Join the savings revolution
It is getting more and more important for people to save - to put substantial sums aside for retirement, a ‘rainy day’ or for those big life changes. State retirement support is gradually reducing, shifting the onus onto individuals to provide for their own long-term financial security. At the same time the stock market falls of recent years have eroded many people’s nest eggs, and costs of major life commitments such as raising children and university fees have risen sharply.
And yet against this backdrop, saving is fast becoming a thing of the past, a luxury many of us think we can no longer afford. A recent survey by unbiased.co.uk revealed that almost three quarters (70%) of people believe they are unable to save any more than they already are.
With ‘low-cost’ credit easily available for most people, consumer borrowing has risen to record highs over the past few years. This ‘spend, spend, spend’ culture is leaving an increasing number of people living beyond their means.The survey also showed that if their income increased, more people would go on holiday than pay off debt or increase the amount they saved.
But this ‘borrow and spend’ attitude cannot continue indefinitely. If we are to stand a realistic chance of financial security further down the line many of us need to rediscover the lost art of budgeting – in short, saving needs to become the new borrowing.
Taking a good look at your monthly income and outgoings, and redressing the balance between a ‘want’ and a ‘need’, could leave you with more spare cash than you thought – cash which can be put away each month soon builds up. And cutting down on those costly luxuries that often pass unnoticed could make a huge difference to your long-term financial security.
This guide aims to give you the information you need to start budgeting, and to plan how much you can afford to save. It also offers some background to the various types of savings products you should consider. However there is no substitute for genuine expert impartial savings advice.
So what are you waiting for? Take a moment now to review your spending, consider what you could be saving, and start paying yourself first – put a bit aside for yourself, no matter how small. It’s time to get saving!
Why save?
We live in an uncertain world where jobs are easy to lose, incomes fragile and where relying on the state for anything more than a basic financial safety net looks foolhardy. Britons are also living longer, with retirements of 20 to 30 years increasingly common.
State pension provision is unlikely to become generous, while many employers have also been cutting back on the pension deals they give their staff.
Most working people suspect they should be saving more for their retirement, but the need for savings is much more widespread than that.
The housing boom has meant that it has become increasingly difficult to get on the property ladder without a substantial deposit.
A survey by the Halifax showed that one in seven couples in their 20s said they didn't have the money to get married.
Children are also placing even greater financial demands on parents, who may want to send them to a private school or help cover university costs.
So saving is more important than people realise. One of the biggest problems is that whilst people are putting away some of their hard earned cash, they are servicing debt at the same time – often both from the same place, and therefore applying a brake to their savings efforts. In short, research shows that for every pound we manage to save we are borrowing 51p in 2007!*
*Source: Research by RAKM for IFA Promotion, December 2007.
How much should you save?
The simple answer here is ‘probably more than you are currently saving’ and ‘as much as you can’.
Independent financial advisers (IFAs) generally recommend keeping a savings cushion of around three months’ earnings in an easy-to-access account, as ‘rainy day’ money for emergencies or to tide you over if you lose your job.
It can be easy to fall into the trap of believing you don't have enough spare cash to be saving.
But even for longer term stock market investment there are schemes available which will take £50 a month or even less. However, while that is a start, bear in mind that £50 a month is just £600 a year – £3,000 over 5 years, ignoring any growth.
In deciding how much to put aside, it can also be helpful to consider what your goals are and work back from there.
The earlier you start saving into a pension, the bigger the pension you should end up with. Likewise the later you start the more you will have to save to achieve the required retirement income.
Most IFAs normally recommend you save at least 10-15% of your income to achieve a more comfortable retirement.
Note too that in the case of pension saving, your employer (if you have one) may well be contributing to your pension plan as well.
One way of making sure you maintain your savings discipline – and reducing the pain – is by using monthly direct debits or standing orders for your payments. It is surprising how quickly people forget money which is automatically taken out of their pay packets or accounts.