of the time is a financial one.
Financial goals are key to living a happy and successful life. Finances affect every aspect of life directly and indirectly. Money allows you to take your family on that nice vacation they have been wanting to go on. Money also ensures that you can live comfortably by giving you the ability to have a roof over your head and food on the table.
Poor finances can have an equally devastating effect on your life. Lack of money can increase the stress you deal with on a daily basis, it can limit the options you have in your life, and it may be the reason you have to continue to work well into retirement.
So why do so many people forget about financial goals when they are such an important part of life? Perhaps they just simply aren’t aware, or they figure it will all work out in the end. But finances are not something you want to leave up to chance. Planning your financial future and setting goals can improve your life considerably, and leave you feeling more secure and content about your future.
Financial goals don’t have to be difficult or complex, they can be as simple as telling yourself that you will save £5 a day. What is £5? A cup of coffee? A snack? A fast food meal? Saving £5 a day is a pretty doable goal, and if you start this going into the new year then by 2022 you will have saved £1,825. That’s pretty crazy considering the lack of effort it takes to accomplish it.
But let’s take it a step further. Instead of simply putting that money under your bed, you take that money and put it into a savings account at a bank. Currently most banks are offering around a 0.5% interest rate on money in a savings account. So if you were to put that £1,825 into a savings account, you’d make roughly £9.12. That’s rather absurd seeing as how inflation usually accounts for 2–3%, so you would end up losing value on your money if it sat in the bank.
This is a visualisation of how that would work out over 10 years. You’d barely have £1,918 after keeping that money in a savings account for 10 years. That’s just ridiculous. Luckily there are much better ways that can give you considerably better returns. These options are what the rich and successful use consistently to grow their wealth and get richer.
So what is the other option? Quite simply, the stock market. Now before you start thinking that it’s too complex or that you have to be a special guru to invest, you probably are already invested in the stock market. If you have a job that offers a retirement plan that allows you to put money aside, you are invested in the stock market. That money you set aside is automatically put into an investment account that is then used to purchase stocks or ETFs (groups of stocks).
The stock market isn’t something that is far off and untouchable for normal people, in fact it’s more accessible than ever through brokerages like Trading212. You can get started investing with as low as £1. But why is investing in the stock market so much better than sticking your money into a savings account?
The stock market performance is often gauged by large collections of stocks that represent the general trend of what’s going on and how the market is reacting. One of the biggest and most well known indicators is the S&P 500. The S&P 500 is a collection of 500 different companies from a range of different industries, and it’s used to help see how the overall market is doing. Since the inception of the S&P in 1926, it has had an average annual return of over 10%.
What does that mean? It means that if you had invested your £1,825 into the same stocks as the S&P 500 back in 1926, you would have £15,615,447 today (over £15 million). Now that is a pretty unrealistic example, but it shows the compounding effect of stock market returns. Let’s look at a more realistic example.
After saving your £1,825 this year, you decide to do that every year for the next 10 years. At the end of each year you invest that money into your portfolio that mirrors the S&P 500. Based on the historical figure, we can assume that your money should increase by roughly 10% a year. Take a look at the same chart but using the stock market instead of a savings account.
By the end of year 10 you have £36,728 in your stock portfolio. Now that’s a pretty conservative number as well, using a stock index like the S&P can be a pretty safe investment choice but it also means your returns won’t be as big as they could be by investing into single stocks. If you were to have bought stocks such as Netflix or Amazon 10 years ago, you would be looking at a return of around 35%. (My biggest bid on next 35% gainer is Nio Inc — NIO, what’s yours?)
If you were to use the return of Amazon in the above calculation, you would have over £136,320 within 10 years. Absolutely astounding, but it pretty easily explains why the rich get richer. But remember, these numbers aren’t based upon being rich. These numbers are based entirely off saving and investing £5 a day, an amount as little as a simple meal.
So are you ready to start your financial journey? Are you ready to begin planning your financial future and incorporating goals? Becoming rich won’t happen overnight, but with a plan and a lot of consistency you can make it. To get started with your own investing account, check out Trading212. Using this link will get you started on setting up your own account that you can use to invest in the stock market. It will also give you and I both a stock worth up to £100. It’s a great way to give you a boost into your investment future.