Save Up Right from the Start of Your Career and Value Your Savings22.5.2019
Entering adulthood brings many new challenges for a young person. One of the main ones is to learn how to handle money properly. If you ask yourselves the question “how to save up money“, read our interview with a financier from Tatra Banka, Martin Smrek, whom we interviewed after his lecture at the FutureTuesdays event in our co-working centre.
You can follow the topics of other FutureTuesdays events on Facebook.
As there are still only a few opportunities to educate oneself in financial literacy, FutureNow conference organisers have dedicated the whole Tuesday evening to this topic, introducing a new type of event named “FutureTuesdays“ that takes place every Tuesday in HubHub. The phenomenal Martin Smrek held a lecture on “How to have money under your thumb?“. Martin works at Tatra Asset Management and is primarily responsible for the product offer and strategy of Tatra Asset Management; therefore, his knowledge and advice is very up to date and useful for every young person. So, what should we know about money?
During the lecture by Martin Smrek, the following three key information on the topic of successful valorisation of saved up money was presented:
Whoever spends everything and does not invest will never be rich…
Naturally, we also want to protect the money we put aside, and inflation actually cuts off the value of everyone’s money. “Thanks to inflation“, a real decline of more than 10% of the real value of money can occur after 5 years. So, you need to think about what to do about this… When saving into a fund, there is a chance that the money will be valorised and protected.
There are almost 9 billion euros in mutual funds in Slovakia, 16,000 billion euros in Europe – so this is not a novelty and even those who are not rich can use this option. Assets can be built up step by step through investment.
Investing in mutual funds will not bring a miraculous solution with astronomical returns, on the other hand, no associated excessive risks as well. The aim of mutual funds is to gradually increase assets and make the standard of living of clients better. The principle is very simple – they operate on the principle of collective investment, where a group of clients puts their money into a fund invested by a group of financial market professionals.
Everyone would like to know the recipe for successful investment…
After 15 years of being active in the business, I have learned that the way to success in investing basically does not differ from the way to success in any other area of life, whether at work, gym or when learning a foreign language. There are no shortcuts and regular, systematic and purposeful work will most likely lead you to your goal. It’s important to start saving on a regular basis, 10% is the minimum you should pay for yourselves to have a better future. Regularity is extremely important here.
The key is to select the right products…
A lot of money is wrongly in “dormant cash“, i. e. in term deposits, current accounts, savings systems, where there are 30 billion euros at risk of inflation and devaluation in Slovakia. It is important to choose products that have the revenue potential, to keep the value of money and to beat inflation, in other words, it is important to seek investment products.
After the lecture, we talked with Martin in person and found out tips and tricks from the financial world, which will be useful for every young person.
What is the most common mistake in “financial illiteracy“?
The most common mistake in handling money is to spend everything. As soon as we start working, we should avoid spending everything we earn and distribute our finances accordingly.
Often, when one earns the first bigger amount of money, one begins to spend it unnecessarily. We need a state-of-the-art i-Phone, and we don’t think about putting some money aside even at an early age to have a better future. You need to learn to manage your expenditure.
Many young people spend their entire wages, having in mind the next one, but after a year, they find out that they have not saved up anything. They still live from hand to mouth. If you start to approach this rationally, it makes a huge difference. Put at least 10% of your income aside to have a lifeline if needed.
What if I am already saving up? How to distribute the earned money?
One of the golden financial rules says: “Put aside 3 – 6 – 12 times the monthly expenses“ into something completely conservative, for example to a current account. This is enough to keep a person covered when a car breaks down or he loses his job.
It is good to distribute the rest of the money into the following years by purpose such as holiday, new car, plans for the coming years – and invest this money in instruments with a roughly five-year horizon. If you are already saving up, consider saving into a fund. There is a chance that the money will be valued and actually protected from inflation.
For long-term goals, it is worth saving regularly into more dynamic solutions, i. e. into mixed shares funds investing a significant proportion in shares, or into the most dynamic solution offered today – equity funds.
When should we start saving for retirement?
The moment we start working. We enter the second pillar automatically, but supplementary pension saving is nowadays a necessary product for managing personal finances, and the employer contributes to this as well. It is the same as with saving up – the sooner I start, the less I need to secure my future.
When I want a guideline for successful investment, is it good to have a financial advisor?
Certainly yes, especially when one does not have an economic education or needs a navigation in the offer of financial products. A financial advisor can analyse one’s financial situation and advise a tailor-made solution.
Independent advisors vs. advisors from the bank?
Banks have a specific and methodological approach to educating people. In addition, a bank cannot afford to have poor-quality advisors with immoral principles at its branches, because it would harm its reputation. Independent advisors operate on their own, they are often self-employed, and can primarily seek their personal benefit. We have the greatest certainty that the advice will correspond to our needs with the largest banks.
What should people think of when taking a loan for example on a car or a computer?
For each loan, it is important to realise that the tax for buying something I cannot afford is having to pay the borrower. Therefore, it is necessary to calculate whether you are willing to pay the amount for borrowing. If not, you need to consider postponing the purchase and not buying a car this year, but staying in public transport for a year (or two or three) and borrow less later, or in an ideal case not at all.
Is it better to have different types of accounts in multiple banks or all in one?
Today, banks have a policy of offering a free current account when we have multiple products in one bank. Therefore, there is no point in having an account in one bank and paying for account management, investing money in another and having a credit in a third bank. However, this does not mean that, for example, a mortgage that is most sensitive to price could not be taken in another bank that offers more favourable terms.
Do you think it is profitable to invest in cryptocurrencies?
The cryptocurrency is a speculative instrument. In 2017, many people thought that it was something miraculous, thanks to which they could have had fairy-tale earnings without work or risk. It was a craze – bitcoin started the year at $ 1,000, went up to $ 20,000 during the year, it dropped to $ 14,000 at the end of the year, and we saw a huge drop in its value down to $ 4,000, representing a drop-down of more than 70%. Unlike funds or shares, cryptocurrencies are not backed up by real business. The bitcoin value is affected only by supply and demand.
It resembles the tulip bubble in the 17th century in the Netherlands. There arose such a tulip craze that one rarer variety was worth a few houses in Amsterdam. However, the world gradually realised that they were just tulips, and as soon as the demand was no longer so high, the price began to fall, the bubble fell, and the tulips were worth a few guilders. It is a speculative instrument, so I recommend to invest such an amount to cryptocurrencies that I am willing to lose.
Thank you for the interview!