Now I am all over finance like a rash, it tends to come up in conversation. Travelling home from working abroad I got talking with my engineer and he has been a contractor for years.
Reading between the lines, said contractor had earned a fortune over the years. By the sounds of it, he had earned good money and had a fucking good time spending it.
This is a common trap for us contractors. I started to earn good money in my late twenties and almost immediately my spending matched my earnings. The little pattern for me continued until about 18 months ago – I was sick as fuck and knew I had to sort my shit out.
This particular contractor seems good as gold. He has looked after his wife and two boys. He spent a year doing a house up for his son to move into. His other son lives in his flat rent-free (his retirement pot).
He is trying to tell his wife that the rent-free flat is costing them £8,000 a year but she isn’t listening and I get the impression his two sons will continue to be helped along.
I’ve got to say,“fuck that!” In reality, I will probably end up helping my two daughters in the same way further down the line. I can just see my better half paying our daughter’s rent and whatever else. Two daughter’s that are helped along will no doubt cost more than two sons getting helped along.
Anyway, we get onto pensions and the fact that my new mate hasn’t got one. “I should have invested years ago but I haven’t got a pension.”
That is the reason he is still chasing money abroad in his early 60s. Again, “fuck that!” This time though, I can honestly say, “fuck that” as I have started to plan ahead.
He keeps telling me, “You need to invest as it will soon come round you know!!!” I know what he is saying as the older I get, the faster the years get. Every Christmas I come out with the same shit, “Where has the year gone, they get faster every year.”
I don’t tell him that I have started to invest 6 months earlier and am confident I am on the right path with regards to my pension pot. I just let him have his say and take his valuable advice.
“I could have easily saved £1000 a month and I wouldn’t have missed it you know.” I could put the figures into a compound interest calculator and tell him what he would have saved over 30 years but that would be a c***s trick and id like to think I’m not a c***.
Just for the sake of this blog I will put the figures into my geeky compound interest calculator for illustration.
After investing £1000 a month, for 30 years (interest rate of 7% – based on over 100 years of the stock market) he could have ended up with a retirement pot of £1,133,529. What is really impressive is that £773,529 of this pot is made up of interest earned (via compound interest).
If he earned around 5% interest on his pot (1.1 million) he could take £55,000 a year out and he wouldn’t have to touch his pot. With this money coming in, he wouldn’t have to chase money.
The morale of the story is to invest money as early as possible. If you are a contractor with no pension pot, no one is going to come along and help you out. The only person that will help you out (in most cases) is you.
At the moment, my strategy is to put £800, in my stocks and shares ISA and £200 in my stocks and shares SIPP (Self-invested personal pension). The big aim is to get my FI (Financial Independence) as early as possible.
Although I have only been investing for the last 6 months, I feel confident I know where to put my money. I would invest what you can and learn about money. Most people I talk to haven’t heard about compound interest and it is knowledge that can really help when you are looking to invest long-term.
Spend less than your disposable income and invest the rest.