Signs You're Doing Well Financially (Even If It Doesn't Feel Like It)

do you feel like you're behind financially behind where you'd hoped you'd be at this stage in your life perhaps you're getting closer to retirement and you're starting to worry that you've not been doing enough or maybe you're just starting out saving a few hundred pounds a year wondering if it's even worth it I know that you think you're behind or that you could be doing better than you are and how do I know this well because I'm a financial advisor and I spend all day talking to people about their finances and almost everyone I speak to feels like they are behind no matter where they are on their Journey whether they've got a few thousand or a million we all feel like we are behind but how can that be possible surely we can't all be behind well as with most things it's all in our heads which is why I want to show you why you're probably much further ahead than you think [Music] hello and welcome back to the channel if you're new here hi my name is James I'm a financial planner and this is a place where you can learn to make smarter financial decisions whether we feel positive or negative about the position that we find ourselves in has everything to do with the expectations we set ourselves expectations are everything it is our own personal definitions of what is good versus bad that determines whether we feel ahead or behind but the problem is that we humans are cursed to continually set our expectations slightly Out Of Reach think back to the last time that you achieved a goal perhaps it was getting a new job a promotion or completing a qualification and how once you achieved it you felt great for a few days or a few weeks but now it's just a dull memory in the distance behind you and all you're thinking about is the next thing in front of you and how far away you are from achieving it this can motivate us to climb that next rung on the ladder to achieve that next goal but it is a ladder that will never end because there is always another mountain to climb or another person to compare ourselves with and with the Advent of social media and the embellished lifestyles on show there our expectations are more out of touch than they have ever been before we spend so much time focused on the things that we don't have that it's no wonder we feel behind it's like when you're driving along the motorway and somebody comes creeping up on your right hand side overtaking and all you're focused on is how much faster they are going than you are when what you should really be doing is taking a moment to realize that you yourself are already bombing along at 70 miles an hour and if we can spend less time focused on the people in front of us and more time looking around at what we've gotten where we've come from will feel so much better but that's not an easy thing to do it doesn't come naturally which is why I want to spend the next five minutes helping you to see that you've got a lot more going for you than you think there's two other key reasons why we tend to feel behind financially the first is that we don't appreciate the power of exponential functions over long periods of time and the second is that we don't understand what a normal wealth building curve looks like we assume that if we want to end up with a million pounds at retirement our journey to get there should look like this but as you're about to see this is not how wealth is built and we are now Building Wealth in ways that no other generation has before so the first sign that you're doing well financially is that you are paying into a pension now you might be thinking James come on that's pretty simple but I don't think you're really appreciating what a big deal that is by default if you're employed in the UK you will be contributing a minimum of eight percent of your salary into a pension each year you probably don't even notice it it may even seem like it's so little that it won't make a difference but it can add up to a hell of a lot over time as an example let's say you started working at age 22 getting paid the median starting salary in the UK which would have you paying 2 000 pounds a year into your pension by default let's then assume that as your salary Rises and you're able to save more you then increase the amount that you're paying in by three percent each year once inside the pension your money will automatically be invested predominantly in the stock market so let's then assume that this grows at an average annual rate of seven percent per year by 40. so after almost 20 years of saving you'd only have 93 000 pounds in the pension which may not seem like much and this is the point when people really start to think that this is pointless because we expect we should be way further ahead by now but if you kept on saving slowly paying into your pension in exactly the same way by 50 it would have grown to 240k and then this curve starts to get steeper and steeper until finally it will be worth over half a million at 60. that's the thing with exponential growth at first you don't notice it it's in the background slowly compounding away until suddenly it hits you in the face and this is all with pretty much just doing the default if you're paying more into your pension then you're going to be even further ahead the second sign that you are doing well financially is that you have a repayment mortgage now this might not seem like a good thing but it is over a 25-year term yes you would have paid a lot in interest but you would also have saved an insane amount of money I cannot stress what an incredible feat this is right now homes are more expensive offensive than they have been for the last 120 years with the average price of a home coming in at eight times the average person's annual income that's twice as much as the 1990s of course it would be great if this was not the case but it also means that by paying your mortgage each month you are building up twice as much equity in your home than the generations that came before you that is a Herculean task so if you're in your 30s or 40s and you're paying the mortgage and you've got kids don't beat yourself up that you're not able to save much more than this because you need to remember that you are building up enormous amounts of wealth under the surface if you have a goal of retiring with 300K 500k or even a million you might expect that you need to be almost there by the time that you're 50. but that is not normal you should expect to still be a long way off at this point because it's right here when the magic really starts to happen when you've paid made of your mortgage the kids have left home you suddenly have the cash flow to invest and the effects of compounding are really starting to become visible this is where all the difference is made these are the years where you should expect to double or even triple your liquid assets to capitalize on this opportunity it is crucial that you spend the preceding years in your 30s and 40s building up good financial habits and educating yourself about investing otherwise this moment will come and you'll be like a rabbit in the headlights we often compare ourselves with the generations that came before us and where they were at this stage in their lives but the wealth building curve depends so much on when we've paid off our mortgage and when our kids have left home but we are now doing these two things so much later which is why we should expect to be behind the generations that came before us but we also need to remind ourselves that we are generating most of our wealth in an entirely different way I've helped a lot of people navigate through retirement and and as a very rough guide I see people retiring with about eight times their household income in liquid assets so that's in pension assets and Isis and given that the average house price is now eight times our average earnings at retirement we're left with roughly 50 of our wealth tied up in our homes whereas if you had retired in the 1970s when house prices were only Forex average earnings you would have had half as much wealth tied up in your home and with this distribution of assets downsizing in retirement to release Equity from your home isn't going to extract that much value compared with the impact that it has on your life but nowadays we have so much wealth built up in our homes that downsizing becomes twice as effective so when your kids have left home and you have those two extra bedrooms sitting there unused you really need to understand just how much this is costing you the opportunity cost of having this Capital sitting there idle is huge whereas for Generations that came before us that Capital made up a much smaller proportion of their overall wealth but now we should expect to release capital from our homes at some point in our lives and when we build this assumption into our plans it really helps you realize that you're in a much better place than you think now the final and arguably most important sign that you are doing well financially is that you have protected your family against your own death if you are the main Breadwinner and you have a young family or partner that depends on you how would they cope if you died or perhaps even worse if you became ill and were unable to work again think about that for a second I know it's Bleak but these things happen to families all the time and it's devastating so even if you can't save much right now but you've made sure to get the right Insurance to protect your family in the event of your death or you falling ill then that is something to be proud of you are doing well I know it's hard to see but there will come a time when things get easier either as your income grows or your costs fall away so you should be spending this time now protecting your family forming good financial habits and behaviors and educating yourself so that when that time comes you are ready to capitalize on it I mean the very fact that you are watching this video and educating yourself about this stuff means that you are already way ahead of the average person and if you feel like you're behind then the next step on your journey should be to watch this video here which is specifically for people that only started investing in their 40s or 50s I'll see you there

Channel: James Shack

Views: 178,555

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Id: 7dR9hhrJaAg

Length: 10min 57sec (657 seconds)

Published: Mon Jan 30 2023