Indirectly impacted by the 2008 financial crisis, many millennials have embraced a risk averse approach to their personal finances, adopting a “do-it-yourself” approach in which young people solely focus on building up their pot of savings until it is needed in years to come.
Whilst it is wise for young people to build up a good foundation of cash savings at the beginning of their career, this obsession has generated a fundamental flaw in their mentality, believing that taking control of their money simply means setting aside some money each month and holding on to it. However, this behaviour restricts the potential of truly understanding the advantages of investing.
Actively engaging and building knowledge about the financial market is one of the wisest roads to take in order to increase your personal, long term wealth. Investments at its heart is about using your money to generate more money and unlike the misconception that you need £20k–£30k, making an investment in your future can start from a few hundred pounds.
Investments are often a marathon, not a sprint. Sensible investment decisions made over a long time frame will get you there, but only if you make them in the first place. As Statman, a professor of finance at Santa Clara University, pointed out: “Taking risk is not a luxury, it is a necessity”, and truer words have never been spoken.
It’s important to realise that unless you are aware of what’s available, how will you know whether what you’ve been putting your money in is actually worth it?
What reward does leaving all of my £10k in an HSBC savings account provide, aside from a minuscule 0.2% yearly return? Whilst my £10k idly sits in my account and gathers dust, there are plenty of smaller banks willing to offer higher interest rates, and yet most of us don’t take advantage of these opportunities. Compound interest is such a powerful tool that has a reputation for being a safe ‘investment’, so why do we do nothing about it? Maybe it’s pure laziness, the inconvenience of opening a new bank account or perhaps even a lack of awareness about these opportunities?
By not being familiar with the full range of investment opportunities available, we limit our own horizon of potential and close off the doors to fantastic opportunities. We limit ourselves to that measly return and it certainly shouldn’t be that way. Holding on to that lump sum instead of investing, you will never have more than what you save. Rather than continuing to promote the 100% saver mentality that has become the norm, we should encourage each other to set aside some of that idle money on better opportunities to invest our future in whilst the sun is still shining.
#personalfinance #financialplanning #invest #savings
