Wednesday, September 23, 2015

Planning For Retirement In Your Twenties Is Never Too Early

When you are in your twenties, setting goals such as saving for retirement is really unfathomable to most. The better goal would be to think that you are saving to give yourself choices and freedom in life. 

To enable you to give the finger to any ass* who really disrespects you along the way and not have to faint financially from the repercussions. To be able to travel anywhere at a whim without having to work out a savings plan or put it on the credit card because you are moneybags.

I received an email a while ago from another blogger and personal finance writer, Marianne Ahlmann. It's probably a copy and paste job to many other blogs, however, I thought the questions were interestingly posed:
Good afternoon, 
How is your Monday going? I'm Marianne with Personal Capital, a company helping people achieve financial success through technology. I came across Smart Money Guide as I was looking into how young adults can take more control of their money and lives. 
Your 20s are typically the perfect time to start planning for retirement, but sometimes life gets in the way. What did you do successfully in your 20s, or if you could go back in time, is there anything you would have done differently to ensure a better financial future sooner in life? In a post on Smart Money Guide, I would love to hear your thoughts on how you built your financial safety net in your 20s--and how young adults can start now if they haven't already. 
Let me know if you'd be interested in sharing! 
Marianne Ahlmann Content and Social Media 
Thought it would be worth expanding on the financial questions asked. Personally, I would say it's been an amazing investment journey and there has been lots of lessons and strategies evolving over the years. I had a head start considering my educational background in school was heavily weighted into economics, business, maths and English. At 16, I met a super intelligent guy who was an economist at the Reserve Bank of Australia and he sparked off a life long interest in economics and financial maths.

Upon leaving school, I obtained double degrees in Accounting(B.Accg) and also Applied Finance(B. App Fin). And post University, I finished my CPA. Both Mr SMG and I started saving and investing the moment we left University. We bought into non-performing managed funds. We bought blue chip stocks in the ASX100 which paid dividends twice per year, we bought real estate. We leveraged using the bank's money. We both did that individually until our paths collided and then we combined our assets and the combination of joint finances really took off. 

I'm a pragmatic type of person. Every action has its consequences. If you save and invest from your twenties, of course you will have assets and most likely be a millionaire, probably many times over, by the time you retire. If you are a spendthrift and blow everything you earn, of course you are likely to be a pauper, struggling financially and living some sort of financial nightmare.

Based on my own personal experience, let's cover the things I have learnt and what you can do in your twenties to ensure a better financial future:

* Build multiple sources of passive income streams as early as you can. If you're not working, your money is still working hard for you
* Embrace leverage and good debts, borrow more money to invest in more property and shares
* Don't listen to the naysayers and the doom and gloomers, do your own thing and buy when you can afford
* Diversify across asset classes. The various asset classes usually have alternating cycles so when one, such as the stockmarket is in the doldrum, the other such as real estate is experiencing growth. Many investors will pull their funds out from one class and invest into a different asset class. They don't like dumping their funds into bank deposits and cash accounts to earn 0.01% per annum interest. Gross interest of 5% yields 3.5% after tax on the average 30% tax rate and after head line inflation of 2.5-3.5%, your funds have experienced zero growth and zero capital appreciation. 
* Save as much as you can and buy assets as early as you can, use leveraging and investment/mortgage loans to grow your wealth faster (only as much as you can afford to borrow and commit to)
* Don't buy managed funds unless you wish to have your funds consumed by the investment banks. The entry, management and exit fees will erode your funds.
* Learn about assets, liabilities, investment terminologies and strategies as early in life as possible
* Read lots of investment books, read financial news, learn financial maths about how to calculate returns, ratios, mortgages, how to compare returns
* Keep learning and building on your knowledge every single day. Do not stagnate. Do not let your knowledge erode
* Do not let swindlers and scamsters take your money and run, if it's too good to be true, it is
* No one cares about your money more than you do. Not the financial adviser, the mortgage lender, the banker, the accountant, the lawyer or solicitor, your friends or your family. Lend only what you can afford to write off and don't expect to be repaid what you have loaned out.
* Embrace technology and use it for investing, for learning, for managing your portfolio.
Don't overstay at any particular company
* Watch out for fees and charges. As Jack Bogle, the Father of Index Funds has been quoted, the "miracle of compounding returns is overwhelmed by the tyranny of compounding costs"
* Travel slightly more because now commitments are so intense that it's almost impossible to get away (have travelled a couple of times to Cananda, US, Japan, Hong Kong, Singapore, London, France, Germany, Italy, New Zealand but wish I could have travelled a bit more, but can't complain)

In 2013, I wrote a post about pro-property enthusiasts posting about regrets and what they would have done ten years ago with what they know now. Here is part of the post below. If you(or we) had bought as much property as possible, we would all have been several more millions better off and closer to financial freedom.

