The big 3-0! Most people hate leaving their twenties and hitting the three decade mark. Many see 30 as the official mark to becoming an adult. It is when you need to take on responsibilities and start thinking about life’s bigger financial problems – housing, raining a family and retirement.
So with the thirties being a big decade for your finance, how much should you actually have saved by the time you reach the age of 30?
According to one of the word’s largest investment firms – Fidelity – people need to have an equivalent of a years worth of salary in their savings by the time they hit 30.
So if you make £30,000 a year, you’d should have £30,000 saved by the time you hit 30.
By 35, you should have twice your salary saved. And by the time you hit 40, your savings should be three times your salary.
In fact, Fidelity has a rule of thumb for how much you should have saved for different point sin your life – Aim to save at least 1x your salary by 30, 3x by 40, 6x by 50, 8x by 60, and 10x by 67.
Saving the equivalent fo one years salary by the time you hit 30 may sound like a lot, but it really isn’t. I for one am on course to have over four times my salary saved by the time I hit 40. If I can do it so can you.
The first thing you need to do is to pay yourself first. Create a standing order for the beginning of the month so that every time you receive a pay cheque, a percentage of it goes straight to your savings account. You can’t spend what you don’t have.
Next you need to make your money work hard for you. There is no point having £10,000 in the bank doing nothing. You need to use that money to make more money. This is where investing comes in. Money can work harder than you ever could.
I’ll give you an example of myself. Instead of leaving my money in a bank account paying 0% interest, I have invested it in money generating assets. These assets pay me £3,500 in cold hard cash every year. In addition, there is a capital gains element as well. I expect the capital gain element to be roughly 6%. In total, my money is growing at a rate of 8% – 12% per annum.
This is way better than 0% I would receive in a bank account. By making money work hard for me and treating it as my slave, I am on course to have a significant amount of money by the time I hit 30. To see what assets I invest in and to follow my real time progress, have a look at the my journey section of this website.
To close off, one thing that I cannot stress enough is the power of compounding. Compounding allows every £1 invested today to become £16 by the time I hit retirement age. By understanding the power of compounding and saving early, you don’t need to save as much over the course of your life to have a comfortable retirement. In fact, if you follow this strategy and are successful, you can have financial independence way before you hit 60 and enjoy early retirement at a young age.