Stocks and Shares ISAs: a good idea

A Stocks and Shares ISA allows us to avoid paying capital gains tax on profits made from our investments. Investing ‘careers’ can last for 40 or 50 years, so that could add up to hundreds of thousands of pounds.

This type of ISA also allows an investor to avoid paying income tax on any dividends they receive. Research has consistently shown that reinvesting cash returns can turbocharge returns. The less I return to the taxman, the better!

Another reason for using a Stocks and Shares ISA is that returns are likely to beat those offered by a Cash ISA. Right now, the latter offers just 0.5% at best in interest. Of course, investment returns can never be guaranteed (and building up an emergency money fund is a bad idea) but a Cash ISA won’t help me grow my investments.  

Use it or lose it

One key point about the annual ISA allowance (£20,000) is that it has a time limit. In other words, I can’t roll over any of my 2020/21 allowance into the 2021/22 tax year. If I don’t use it, I lose it. 

Given this, if I didn’t already have one, I’d open one today, rather than waiting until after 5 April. I could then invest up to £20,000 for this year and repeat that after April 5 using the next year’s allowance. 

Every little helps

Not everyone will be able to invest the full allowance. Even so, I don’t think this should put anyone off. As little as £25 per month can help in building a nest egg. An annualised return of 7% over 30 years adds up to around £28,000 by 2051 (ignoring fees). 

Returns could be lower or higher, of course. An annualised return of 10% on £25 per month over the same period brings the total ISA pot to around £49,000. Again, I’m ignoring fees.   

Stock-picking

Picking stocks for an ISA portfolio is very personal. What suits one investor may not suit another based on their financial goals and risk tolerance. I’m adopting a quality-focused approach. I’m searching for companies with low debt and for those businesses capable of growing profits and generating consistently high returns on capital employed as they go. I won’t turn down a dividend, but I’m most interested in whether these cash returns can grow year-on-year. The actual size of the dividend is of less concern to someone like me who’s not dependent on making income from my investments.

Away from the numbers, the best shares to own in an ISA will arguably be those belonging to firms offering multiple products or services. Being a market leader or operating in a space with limited competition is also desirable. As the Brexit saga has taught us, there’s a lot to be said for buying shares in companies with a global reach too.

The length of time someone remains invested is also a key factor. If I invest £25 for 40 rather than 30 years, I’ll theoretically end up with even better returns: almost £60,000 (at 7%), almost £133,000 (at 10%) and a whopping £304,000 (ar 13%).

That’s the power of compounding over time. And that’s why using my ISA allowance is a priority for me.

The post The ISA deadline is approaching! Here’s what I’d do now appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Avoiding the tax grab

Holding my investments within a Stocks and Shares ISA or Self-Invested Personal Pension (SIPP) is a no-brainer for long-term investors like me. Doing so ensures I won’t pay any tax on the profits I make or any dividends I receive. While returns are far from guaranteed, the more money I retain, the more I can benefit from compound interest. All other things being equal, this should see me achieve far better returns. 

Whether an ISA or SIPP is most appropriate will differ from person to person, of course. Any money held within an ISA can be accessed immediately. A SIPP, as one might have guessed, is geared towards saving for retirement. The fees for running each account can also differ substantially.

Speaking of which…

Limiting broker costs

Another way of boosting returns, at least in theory, is to minimise the commission costs I pay for buying or selling shares. A quick online search reveals that these can vary wildly between UK brokers. One charges as much as £11.95 per trade. Another charges £7.99 per trade. Sure, there are other things beyond costs to consider when selecting who to place trades with. But this doesn’t negate the fact that this difference in costs will add up over time.

However, I go one step further. Since timing the market consistently is so fiendishly difficult, I don’t even try. Instead, I automate the vast majority of my buying so that deals go through on the same day every month via my broker’s regular investment scheme.

In addition to taking emotion out of the equation, this strategy is also a far cheaper way of buying shares. One of my brokers charges just £1.50 per transaction. Another doesn’t charge any commission at all! This will save me potentially hundreds of pounds over an investing lifetime.