The real estate boom in Sydney from 2013 to now 2015, has been incredible. I wrote in 2013 that our house would have costed $100k more back then, today, our house would cost about $500k-$700k more to buy. And that's just two years. Imagine trying to save up $250k to $350k after tax per year. Here is the extract from my post two years ago which I obtained from Somersoft forumites:
*  "buy something, for goodness sake. Get into real estate. Be careful- but not so careful as not to buy...If someone was going to buy another property, I would be suggesting, as Rolf de Roos does, to at least aim to look at 100 properties.I'm not sure about his other figures- but, at least, if you look aim at looking at 100 properties, you'll start to get at some ideas of good vs bad value"
 "Get a real education, a financial education. Read as many books on financial topics as you can...Your borrowing capacity is not a problem (if you know the rights things and speak to the right people)"
"Educate myself on all things financial, Property, Tax, shares etc...Invest as early as possible as time is the essence of good investing...Do not be suckered into public or media hype or fear...Device a plan and stick to it...Keep all things in perspective...By(sic: buy) all the property you can! "now"!!!!!!!!"
"If I was to give myself advice for 10 years ago it would probably be to put into practice the principles from the book The Richest Man in Babylon."
"FINANCIALLY – Educate yourself. Don’t follow the crowd. Take a chance now and then. MORALLY – Stubbornly believe in your abilities and be good to those less fortunate.For one thing I would have hugged and kissed my mum a lot more often and not taken her for granted."
"1. First, last, foremost: Educate yourself financially, friend. Read some good books, it's not really difficult, get to know the basics and understand how this money stuff works!! Learn, learn, learn so you can work smarter, not harder. 2. Spend less. Those doodads add up. Did you know you can afford a property on what you spend on lunches/coffees/etc? 3. Use 1 and 2 to buy effective investments. Buy property now. Don't wait to 'save up the deposit', don't wait 'to pay off your mortgage'. Use the house equity & buy now. Balance negative geared with positive cashflow."
" I would have got into property and not share traded or bought into managed funds like I did then!! That is for sure!" [Must have been burnt by the stock market]
"What I would do differently if I could go back would be to purchase a property as close to the beach or city as possible, take interest only loans for 90% of purchase price (and pay the LMI), wait 6 - 12 months to see the effect on my cashflow and use surplus savings from my income to fund the next purchase....quite a conservative strategy but one that would have me sitting on at least 5 properties that as a group would be putting cash in my pocket and worth substantially more than my purchase costs. I would have my current accountant preparing my tax returns and give me advice on how to structure investments."

"I wish I had read the book E-Myth by Michael Gerber back then. The best book for business owners I have read... I invest in what I know, which is real estate and I always have a plan "B", my what if it doesn't work plan. I have written goals, a business plan and I let those around me know what they are and try to keep them focused on them also. Being part of a great network is a very big help, I now know the advantage of franchises although I had never before been an advocate."
"*make sure you are armed with information     *develop your strategy and then make a move     *don't blindly follow the advise of someone else     *don't be complacent, know what's going on at all times     *use the rental income to your advantage     *do everything possible to avoid selling."
" 1. Invest whilst you are living at home with your parents. It would seem to be the easiest way      to gain a good foothold for achieving financial independence.    2. Buy property that you can rent out, not land. I bought land at the age of 21, with the              intent of building my future home on it in X years time. Would have been much smarter to buy      a rental property, especially one I could live in later, perhaps.    3. Obtain financial education - not from your parents because more likely than not their              "advice" will be ultra-conservative and keep you in the rat race (but you still gotta love your          parents).    4. Get into the habit of saving a'la Richest Man in Babylon. Material possessions are not             everything.    5. Balance your life and your work, and value your health."

"Don't waste your time on jealousy. Sometimes you're ahead, sometimes you're behind. The race is long and, in the end, it's only with yourself...Get to know your parents. You never know when they'll be gone for good. Be nice to your siblings. They're your best link to your past and the people most likely to stick with you in the future. Understand that friends come and go, but with a precious few you should hold on. Work hard to bridge the gaps in geography and lifestyle, because the older you get, the more you need the people who knew you when you were young."
"Keep going with your plan. It works out. Don't get scared as the numbers get bigger." 
 Anyway, I do love reading the financial and personal advice that the forumites gave and it is true, your family and friends are very precious. Appreciate and love them and let them know. Life is just too brief.

And that concludes this mammoth post. I sincerely hope that this post will help and contribute to someone's life in a beneficial way. I am always forever grateful to the generous community out there posting up and sharing freeware, shareware, widgets, apps and knowledge. I am hoping to do my part too with beneficial contributions.

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