Five Things I wish I’d Known about Money at 20

Over the years, I have had my battles and learned many lessons. I have always wanted to be independent and had a coaster roaster journey to do so. I want to share the mean lessons I have learned with you and some of the mistakes I have made, so you don't have to make them.

Compounding makes us wealthier if we Invest Early…

Consider two investors Mark and Sally, who are the same age but started investing at different times, Let's assume they both receive the same annual rate of return of 10%.

Sally invests £2,000 a year (£167 pounds a month) through her ISA at the age of 19, for seven consecutive years, and from the age of 26, she invests nothing until the age of 65. She has a total of £14,000 invested. With a 10% average annual return, her net amount accrued at the age of 65 will be £930,641.

Mark on the other hand starts late he invests £2,000 from the age of 26 until he turns 65. This equates to a total of £80,000. His net gain at 65 will be £893,704

Sally made only seven contributions and then stops investing she ends up with a larger pot of money than Mark who makes 40 annual contributions throughout his working life.

This shows the power of compounding and investing early.

Your Penny Has Power

Its all about instilling a saving & investing mindset, for children this starts at a young age with a piggy bank, seeing my pocket money in pennies, five then 10p, and then 50p being inserted on my behalf into my piggy bank at four or five years old was important in my development in my understanding the importance of money and saving at a young age.

Raiding the piggy bank at a later age to buy sweets or some other must-have 70’s item became possible only because we had saved up enough to treat ourselves later in lean times, and opening my first bank account at 13 and watching the deposits increase.

This savings mentality has stayed with me, and in 1990 helped me in getting onto the property ladder and buying my first house at 26 putting down a 10k deposit that I had managed to save.

Be An Opportunist

That's right, seems simple but good opportunities do not occur frequently so take them!

Over the Christmas period, I was in a well-known supermarket, and wandering along the isles I came across Brandy Sauce in the large yogurt-sized tubs being offered at 1p each (normal retail price of £2.25). I enquired to the manager who was placing them from huge pallets into the chilled cabinets as to why? he smiled stating ‘We just ordered too many over Christmas-New year…..’

I purchased 42 tubs and after filling my fridge, I offered some to Family & Friends over the next day or so, and much to my delight found that it made not only an excellent addition to the cake but also in Tea and coffee as a tasty milk substitute, they kept well in the fridge surviving past their sell by date and after 5 weeks all were gone.

Being an opportunist means you are able to spot a bargain quickly, reduce waste in your life and in society, and at the same time save yourself some money all of this gives you an immense sense of satisfaction. I probably only saved ~twelve pounds against the equivalent purchase of Milk over the five-week period but it provided so much more -a sense of achievement that if I hadn’t used this item, then they would almost certainly have been destroyed by the supermarket and had been wasted. I hadn’t tried brandy sauce for many years and it was not something I normally buy, so I took a chance, but at 42p it was a chance I was prepared to take and I’m glad I did!

Treat Yourself Occasionally – You Deserve It!

Saving and investing wisely means, of course, watching what you spend after all it’s your hard-earned money, and not wasting it on items that you really don’t need is vital, but it doesn’t mean scraping the bottom of the barrel. As you progress through life you’ll realise that building small luxuries into your life is as important as having a saving and investment mentality in fact they actually go hand in glove together.

This thought process hit me in my early twenties, being a student in the late 80s money was tight but I learned that making key savings in one area often allowed me to build in small luxuries as rewards. Going to my favourite Indian Restaurant in central London with close friends two or three times a year to celebrate a major event was one such treat, and they weren’t all extravagant most were simple treats that some people now take for granted but for those on low incomes it can make a huge difference to your mindset, Another simple example was on occasions buying the one litre freshly squeezed orange juice instead of the regular concentrate something that cost more but tasted great and made you feel special.

What Works Today Might Not Work Tomorrow

Adaptability is key so remember to be prepared to change, whether it is your perspective, mindset, or even your method.

While I have always remained positive about the future, I always consider an outlook that does not meet my expectations -we are currently entering one such period where a crossroads is fast approaching. We do not know what the next three years have in place whether Inflation will peak in the summer and then rapidly reduce or whether Geo-political events in Europe will fast accelerate for the worst, but the key point is to be prepared for a worst-case scenario, by planning ahead and putting by small amounts to prepare for a possible worst case you can protect yourself from the continued shock of the unpredictable–Hope for the best but prepare for the worst.

Do you have any life lessons you could share with us below? Was there one point mentioned that you are going to give a try?

Copyright Suresh Thadani

An Independent Financial Advisor.

See more with @SureshThadaniFinancialAcademy