Sure, reducing the amount of commission I pay doesn’t guarantee stock market success. Nevertheless, it does increase the probability that my returns will be better.

Value for money

A final way I’m attempting to boost my performance is by checking that any funds I own represent the best value for money. This involves looking at the ongoing fees charged by the manager. 

Naturally, the cost of owning a specific fund needs to be balanced with the return it’s likely to generate. A FTSE 100 tracker may be cheap to run (and involve less risk) but its returns over decades may be less than one that focuses on, say, quality UK small-cap stocks. The point here is to compare like with like.

Nevertheless, if the differences between an active and passive fund are minimal in terms of stocks held, I’d be very likely to opt for the latter due to the cost-saving I can make. Again, this could have a substantial impact on my eventual returns from the stock market.

Look after the pennies and the pounds will look after themselves – that’s the Foolish way.

The post 3 simple ways I’m boosting my stock market returns in 2021 and beyond appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Rather than dismiss me as some irksome Scrooge out to steal any sense of joy from the festive period, l implore you to keep reading. Your future (far richer) self may thank you for doing so.

National Lottery draw: The awful odds

To begin with, let’s look at some facts. Your chances of having the winning Lotto ticket by picking the correct six numbers are 1 in a little over 45m. To put things in perspective, you have a better chance of being struck and killed by lightning in the UK (1 in 19m). 

Even just matching three numbers isn’t easy. Only 1 in 97 tickets manages this feat. And the prize for all that good fortune? £30.  

What’s the harm?

Now, don’t get me wrong. I’m not for a minute suggesting people don’t know what they’re doing. While most of us won’t know the exact odds of winning mentioned above, we’re sensible enough to appreciate the chances are slim to exceptionally slim.

There is, of course, nothing inherently wrong with a one-time flutter at Christmas either. Just dreaming about what one could do with £15m is nice enough, particularly after the horrific year that 2020 has been. 

No, the problem comes from repeatedly buying tickets. And given that many people will be feeling the pinch in 2021, due to Brexit and Covid-19, it’s quite possible some will get into the habit of doing so to increase their chances of striking it rich.  

This habit could get very expensive. Right now, entering the main National Lottery draw costs £2 per line. Let’s say a person regularly plays five ‘lines’ twice a week, every week. Over the course of a year, that comes to a staggering £1,040.

I think there’s a far better route to riches.

UK shares are a better bet

Given the choice, I’d always invest that £1,040 in the best UK shares I can find over participating in the National Lottery draw. There are a couple of big reasons for this.

First, shares are more likely to make people rich than the Lotto ever will, albeit at a slower rate. History shows that stock market returns trump every other asset over the long term.

Remember that £1,040? If I were to invest this amount in the stock market in one go and generate a quite reasonable 7% annual return for 30 years, I’d have almost £8,000 at the end. If I managed to make a 10% return, I’d have a little over £18,000. Sure, there will be ups and downs along the way, but the end result is surely worth holding for.

Don’t forget, this example is based solely on the money that could have been spent gambling in a single year. Think how much better the outcome could be if I put even more money to work. 

A second reason is that, right now, many London-listed stocks are still far too cheap. As seasoned investors will attest, the very best time to buy shares is when they are hated. Pick well, and the Christmas flutter you do have on a National Lottery draw will be irrelevant.

The post Forget the National Lottery draw. I think UK shares are a better way to get rich! appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Today I’m going to talk about the one thing all new investors must learn and all experienced investors must remember. The fact that we’ve just experienced the worst quarter for stock markets since 1987 makes it even more relevant.

The most important thing

Forget all the fancy money-making strategies you’ve heard. To really increase your wealth, it’s more important to understand the concept of ‘compound growth’.

We experience compounding in everyday life, usually without even recognising it.

Suppose you want to get fit and decide to dedicate 10 minutes a day to exercising. Initially, progress is slow. Over time, however, workouts become easier and your body can do more.

The reason for this is simple: every bout of exercise builds on those previously completed. 

