Retirement saving: five habits of millionaire investors

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.

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