In business ‘Revenue is Vanity, Profit is Sanity and Cash is King’. Its also true in our personal lives. ‘Salary is vanity, what you save is sanity and cash is king’ Why is this? In business if you run out of money you are out of the game. Having enough money to keep going when times are uncertain are key. This is about financial resilience. Which also helps build personal resilience. The reality in life and business is that the bumps in the road are the road. You will experience good times and bad times. Which is why having enough cash allows you to survive the worst days, months, and quarters. Whilst you position your business for long term success.
For example, the FANG’s – Facebook, Apple, Netflix, and Google – have surpassed a combined value of $3 trillion*. Which is greater than the gross domestic product (GDP) of the whole of the UK. Not only do they have brilliant business models to thrive in these times. They also have lots of cash on their balance sheet which gives them peace of mind and choices. For example, to keep investing for the long term, buy other companies, or buy back their own shares.
The same is true for investing to secure your financial future. Before you start investing. Set a plan and then start saving. Your number one goals is to set aside money for your short-term needs. This then gives you the freedom to invest for the long term and give your investments time to grow.
For example, did you know if you have a plan to buy a home. If you save £5 a day and invest it for 10 years. You will have enough money for a deposit to buy a home. And the saving habits you have developed will make the bank feel confident giving you a mortgage.
How does it work?
1. First set a plan to buy a home in 10 years. The average deposit in the UK is c£33,000**.
2. Second start saving. Open a Lifetime ISA (LISA). For every £1 you save you get a 25p bonus from the government. You can save up to £4,000 a year and a bonus of £1,000.
3. Third invest for the long term in a stocks and shares LISA. Assuming your money compounds at an average of 7% a year over the 10 year period. Then you will have a deposit worth c£34,000***.
• £5 is £1,825 a year.
• You get a £456.25 bonus from the government.
• Thats a total of £2,281.25 after the first year.
• After 10 years you will have £22,812.50.
• If your investments grow at an average of 7%*** over the 10 year period. Then you will increase your savings by a half to c£34,000 to make a deposit and buy your first home.
So make sure you have enough money set aside for your short-term needs. That includes a rainy-day fund to allow your business to keep going. And in your personal life for those unexpected items, like a new boiler or a car repair. And give yourself the financial resilience to invest for the long term. Good luck!
**Source Money Saving Expert
*** Assumes an annual growth rate of 7% net of charges. This figure is an example only and is not guaranteed. What you get back depends on how your investment grows and the tax treatment of the investment. You could get back more or less than this.