Dear Younger Me,

Save regularly, now here’s some advice I wish I’d been given and listened to in my younger life. The best regular savings advice I’d give, knowing what I know now is to save 10% of every piece of income coming into my life.

It’s a relatively small amount which can make a significant difference over time.

Let’s dive into why this practice is essential and how you can implement it.

Why Save 10%?

  1. Compound Interest Magic: When you save consistently, your money starts working for you. Compound interest allows your savings to grow exponentially over time. The earlier you start, the more powerful this effect becomes.

  2. Emergency Fund: Life is unpredictable. A financial cushion (usually equivalent to 3-6 months’ worth of living expenses) can save you from stress during unexpected emergencies like medical bills or job loss.

  3. Retirement Planning: Retirement might seem distant, but it creeps up faster than you think. By saving 10% consistently, you’re building a nest egg for your golden years. If you start in your twenties then I guess that you will be able to retire much earlier than most.

How to Implement It?

  1. Automate Savings: Set up an automatic transfer from your checking account to a separate savings account. Treat it like a non-negotiable bill payment.

  2. Pay Yourself First: When you receive your paycheck, allocate 10% directly to savings before paying any other bills. Prioritize your future self.

  3. Track Your Spending: Understand where your money goes. Cut unnecessary expenses and redirect that 10% to savings.

  4. Increase Contributions Gradually: As your income grows, increase your savings percentage. Aim for 15% or more if possible.

Where to Put It?

Learn about ETFs: Exchange Traded Funds.

An Exchange-Traded Fund (ETF) is a type of investment fund and exchange-traded product, i.e., they are traded on stock exchanges. ETFs are similar to mutual funds but are listed on stock exchanges and ETF shares trade throughout the day just like ordinary stock.

Here’s a breakdown of what an ETF is:

  • Pooled Investment: ETFs pool money from many investors to invest in a portfolio of stocks, bonds, or other assets.
  • Trade Like Stocks: Shares of an ETF can be bought and sold throughout the trading day at market price, unlike mutual funds which trade once a day after markets close.
  • Diverse Holdings: An ETF can track a wide range of underlying assets, from the performance of a specific index to commodities and bonds.
  • Lower Costs: Generally, ETFs have lower fees than mutual funds due to their passive management structure.
  • Transparency: ETFs typically provide information about the composition of the fund more frequently than mutual funds.

ETFs offer a way for investors to diversify their portfolios without having to buy all the individual components. I live in the UK and can recommend the ETFs offered by Vanguard. Especially VWRL which is their All World fund, it tracks some of the best stocks around the world.

Common Pitfalls to Avoid

  1. Lifestyle Inflation: As your income rises, avoid immediately upgrading your lifestyle. Stick to your 10% savings commitment.

  2. Ignoring Debt: Prioritize paying off high-interest debt (like credit cards) before saving aggressively. Debt eats into your savings potential.

  3. Not Investing: Don’t let your savings languish in a low-interest savings account. Explore investment options like stocks, bonds, or retirement accounts.

Conclusion

Younger Me, save regularly… saving 10% consistently might not make you an overnight millionaire, but it will build a solid financial foundation. Remember, it’s not about the amount; it’s about the habit. Start today, and your future self will thank you.

Sincerely,

Your Older, Wiser Self 🌟

Image by Andreas Breitling from Pixabay

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