A standard refrain of pension salesmen is that the earlier you start, the better it will be for you. They always seem to be able to pull out some frightening looking projections that demonstrate the wisdom of starting your pension contributions as early as possible.
Of course – they always have a vested interest in scaring you into thinking it’s best to start early and they’re invariably talking to you when you’re in your 20s and 30s when all this financial planning stuff can seem very boring and its necessity a very long way off.
But the interesting thing is that they’re right. That isn’t, necessarily, the same thing as starting off a pension though.
Let’s say, for argument’s sake, that as an investor, you’re capable of making, on average, 11% a year. Now this would be a very good performance, but is quite do-able by many keen investors in stocks and shares, property to let, or their own efforts. If you look at life through the “prism” of two decades henceforth, then every time you spend one unit of your currency today, you’re effectively making yourself over eight units worse off in the future.
So you can quickly see how spending, let’s say, $2,000 on a vacation today, is effectively costing you the price of a nice car 20 years from now – or maybe eight vacations depending on how inflation performs over the same period, of course.
Once you begin to make such considerations about your everyday financial life, it can have a very positive effect. That isn’t to say that we should all live lives of curmudgeonly meanness. It’s important to strike a balance, here, between having a good time while you’re young and living for each day as it comes – and making provision for your future when you’ll really appreciate the financial freedom your earlier shrewdness has delivered.
So anyone who suggests to you that this is somehow boring is well wide of the mark. It’s anything but; the truth is that this is really all about enabling yourself to be free and exciting at an age when you really will be able to appreciate it, God willing. Ask any fifty or sixty-something year-old today whether they wish they’d been a little more financial savvy in their 20s and 30s – and you’ll soon see what we mean.
And it’s generally wise to make a pension a part of your overall life-plan, but not the be all and end all. Instead, it’s an important part of the overall jigsaw.
The same can be said of property. Generally speaking; the earlier you start the better. According to this source on HSBC newsroom, for example, people now in their late 20s and early 30s who haven’t yet taken the first steps in buying their own homes will be significantly behind those that have in the future.
This may seem obvious, but it’s the same principle as the pension advice. It’s wise to make the calculations about foregoing things to a certain extent today – in return for a far better financial future and the freedom that brings – “tomorrow”. Striking the right balance is the important thing.