Time - Our Greatest Asset

There's an old story about a man smoking a cigarette during a work-break with his non-smoking colleague.

"How long have you been smoking for?" the colleague asks. "Thirty years," says the smoker. "Thirty years!" marvels the co-worker. "That costs so much money. At a pack a day, you're spending over £3,500 a year. Had you instead invested that money at around 6% return for the last 30 years, you'd have more than £250,000 today. That's enough to buy a Ferrari." The smoker looked puzzled. "Do you smoke?" he asked his co-worker. "No." "So, where's your Ferrari?"

OK, not everyone with £250,000 should buy a Ferrari, or even want one. But we know the rough financial position of the average British citizen, and it isn't within hailing distance of a Ferrari. If the Pandemic has done anything, it has exposed the dire state of savings in the UK, with a vast proportion of the population living from paycheque to paycheque.

How can so many people be so poor if accumulating a lot of money over time is as simple as saving a few pounds a day?

Because most people don't take advantage of what the young have in spades: Time.

They have time on their side. Decades in front of them to save and invest. It's the most significant financial asset they own today, and they're probably not even aware of it. The single best thing they can do for their finances is to realise how valuable it is.

And lucky them, earning a 6% return on their savings does nothing short of miracles over time. If they're 20 years old, every pound they save today will be worth about £18 by the time they are 65 (and that's adjusted for historical inflation). If they're 30, each pound saved today will be worth about £9 by age 65.

When young people think about building money for retirement, they focus on earning more money later in their career. And why not? They'll likely earn far more in their 40s and 50s than in their 20s and 30s. Waiting until they have a nice fat paycheque before they save money makes sense, right?

Wrong.

From the time they're in their 20s and 30s until their 60s, their weekly wages might double. But, money saved in their 20s and 30s could very realistically grow tenfold by the time they reach their 60s.

Put simply - Saving a little bit of money when they're young can be a more efficient way to build wealth than saving a lot when they're older.

We were all young once, spending £5, £10 a day on stupid stuff we didn't even like while working tirelessly to increase our future earnings; Only to realise years later that cutting out the former was probably more important to our finances than trying to boost the latter.

That's how to leverage your assets. That's how to turn cigarettes into Ferraris.

So, if you're trying to decide what to get your Children or Grandchildren for Christmas, maybe give them this newsletter? It could be your most generous gift ever!

And finally ...

We look forward to speaking with you in 2021 and we hope that you have a very Happy Christmas and a Peaceful New Year. Our office will be closed from lunchtime on Wednesday 23rd December, with business-as-usual resuming from Monday 4th January 2021.