The classic path to personal wealth is very simple: get a good education, latch on with a large, promising company, move up until you are invaluable and cash in. Every step on this ladder (aside from education) is accompanied by solid wages which will steadily accrue over time and leave you very wealthy indeed. Not to suggest that earnings are unimportant (doing so would be ludicrous), yet a solid wage is not enough anymore to guarantee financial freedom – in this turbulent economic setting good financial planning has never been more important. Here’s why.
Global Economic Change
Redundancy and cataclysmic market shifts are nothing new, and there is nothing novel about certain areas of the market perishing while others rise anew. Yet we live in an era of stupendously rapid change and the fortunes of industries rise and fall within quarters rather than decades. Industries such as journalism, manufacturing (at least in the West), the music industry and publishing have all seen major turmoil recently and this is likely to continue. Just take a look at the recent fortunes of RIM if you need proof.
This is relevant to individuals as it can be hard to predict the long term prospects of a chosen industry – thus you can’t bank on a future golden paycheque. In this light it is crucial that young people save money as they progress and prepare for period when they may need to re-train or survive a period of unemployment.
Expanded Banking Options
While earning opportunities expand, it is becoming ever easier to find bank accounts which help you save money. It’s easy to set up savings and current accounts from HSBC and similar banks, yet there are many other options on offer. Interest free savings accounts are common in many countries, while most banks will allow you to invest in equity funds. These options are by no means new, but as banks focus on retail as a way to bolster their flagging profits they are working to offer convenient and attractive savings offerings to customers. This means it’s never been easier to set up a good financial planning, though low interest rates naturally supress income.
The Uncertain Future of Pensions
Pension plans have been in the news a great deal, especially in countries such as Great Britain which owe public service employees a tremendous amount of money. Essentially, the past century saw governments take on far too much in the ways of pension obligations, which they are now struggling to fulfil. It is likely these systems will be reformed and workers in their twenties and thirties can hardly expect fat pensions when they retire. This means that people need to be focused on financial planning from the very beginning of their careers lest they find themselves unable to retire decades later.
So is financial planning more important than securing a good wage? Of course not, but if professionals put as much effort into saving money as they did earning it, they might be a great deal better off. The coming decades won’t be kind to those who ignore their own personal finance.