Updated: Nov 21, 2021
Slow & Steady Finance helps you make financial decisions with confidence. We explain pensions, mortgages, investments and taxes simply, showing you how to act in your long-term best interests. As the name suggests, our philosophy is focused on the long term - doing the basics right and avoiding the pitfalls to generate long term wealth. We write a short, free newsletter every few weeks which you can sign up for here. You can also find us on Twitter.
Financial education has never been more accessible, yet it’s never felt harder to know where to start or whether you are on the right path. Lots of advice is highly specific, but largely unhelpful without the right foundations - saving €1 on your daily coffee is meaningless if your mortgage is costing €200 a month more than it should!
Here are nine fundamental building blocks that will go a long way to improve your long-term financial security. They’re not glamorous, but keep these in mind and you give yourself the best odds of a comfortable, financially-secure future.
1. Maximise Your Income
Earning more is ALWAYS better than earning less, and it’s the easiest way to improve your circumstances. So do the overtime, go for that promotion, ask for a raise, or get qualifications that will increase your future earning power. Side-hustle’s can be tempting but it’s usually best to put all your efforts into your main career, especially when young. If you eventually hit a career ceiling, explore the side hustle then, or Airbnb your spare room, or do whatever else you can do to increase your income. Just remember that the bigger your income, the easier it makes everything else.
2. Pay Your Taxes, Fully
Not something PAYE workers need to worry about, but if you are self-employed or relying on a side-hustle it’s easy to stray into risky territory. Resist the temptation. You’ll get away with it for a while but Revenue will eventually come knocking. They will probably already have your data (shared directly by AirBnb / DeGiro / Coinbase etc), and you’ll be shocked at how much penalties and interest add on to what you’ll already owe. This can be catastrophic to your finances, and is just not worth the risk.
3. Beware Lifestyle Creep?
Remember when a cheap night cost €20 in your 20’s? And how it’s more like €100 now? That’s lifestyle creep. Prices have gone up, but the real damage is getting a taxi instead of the bus, formal dinner rather than a takeaway, and €15 cocktails instead of a few cans. This is a silly example, but it explains the point. It’s great to earn more, but it can feel like running to stand still if your spending habits increase just as quickly. So question whether you really need the Priority Boarding, the 4* Hotel, or the designer handbag. By all means enjoy your money, but do it with your eyes open.
4. Don’t Buy a Car.
Seriously. Just don’t. If you can avoid it at all.
They cost a lot to buy, even more to run, and always need cash for service or repairs when you can least afford it. Worst of all, a car is a depreciating asset that's virtually guaranteed to lose value every year - it makes no sense to spend anything more than the bare minimum on an asset like that. For many, the true economic cost of a car is more than €5,000 per year [footnote of what is included in that], and you’d get a lot of taxis/trains/buses for that same €100 per week! So don’t buy a car if you can avoid it, buy a modest brand if you must (think Toyota, not Audi!), and don’t buy new. And if you’re a two-car household, see if you can get by with one.
These next three are each equally important, but you’ll have to prioritise them based on your circumstances. It’s OK to put one on the back-burner for a while if something else is more urgent, but don’t neglect all three, especially your pension.
5. Emergency Savings
We’ve all heard this. Put enough aside to cope with an emergency like losing your job or ill health. How much you need depends on your circumstances - some people advise saving up to 6 months of spending, but maybe that’s not realistic for everyone.
6. Saving for a Goal
You’ll probably find yourself saving for a major goal every now and again - further education, a car (despite 4 above!), a house deposit, a wedding, or a child's education - many of which could easily cost €20-30k or more. It’s always sensible to prioritise this, and to save or invest towards this goal in a way that's appropriate for the risk involved.
This one is most boring, but probably most important - it may well be the difference between being comfortable in your later years or just scraping by.
I’ve written a lot explaining how pensions work, how they grow and why you need one. But despite all their complexity, the advice is really simple - start one (even if you already have one at work), start it today (time REALLY matters) and contribute as much as you can afford. It’s a smart decision anyway, but the tax incentive makes it one of the simplest ways to substantially reduce your income tax bill. After that, just forget about it and let compound returns work their magic.
8. Optimise your Mortgage
Mortgages can be tricky, but ignorance could easily cost you €50-100k over the life of a mortgage - there are few areas in life so costly if you’re not paying attention. Here’s a simple overview of how they work, some other things you should know, but if you’re too lazy to read, it all boils down to ensuring you are on the best rate in the market (why that matters), and being thoughtful on fixing your term.
If you have any money left after all of the above, investments become more relevant. (Unless you are Warren Buffett, you’re almost always going to be better off maxing your pension contributions before trying to make your own investment returns.) Examining your risk tolerance should be the first step, followed by understanding the range of investment options out there - there’s more than you think.
The output of the entire world flows either to labour or capital. Most of us earn a living with the fruits of our labour, but think of investing as earning a living via a return on your capital. Get it right, and over time the goal is to earn returns while you sleep (and maybe even stop needing to labour too!). You might buy a bond that pays a coupon, stocks that pay a dividend or go up in value, or an investment product that combines either of these in infinite ways. Starting off small and insignificant is inevitable, but keep at it long enough and the power of compounding will have a big impact on your returns.
We could (and will) get into much more detail under all of these headings (especially on investments), but the overall lesson is to consider them all relative to each other. It would be silly to earn a lot via Airbnb only to be hit with a big tax bill in 5 years that wipes out your savings, but it's similarly foolish to put your house deposit savings into high-risk investments. But keep an eye on all of these things, in the right proportions, for a long enough period, and you give yourself a very good likelihood of having a secure financial future.
We write in an attempt to explain important everyday financial topics in ways that are easy to understand. Follow us on Twitter, where comments, questions and feedback are welcome.