Saving for Success
Are you a casual saver or disciplined investor?
I’ve been in a financial advisor for over 24 years and one of the things I have noticed over this time is how different people approach saving their money.
The 3 main reasons that people save are generally:
To fund a particular event such as a wedding, home improvement, a holiday or a new car
To save for emergencies and have ‘safety net’
To save for the future, to be able to live comfortably in retirement
It is probably no surprise that my wealthiest clients tend to be the most disciplined in their approach to saving. They are likely to know what their expenditure is, set savings goals and are strict on how much they save and how often. They also know that medium to long-term savings do not generally perform well if held in cash.
How to become a successful saver
Structure can help someone that is not disciplined, to save money. A direct debit coming out every month into a savings plan that they know is managed can help to build wealth. Once clients start to see growth on their hard-earned cash, they are usually smitten by saving.
Casual savers are people who have good intentions and plan to save each month. They plan to save the money that they have left over, however, much of the time they do not have anything left. Casual savers will generally always find something to spend their money on and they often have no emergency fund in place. In my experience, people that have saved by direct debit manage their money better than casual savers, and successfully build up a nest egg.
“Do not save what is left after spending; instead spend what is left after saving.” (Warren Buffet)
Cash is so important. Work out your expenditure, including food and petrol etc and then work out what you are realistically able to set aside for savings each month.
Try saving a different way - rather than setting aside your savings in a bank account (where it is easily accessible), perhaps save into a Stocks and Shares ISA. If you are the type of person that will always find something to spend your money on, then this will help you to be more disciplined. But remember, we all do need to keep some money in a bank account in case you need it unexpectedly, we call this your rainy-day fund.
Take advice. Advice can help you to make important decisions on where to save, how to invest your money, and will help to ensure that you are saving in a tax efficient way. Can you utilise a pension or an ISA? This will depend on your personal circumstances and what your objectives are for saving, which an adviser will discuss with you before making any recommendations.
Saving can be simple. It’s all about discipline. Here are my top tips for becoming a successful saver:
Scrutinise your expenditure and make a habit of tracking your spending
Make a savings plan – set goals and be realistic on how much you can afford to save.
Saving money should become a regular part of your routine. Set up a regular savings payment (and don’t underestimate the value of even a small amount if that’s all you can afford right now).
Try to reduce impulse buying – think twice before you make any unplanned purchases.
Build and maintain an emergency fund.
Take financial advice to ensure that you are making the most of the opportunities available to you.
The value of investments can go down as well as up and you may not get back the full amount you invested.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The value of your investments (and any income from them) can go down as well as up.
