Given this is ‘UK Savings Week‘, now could be the perfect time to kick off a new savings habit. The fact we’re now in September, after the blow out of summer, also somehow makes starting afresh with our finances more appealing (and necessary!).
It’s not as hard as you might think – you just need to learn a few tricks to become your very own carrot (or donut, if that’s more appealing to you), and your very own stick.
Here’s how:
1. Decide what you are saving for
.. then imagine having it. Most people are saving for either short or long term goals, or ideally both. Short term are things like holidays and Christmas. Long term are things like a house, children’s university fees and retirement. The imagining part is very motivating. This is your carrot. So if it is a first home, visualise the type of home you want, go on Rightmove if it helps and search for homes in the area you want to live in within a realistic price range. How much will you need to save to own that home? Carrot.
Or, if you are finally starting to save for retirement, imagine how you want to live in retirement. According to research by University College London, we experience the same lack of connection with our future selves as we do with complete strangers. It can help to explore how we see our lives in the future to help encourage long-term saving. Time to visualise how you will be in your eighties. Purple rinse? No. Drum kit? Yes. House in Tuscany? Definitely! Lots of carrots if you think about it.
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2. Be your own stick
This is a far less positive way of self-motivating, but it can work, depending on what type of person you are. To be your own stick, you have to imagine what will happen if you DON’T save. No own home, no drum kit when you are 80, credit cards at Christmas and no holidays. Confront the harsh realities. Not pushing yourself to save hard enough? Work out how long it will take to save up, say, £10,000 at different monthly contribution amounts and different rates of interest (this is a great savings calculator). If you can eke out an extra £100 a month, you will be pleased you did after five years.
3. Budget
Work out what you can afford to save. Even if it is £50 left over at the end of the month after all your outgoings, that’s something and will add up over time. If you want to save more than you currently have spare, work out what you can cut out of your life, like little subscriptions to apps or magazines you don’t use or read (many of us are guilty of making lots of tiny, harmless-looking spends throughout the month, but they really add up. DO sweat the small stuff – you’ll notice the difference!) Even shaving £10 a week off your shopping bill by cutting out meat and/or booze will help. An app can help with spending monitoring. You could try Cleo or Moneyhub and digital banks, such as Starling, promise to put people in closer touch with their money.
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4. Got debts?
You can still save or invest on top of paying off debts if your interest rates on your debt are significantly lower than what you expect to earn on the savings. But saving while paying off debt does depend how much debt you have, how you are coping with the repayments and the interest rates you are being charged – it is not a strategy for the faint-hearted and you will need to constantly monitor your returns/ rates to make sure you are still quids in not quids out.
5. Choose your place to save (or invest) wisely.
If you don’t think about money much, you are likely to (mistakenly) reach for the bog standard easy saver account that is offered by your current account provider just because it is there, you don’t have to shop around and it is easy to set up.
Opt for this, and you will probably be stuck with lower returns on your savings than you could get for not much extra hassle elsewhere. This is especially true if you bank with one of the Big Five high street banks, which were recently called out by the Financial Conduct Authority for failing to pass on interest rate rises to customers.
Time to get that stick back out again. If you invested £100 a month for two years, the difference between earning one per cent and five per cent on your money would be the difference between a total sun of £2,423.14 at the end, versus £2,518.59 – nearly £100 extra in interest. It’s therefore surely worth a couple of hours of shopping around. See our top-paying ethical savings accounts here.
For stocks and shares ISAs (try ‘Good Egg’ firm EQ Investors, which does Positive Impact Portfolios, The Big Exchange, Interactive Investor, Hargreaves Lansdown, which lets you choose your own funds, or Moneyfarm for ultra simple – but less positive impact-making – “robo” investing).
For Innovative Finance ISAs we like Ethex and Triodos (another Good Egg). These are more likely to deliver higher returns on your money than a bog standard cash ISA or instant access account from a high street bank, but the downside is these involve higher risk and sometimes require higher minimum investments.
If you are saving to buy your first home, don’t forget the Lifetime ISA. For every £1 you put in, the government adds a 25 per cent bonus – this could add up to £1,000 of ‘free money’ a year if you max out your contributions. However, there are penalties if you take your money out for anything except a first home or pension.
Whatever you do, read about platform charges for trades and exits and what the admin fees are – it’s alarming and off-putting when you finally start investing to find that significant chunks are disappearing every time you move money around – and to make life really complicated, all platforms have different charges – and all say theirs are the fairest.
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6. Prioritise your pension
There are lots of ways to create a bit of extra spare cash – instant coffee instead of flat whites, etc. One of them is absolutely NOT to scrimp on your pension contributions. Yes, people like to save for different reasons, but it is not a good idea to reduce how much you save for your long term financial future just so you can afford a 5* break to the Maldives next year. It just isn’t. This is your stick again. Providers such as Good Egg firm PensionBee make it easy to find, consolidate and manage your pension. If you want your retirement savings to protect the planet as well as your future you could consider its Impact Plan or newly launched Climate Plan.
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7. Make your savings like jam – different pots for different types
You save for different purposes, so it can be worth separating each purpose into a different “pot” or different account, so you can say: “I have my holiday savings here, and my kids’ savings there and never the two shall be confused or misused.”
8. Get into micro-investing
No longer is it the case that only people with huge amounts of spare money can invest. It’s now easier than ever to invest small amounts. Apps like Moneybox, Plum and Chip round up your spending to the nearest £1, and stick the difference in an investment account, weekly (or savings if you prefer) so you really don’t even have to think about it. You’d be amazed at what you can build up in this way.
Now, what are you waiting for? Get saving!
