When you’re younger and maybe just starting out in a career, the idea of saving probably isn’t one that gets you too excited. It is, however, a very important habit to get into and one that will stand you in good stead. There are many reasons to save, a few of which we’ll cover below, but the importance of saving is relatively simple…it allows you to enjoy greater security in all stages of your life, and ensures that should something a little untoward happen to you, or a loved one, that you know you have a safety net to fall back on.
If you have cash set aside for emergencies, you have a fallback should something unexpected happen. And, if you have savings set aside for discretionary expenses, you may be able to take risks or try something new without undue financial worry. By working with you to put a financial plan in place we will show you the ‘pots’ that you should be saving to, how your funds should be invested, and if you are on track to achieve what is important to you!
Start saving early and make it regular
As your savings build up, they’ll grow faster– even if you’re only paying in the same regular amount. The earlier you can start saving the better – it will mean you can pay in smaller amounts than you’ll need to in later years to achieve the same “pot” (and of course you can always increase the amount in later years to achieve an even larger sum – as your yearning for a lavish retirement lifestyle increases with age!). Although saving doesn’t seem as exciting as spending, particularly when you’re younger, if you can achieve a balance between saving and still having enough to make the most of your life you’ll be glad you did further down the line.
Save as soon you have been paid
It’s important to see saving as a fixed expenditure in your budget, alongside other monthly outgoings such as mortgage, rent, household bills. Having a direct debit for the amount that comes out of your current account as soon as you are paid ensures you retain your commitment to saving, and it’s not left as a “whatever’s left at the end of the month” amount – which could be diminished in a heavy spending month. Should you need the flexibility of being able to change the amount you save you could consider differing levels of access on your savings to ensure that some is retained in an easy to access account that you can dip into should you run short, as well as some longer term accounts.
Putting money aside can help you handle life’s little emergencies without having to significantly change your financial plans. Not only will it help you handle the emergencies should they arise but knowing that you have a specific sum saved to fall back on should something happen to you (or a loved one) will ease a lot of worries that might otherwise be lurking at the back of your mind. It’s important to think about your specific situation and work out how much you think you might need – some people feel that to be able to cover their bills for three months, should something happen, is enough. For others it could be six months or more. Considering your individual position and how important it is to you to be covered for a specific amount of time is key – and then either transferring that into a separate account if you already have it or starting to build up your savings if not.
The sheer magic of receiving interest on interest! As mentioned above, the earlier you start saving the better – just from a time point of view – obviously the longer you save a regular amount the more you will have at the end. But it’s not just how much you save, the key can be the interest that you receive, and the fact that you then start to accumulate interest on not only the amount you’ve invested but the interest you’ve received. Interest received on interest, or compound interest, will, over the long term, make a big difference as to how much your savings are worth in the future.
Because we love a bit of number crunching, here’s an example….
We’re using an ISA allowance to show you how much tax-free savings could be built up. should you invest £20,000 at age 45 for 20 years and add an additional £20,000 per annum on top – you would have capital savings of £400,000 (i.e growth not included). However with compound interest accumulated over the 20 years this would amount to £703,897 (interest assumed at 4.5% p.a). Should you decide to start early and invest £20,000 at age 35 for 30 years and add an additional £20,000 per annum on top – you would have capital savings of £600,000 (again with growth not included). However, with compound interest accumulated over the 30 years this would amount to £1,349,954 – a whopping £646,057 extra for only £100,000 more savings! Who’s ready to start saving ASAP?
Ensure you’re protected
Being prepared isn’t just about putting money into a savings account – it could also mean protecting yourself and your family through life insurance, critical illness insurance or disability insurance. There are many different kinds of policy that you can take out – that will cover you in different circumstances. It’s vitally important to work out what you might need in terms of cover like this, and to choose your policies carefully as many can have conditions that you might not spot on first glance which might risk you not receiving a pay out when you need it most.
If you would like help in putting together a financial plan, or advice on where and how to save, please get in touch. And don’t forget that time is of the essence in terms of saving so don’t leave it too long to seek advice!