How much time do you spend managing your savings? I am guilty of ignoring them and just letting things grow in my current account. Yet I am aware that this does not ‘grow’ my wealth in the slightest. Many of us dream of a passive income and making money with little effort. A number of us have the ability to do just this but put it off for many reasons. Well enough is enough and I am planning to take control by becoming a first-time investor.
Many times I have been to my local bank branch or checked my balance online and shook my head at myself. I know I have too much money sitting pretty. It is a privileged place to be, especially in today’s financial climate but as a professional, I am in the position to have savings. I also have some inheritance that I need to make work for me. I owe it to my grandad, who made his money work for him and was able to leave me such a generous amount.
Yet I have faltered on making the commitment. I stop at the point of actually doing it because I am scared of making the wrong choice, or that I just don’t feel that I have all the knowledge I need. In my head I am sure I am making it more difficult than it is. But I want some hand holding and not just making the decision by myself.
As a rule of thumb, personal finance experts recommend that families set aside a cash ‘rainy day fund’ equivalent to three months of income. Once you have that money in an easy access account then the rest of your money should be working for you. That three months cushion should be there for any emergencies, a new boiler, a new car or your annual holiday. I have that, so for me I know investing is the right choice and I should become a first time investor. Of course, that may not be right for everyone: investing has the risk that your investment might go down in value and that I would be accepting this risk. But what spurred me on was the thought that right now my cash is losing value as interest rates are low, and the purchasing power of my money is going down as prices for everyday things rise.
Research carried out by StepstoInvesting.com has found that many professionals are holding nearer a years salary in easy access accounts. Therefore potentially missing out on vast sums of money. The research implies total cash holdings should equal approximately £340 billion of the £1.32 trillion that is currently held in cash. This means there is a surplus £963 billion sitting unproductively in cash accounts, three times more than at the beginning of the century.
If this £963 billion of surplus cash had been invested in UK equities last year, savers would have earned
£34.8 billion in dividend income, instead of a paltry £3.4 billion in interest. Now that figure makes me want to act and not put investing off any longer.
If, like me, you know that you need to act because you are one of those sitting on money that could be invested and could potentially make you ten times more Steps to Investing is here to help. They are putting on an event where people can come and talk to the experts without jargon and also understand more about how investing works. It will take place in London on Wednesday 25 April, to find out more follow this link. Attendees will have the opportunity to listen to the experiences of new investors who have recently taken their first steps in the investment world, ask questions and learn more about the journey to making the first investment.
Having more money in the bank than you need, that is slowly decreasing in value, is not clever. We are living longer than ever and want to be able to afford our lifestyle in our retirement. Therefore it makes sense to enable your money to make money for your future.
Investing is not just for the really wealthy, it is for those of us that have savings that are not needed right now. Remember though, investing is different from holding cash. With cash, if inflation is higher than interest rates, the value of cash decreases. With investing, values go up and down, so there is the possibility that an investment could be worth less than it cost.”
This is a collaborative post with Steps to Investing which is provided by Janus Henderson Investors.