Compounding can work against us too. Allowing ourselves an extra portion of something calorific at dinner might not feel wrong at the time. The result of doing so many times over many evenings, however, eventually shows on our waistline. 

The little things we regularly do add up.

So, it can make me rich?

Yes. Compounding is the not-so-secret sauce that can also make you wealthy. 

Imagine investing £20 in the stock market every month (or £240 per year) for the next 30 years. Over this period, markets rise in value and you re-invest any dividends you receive.

Although the actual rate of return will vary from year to year, let’s say your portfolio returns 10% per annum. So, after one year, your money increases in value by 10%. In the second year, the money you had after the first year increases by 10% and so on. 

After 30 years, you’d have nearly £40,000. It’s grown by so much because you’ve earned interest on interest every year. Your money has compounded. 

Remember, this is the hypothetical result of investing just £20 per month. Put away £50 a month and you’ll have almost £99,000 based on my figures. £100 a month will give you over £197,000. It’s not magic, it’s simple maths. 

The only caveat is that there’s no guarantee the stock market will return that 10% average per year. It could be lower or higher, depending on what you choose to invest in and how those investments perform. 

Dedication required

Compounding can make you rich, but it still requires two things from you: commitment and patience.

Just as practicing the violin once every year won’t lead to any meaningful gains in terms of ability, saving ‘when you feel like it’ is unlikely to substantially increase your wealth.

This is why setting up a direct debit to take even a small amount of money from your bank account to your ISA every month without fail is crucial. By automating your savings, you take out the need to be motivated to save.

Second, learning to delay gratification is vital. Warren Buffett’s wealth has increased massively in later life because he recognised that results aren’t immediate. He continued to invest, through good times and bad. 

Which brings me back to the start. Having the courage to invest through market wobbles is desirable since it allows you to buy more when prices are depressed. The more stock you accumulate at lower prices, the greater the eventual upside will be.

Forget the market crash. Remember the power of compound growth.

The post Forget the stock market crash. Knowing this could help you retire rich appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I suspect the answer to this, at least according to research, might surprise you. 

To lump or to drip?

Investing all your money in the stock market in one fell swoop does, of course, ensure that it goes to the very place that’s proven to outperform all other asset classes over the very long term. The quicker you put it to work, the more you’re likely to benefit from the magic that is compounding.

Given that cash payouts have been found to make up the majority of eventual returns (assuming they’re reinvested back into the market rather than spent), investing ‘immediately’ also allows you to receive dividends from companies whose shares you own.

On the downside, lump-sum investing feels decidedly risky. After all, you could be buying at the very moment markets are peaking.

Drip-feed investing (or ‘pound-cost averaging’) neatly avoids this. By regularly investing the same amount every month, you’ll buy some stock when prices are high and some when prices are low, thus smoothing out your returns over time. 

A drawback of this approach, of course, is that no one knows where markets are going next. So, while drip-feeding works wonders in a falling market, the opposite will leave you with far less stock than if you’d gone ‘all-in’ from the off.

Another potential issue to the drip-feed approach is that it can be hard to decide exactly how much you should invest every month when you’re working with a lump sum. To complicate matters, the longer this money stays in your cash account, the more likely its value will be eroded by inflation. 

What does the evidence say?

It might surprise you to learn that according to a study conducted by US passive investing powerhouse Vanguard back in 2016, lump-sum investing generates better returns than its drip-feed counterpart roughly two-thirds of the time. 

This was true regardless of asset allocation (e.g. whether you had all your money in equities, all in bonds or a 50/50 split) and whether your money was invested in the US, UK or Australian markets. Nevertheless, the average outperformance of lump-sum investing wasn’t that big (2.39% in the US, 2.03% in the UK and 1.45% in Australia).

So, I should just invest it all?

Not necessarily. While Vanguard’s research suggests that lump-sum investing generates slightly superior returns more often, this doesn’t automatically make doing it any easier, particularly at times when markets are looking expensive (such as the US right now).

If investing everything at all once will keep you awake at night then the potential for slightly lower returns through the drip-feed approach might be a price worth paying. You may even get lucky and see markets fall over the time you’re investing.

