Retirement saving: five habits of millionaire investors

Time to get your retirement finances in shape? Here are five habits of highly effective investors.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I’ve always found it bizarre that we tend to learn a whole lot of things at school that realistically, most of us will never use in real life… ever. At the same time, the education system often seems to neglect fundamental real-world topics, such as money management. This is an essential topic that almost every single one of us needs to have a basic knowledge of, yet it’s very rarely taught. And they wonder why people are reaching retirement age with minimal savings?

If you feel you’re lacking financial intelligence, don’t despair. Today, I’m looking at five habits of highly-effective investors that could help you get into top financial shape and potentially retire with a large savings pot.

Spend less than you earn

It all starts here. If you’re spending more than you earn, you may never achieve financial independence. It’s a downward spiral. Buying things on a credit card and paying interest on your debt can get ugly fast. It’s not a good place to be financially and can lead to high levels of stress. So be disciplined and ensure you spend less than you earn.

Save first, spend later

Without a doubt, the easiest way of saving money is to pay yourself first. In other words, as soon as you receive your pay cheque, allocate an amount to savings, before looking at your expenses. Even if it’s just a small amount like £50 a month, that’s better than nothing. It will add up over time and you probably won’t miss it.

Emergency fund

Once you’re putting money aside, the first thing to do is to build an ‘emergency’ fund. This is money that is easily accessible and that can be used for emergencies such as unexpected bills, or an unfortunate situation such as losing your job. Ideally, this should be around three months’ wages. Knowing that you could easily cover something like an unexpected medical bill or urgent house repair will provide great peace of mind.

Set an asset allocation

Once your emergency fund is in place, it’s time to look at investing your money for the future. That way, by the time you get to retirement age, you’ll have enough savings to live comfortably.

One of the first steps here is assessing your risk-tolerance and developing an asset allocation. In layman’s terms, this means working out how comfortable you are with risk (your investments fluctuating in value) and what percentage of your money you want in different assets such as shares and bonds.

If you’re unsure about this, don’t be afraid to speak to an expert. After all, it’s your future at stake here. It’s very important to get this step right as your asset allocation can have a large impact on your wealth over time.

Minimise taxes 

Lastly, when investing, you want to make sure you’re minimising taxes. To do this, look at tax-efficient products such as the ISA. In this type of account, any gains you make are tax-free. Paying minimal tax on your investments can have a powerful effect on your wealth in the long run.

If your financial habits have been poor in the past, it could be time for an overhaul. Implement the financial habits above and you’ll give yourself a great chance of achieving financial freedom.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Bronze bull and bear figurines
Investing Articles

After the general election what might happen to the FTSE 100?

Our writer’s been looking at the manifestos of the three main political parties to try and understand how the general…

Read more »

Young Caucasian man making doubtful face at camera
Investing Articles

When will Shein hit the UK stock market and should I invest?

With Shein looking likely to list on the London stock market in 2024, this writer weighs up the case for…

Read more »

Investing Articles

Start supercharging passive income with REITs!

Are REITs the ultimate investment for boosting income generated from a portfolio? Zaven Boyrazian explores some of the most lucrative…

Read more »

Investing Articles

Should I buy more Rolls-Royce shares near 500p?

This investor is wondering whether to buy more Rolls-Royce shares this summer or to just stick with those he already…

Read more »

Investing Articles

After its big fall, is the National Grid share price dirt cheap now?

The National Grid share price fell sharply in reponse to new rights issue plans. But is it an even better…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Starting in June, I’d invest £1,000 a month to aim for a £102,000 second income in retirement

This author highlights a less well-known FTSE 100 stock that could help his portfolio generate a very big second income…

Read more »

Investing Articles

Down 47% in 5 years, is the IAG share price due a bounce?

Many companies in the travel sector have seen fierce rallies since 2020. But with the IAG share price still down…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

Despite its drop, I reckon this is one of the best FTSE 100 stocks to buy and hold!

The FTSE 100 has been climbing in 2024 but this favourite of our writer's has been falling. Despite this, she’s…

Read more »