After finding herself with too much month left at the end of her money more than once, Helen* made a new year’s resolution to improve her financial situation. She joined the Investment Club in February and got around to starting the Introduction to Investing Masterclass in March, a few months after it had first launched.
Module Five which focused on pensions and financial planning arrived in Helen’s inbox in March and piqued her interest as she had not yet started her pension. After reading the module’s case studies Helen learnt that starting a pension later in life would result in a much smaller pension pot, so she decided not to waste any more time and got started! As a first step, she looked at her current monthly spending and separated out into categories where her salary was going. She started to implement the 50/30/20 rule with 50% going towards needs, 30% going to wants and 20% going to savings. Her rent was quite high, so Helen found that about 60% was going to her needs. As she went through all her expenditure, she worked out that she could afford to put about 10% of her salary towards her pension. This was €270 a month which after 40% tax relief, came to only €160 a month. Based on Helen’s age of 35 and a potential annual return of 4.5%, this will result in a pension pot of €202,000 at age 65.
Helen also put aside 5% of her salary each month to start building an emergency fund. Her main goal is to save three months’ worth of expenses so that she has enough should any big costs come up in the future. As her financial confidence grew, Helen decided to learn more and went back to the first modules of the masterclass. She started with Module One – learning why it was so important to start investing, what the golden rules of investing were and the differences between the asset classes. She moved on to Module Two to learn how stocks work, began to learn what her investor style might be and the differences in risk when it came to stocks and bonds. By now, Helen wanted to know more and in Module Three she learned how to classify stocks and pick them. This is where it got interesting for her as now she could follow the business news and tie it back to how stocks were doing. In Module Four she learnt more about market timing and why recessions didn’t need to be feared from an investor’s point of view. She also learnt that holding on to her share incentives was a risky move from an investor point of view and planned to sell them when possible.
Helen had covered Module Five but Module Six raised a lot of questions for her regarding the future. She decided to have some hard conversations with her mother about her plans and looked at how she would be able to inherit her mother’s property in a tax efficient way. Module Seven introduced the idea of sustainable investing to Helen and she added that to her list of possible investments once she had sold her employer share incentives.
Before she did the masterclass, Helen didn’t have a pension and no plan for her share incentives. After the masterclass she was contributing what she could to her pension, saving for anything she might need in the future without having to take out a loan, and planning to secure her long-term wealth. Her overall financial picture did not change dramatically, but she felt a lot more confident about it and was excited to see where investing could bring her.
*Names have been changed to protect client anonymity.