That said, Vanguard does recommend moving money into the market over no more than one year so that you aren’t in cash for too long. If you fear a crash, this could involve increasing your allocation of less volatile assets such as bonds and moving into equities at a later date.

The post The surprising truth about lump sum vs drip feed investing appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Compounding

Let’s start with compounding. If I had to list the single most important concept to understand when it comes to wealth generation, this would be it. Put simply, it’s the secret to getting rich.

Compounding refers to the process of earning interest on your interest, or earnings on your earnings. The reason that compounding is so important when it comes to building wealth is that if you can compound your money by continually reinvesting your earnings, your money will grow at an exponential rate.

Just look at the chart below which shows how £10,000 grows when it’s compounded by 10% per year. In the first year, the gain is only £1,000. Yet by year 50, the gain is over £100,000 per year. That’s the power of compounding.

Ultimately, the sooner you begin compounding your money, the more wealth you can generate.

Risk and return

Next, it’s critical to understand that in the financial world return is directly proportional to risk. So, if you want to generate a healthy return on your money, you will have to take a degree of risk. This means investing in higher-risk assets such as stocks.

Many people don’t like taking any risk at all with their money, so they leave it sitting in a Cash ISA earning 1%. That’s fine, but it makes the process of building wealth extremely difficult as inflation actually erodes the value of the money over time.

The bottom line is that unless you’re earning an astronomical salary, investing your money in growth assets, which are higher risk than cash savings, is the best way to generate wealth over the long term.

Capital preservation

Finally, the third vital concept to understand is that of capital preservation. If your goal is to build your wealth significantly, it’s important to have sound risk management processes in place so  you don’t lose too much money on any one investment. As Warren Buffett says in relation to investing: “Rule No. 1: Never lose money. Rule No. 2: Don’t forget rule No. 1”.

Losing vast amounts of money can really set you back. That’s because when you do, you have to make much more, percentage-wise, just to break even. For example, if you lose 50% on an investment, you have to make a 100% return just to break even. Lose 80% on a stock, and you need a 400% return to make it back to square one.

Perhaps the easiest way to lower your overall portfolio risk and reduce the chances of losing a lot of money is to diversify your capital across many different asset classes, sectors, stocks, and geographic regions. This way, if one asset struggles, it shouldn’t impact your overall returns too badly.

Investing doesn’t need to be complex. But you do need to get the basics right. Focus on the three concepts I’ve discussed above, and it will make the process of building up your wealth far easier.

The post Want to get rich? Here are 3 things you need to understand right now appeared first on The Motley Fool UK.

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Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Here’s a reminder of why all at the Fool hold this kind of account in such esteem and why we think every investor should be making the most of them.

Use it or lose it

Let’s start with the basics. The two versions of the account that are probably most relevant for readers are the standard Stocks and Shares ISA and the Lifetime ISA (LISA).

Both are tax-free wrappers. In other words, any profits you make or dividends you receive from the investments you own are protected from the taxman in either account. Buy a stock for £1,000, sell it for £2,000 and whatever’s left over after fees is yours.

There are, however, also some key differences between these accounts. 

The maximum amount you can pay into an ISA is £20,000 in any one year. This allowance runs until April 5 and can’t be carried over. Contributions to the LISA count towards this limit (as does anything you put in a Cash ISA) but are capped at £4,000.

The extent to which you can get to your money also differs.

While there are no restrictions when it comes to retrieving your cash from a normal ISA, you can only access the money in the LISA when you reach 60 years of age or earlier if you wish to fund the purchase of your first home.

Assuming you’re not a first-time buyer, the LISA is therefore only something to be considered if you can leave your money well alone. As an incentive, whatever you feed into to this account over the year entitles you to a 25% bonus from the government. So, paying in the full £4,000 gets you an extra £1000 to invest as you please. Cash out early and you’ll be hit with a 25% penalty. 

Taking all this into account, it’s not hard to see why having at least one of these accounts is a no-brainer for the vast majority of investors looking to accumulate wealth.

