I think that it is fair to say that the world of personal finance can be complicated at the best of times through a combination of tax rules and legislation, allowances and limits and complicated jargon and acronyms.
So with that you might think that there are some really complicated and complex things that people should be doing which are going to be the hardest.
Not to burst the bubble and give everything away before you have read on any further, but the three hardest things are actually the things that might seem relatively straight forward on the face of it. However, from my experience and in reality these are the three things that I would consider the most difficult.
1. Building an initial savings fund, typically the first £1,000
I would consider this one of the most difficult things to do because it is one of the first when it comes to building.
In the same way as with beginning a fitness regime is the hardest part, so is forming a new habit and being able to create consistency.
Once into that consistent routine and with the little bit of assistance from automating payments those habits can become normal over time.
Typically this can also take several months and so there might be the temptation to give up and dip into this before things have really got started.
2. Building the first £100,000 of assets.
For most people now there is a requirement to have several hundreds of thousands of assets to achieve financial independence.
However, building the first £100,000 of assets can feel and seem very difficult.
Why is this?
Firstly because it takes times, often multiple years or even a decade to get to this level. It can feel to people as though they are never going to get there
Secondly, most of the increase in valuation comes from making further contributions rather than growth. There hasn’t been the time or quantity to benefit from the roll up effect of compound growth (growth on growth in simple terms).
The good news is that once people have reached that milestone compound growth can potentially help with a lot of the ‘heavy lifting’ towards future milestone and eventually financial independence*.
3. Taking the leap from building wealth to spending wealth.
Think about it … you have worked hard and spent a long period of time working towards a milestone which has often felt completely out of sight.
But then before you know it that moment arrives, whether out of choice by becoming financially independent or when matters are taken out of your hands by changing work or health situation and it is like standing over the edge of a cliff or having to begin taking something you have built back to pieces to dispose of.
It is a physical shift to go from spending your time working towards accumulating wealth to having time to do what you choose, as well as a mindset shift to go from working to accumulate assets to then beginning to draw and have no further influxes of contributions coming in.
That is why I am such a big advocate of forecasting and stress testing to give reassurance on the financial aspect, as well as spend time thinking about that transition in life and even considering ‘test runs’ of how that might look and feel once it becomes reality.
So there you have it, what I would consider to be the 3 hardest things to do in personal finance. Is it what you expected? Let me know if that is the case and if you agree or disagree.
*Investments carry risk.
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