Another thing worth doing within your ISA or LISA is taking advantage of regular investing plans. Rather than invest a lump sum all in one go, it can be psychologically easier (although not necessarily more profitable) to invest a fixed amount each month. This allows you to buy more of a particular share or fund when the price is low and less when the price is high, thereby smoothing out your returns. 

Depending on your ISA or LISA provider, using a monthly investment plan can also reduce buying costs by as much as 90%! As many experienced investors will attest, keeping a lid on costs can be just as important as the investments you choose. 

Every little helps

Over a long enough timeline, the full benefits of the ISA allowance really become apparent. Assuming you are able to invest the maximum £20,000 per year (and for simplicity’s sake, assuming the allowance does not change over the years), you’d have almost £2m after 30 years, assuming a return of 7% per annum.

Of course, very few of us are able to make the maximum contribution every year (if ever). Nevertheless, the more you can stash away in either account, the more you’ll benefit from compounding over time. 

The post ISA deadline alert! Time is running out to make the most of your allowance appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I have no doubt that many readers would pick the million. After all, £1m is a life-changing amount of money. With a million in the bank, you could perhaps retire early and travel the world. That amount of money brings significant choices.

Yet would picking the million be the best choice of the two options? Could it be possible that taking 1p, and doubling it every day for a month, could be the better option?

Let’s run the calculations. You may be surprised at the result.

The table above shows that, incredibly, 1p doubled every day for a 31-day month, would grow to a staggering £10.7m. It’s quite unbelievable, isn’t it? I was surprised myself – I had to check my calculations to make sure I didn’t have the decimal place in the wrong spot.

Those that were willing to take the 1p, and have it doubled every day for a month would end up with over 10 times the amount of money than those who opted for the million straight up. So, what’s the key lesson here?

The power of compound interest

The calculations show the incredible wealth-building power of compound interest. This is interest that is earned on previously-earned interest.

In finance, compound interest or ‘compounding’ is a fundamentally important concept to understand, and capitalise on, because it can result in the exponential growth of your money over time.

Over the long term, it can transform even a little amount of money into a huge amount of wealth. The important thing to realise is that the earlier you start compounding, the larger your wealth can potentially become.

Compound with growth assets

Now, unfortunately, it’s not realistic to expect to be able to double your money every day. Yet, don’t let that put you off. If you’re willing to invest your money in growth assets, such as shares, funds, investment trusts and ETFs, you can still compound your money at a very healthy rate and grow your wealth significantly over time.

Plenty of investors are regularly making returns of 10% or higher, from investing in these kinds of growth assets. For example, shareholders in Unilever have seen their wealth grow at around 12% per year, over the last five years. Investors in Nick Train’s Global Equity fund, a highly popular growth fund, have done even better and have seen their money grow at nearly 20% per year over the last five years.

While past performance is no guarantee of future performance, these figures show that it’s possible to grow your money at a formidable rate if you’re willing to invest in growth assets. And these kinds of returns can generate very impressive results over the long term. For example, £20,000 invested for 30 years at 10% per year, would grow to £350,000.

Over a long-term investment horizon, the power of compounding can boost your wealth significantly. With time and patience, compounding can transform even just a small amount of money, into a large, life-changing sum. The sooner you start compounding, the more wealth you could potentially generate.

The post Would you rather have a million today or 1p doubled every day for a month? appeared first on The Motley Fool UK.

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Edward Sheldon owns shares in Unilever. The Motley Fool UK owns shares of and has recommended Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Baby steps

Taking consistent ‘baby steps’ can propel average-earning people towards £1m net worth. That’s the key — keep doing the right things in a small way and your net worth can build up in a big way.

According to The Times recently, a third of the nation’s middle classes are too short of cash to pay a £500 bill. In some ways, those people are managing to spend almost every penny of their income every month, despite what might be their best initial intentions, and there’s none left over to help them build a better, perhaps work-free future.

So the first step on the way to wealth is to make a decision. If you’re serious about becoming a millionaire with an average salary you must decide to be different from those that spend all their income every month. Living below your means is an essential first ‘baby’ step along any path to a million on an average salary. I call it a baby step because it may not be as difficult as you think once you’ve cultivated the right frame of mind.

The eighth wonder of the world?

Adjustments to the domestic budget don’t have to be so drastic that you end up living a life of deprivation, as long as you save some money at the end of the month. Having done that, step two is to repeat the saving trick every month and develop a regular saving habit.

Funds will start to accumulate in the bank, which puts you in a powerful position. Now you have some capital that can earn even more money. Your mission is to seek compound interest where your money earns interest, the interest earns interest, and the interest on the interest earns interest and so on.

Albert Einstein once described compound interest as the eighth wonder of the world. He argued that those who understand it, earn it, and those that don’t understand it, pay it! With a growing pot of money in the bank, you can seek out ways of earning compound gains.

Seeking higher rates of return

Today’s low bank interest rates seem less attractive than shares on the stock market, which often pay dividends at a higher rate than bank accounts pay interest. Shares can be a good vehicle for compounding and a final step towards achieving a million on an average salary.

Shares can be the best form of investment and have been outperforming other asset classes such as cash and bonds for decades. That’s why we at The Motley Fool are so keen on them. 

The post How to become a millionaire on an average salary appeared first on The Motley Fool UK.

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Equally, so long as we have enough for our essential needs, possessing little money will not make us miserable.

Money, in itself, does not have the power to do that.

But the way we organise our money has the potential to condemn us to a life of simmering misery, or to elevate us to a condition of deep-seated satisfaction.

Here’s the best money advice I ever heard for achieving a well-balanced and satisfying life with money.

Simple, yet powerful

The money creed that influences me so much is easily expressed — save some, spend some, and give some away.

That’s it.

Simple, yet powerful.

Step 1

Save some. It doesn’t matter how large or small our income might be, spending less money than we receive, and saving what is left over, can be a big step towards achieving a feeling that all is well with the world.

When savings grow, as we add more each month, our feeling of contentment can grow too. With a pot of saved money, we can find ways to make the money itself earn money. Our savings can multiply thanks to compound interest, where the interest itself earns interest. Here at the Motley Fool we make whole careers from finding ways to help that saved money compound, such as by investing.

By saving some, we put ourselves on the right side of compound interest, and compound interest is to money what steroids are to muscles — everything gets bigger!

Contrast that situation with the opposite — spending more than we receive. Now, instead of building up savings, we build up debt, and that’s a sure-fire way to achieve a feeling that something’s wrong with the world. The problem with personal debt is it that it places us on the wrong side of compound interest. Now we are paying rather than receiving — those steroids show us their negative effects by working against us.

Step 2

Spend some. Really, we should fill our boots. Life is for living. What is the point in being alive if we don’t live, love and laugh? I’m not just talking about the electric bill or the weekly shop either. We should eat a few truffles, drink a few cocktails, and take ourselves off to an idyllic location for a couple of weeks of rest and relaxation every so often.

Allowing ourselves to indulge, to enjoy, to simply ‘be’, that’s a powerful way to create happy memories, to re-charge our batteries, to share our time with those we love. In short, living, really living, is a great way to weave that underlying thread of happiness that we all deserve. Living like that involves spending some money, but the key to enduring happiness through spending is to observe rule one first and to save some before we spend some.

Step 3

Give some away. That’s the turbo-charger for money happiness, I reckon.

The world can become a delightful place when we adopt a generosity mindset. There’s nothing quite like the inner contentment that tipping others can bring us. Then there’s the power of the gift. A well-targeted and thought-out gift can bring as much or even more joy to the giver than the recipient.

There’s also opportunity to direct a portion of our funds to charity and good causes for a similar internal effect that contributes to our sense that all is well with the world. However, we should be sure to observe steps one and two first — otherwise, a giving habit could end up contributing to underlying internal unhappiness.

Let’s do it!

The best money advice I ever heard is to save some, spend some, and to give some away — in that order, and no one step without the others.

The post The Best Money Advice I Ever Heard appeared first on The Motley Fool UK.

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Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has no position in any shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.