Just thinking about saving regularly makes some people angry or sick. Especially if it is a new venture, it reduces our income for nothing really. Or it can feel like nothing. And it’s easy to keep false starting.
Know yourself. I will spend everything in my current account if it’s there, so straight away on pay day I ship away money into savings. It took me a few years to realise this. I’ll just save whatever’s left in my current account at the end of the month. Yeah, nice one buddy. Everyone’s different, so just need to find what is going to work for them.
That first hurdle
As we start building a financial nugget, the temptation to raid it is great. It is easy to dip into your savings for a car, a holiday, some new gadget or any other number of things. Especially early on. If you have only just started skimping away and have, lets say, £500 saved up. Our brain starts to do something funny. It justifies spending this. I mean it didn’t take long to build up, so why not buy something super sweet now, and just start saving again. £500 would get a real nice group set for my bike. And it’s better than putting it on the credit card, right? Yeah, but that’s not the point.
But there comes a limit where you don’t want to touch your financial nugget anymore, as you start to recognise the time invested and the progress made. The limit will be different for everyone, but getting to that initial limit is key.
Lock your money away. Not ideal as an emergency fund, but it will stop you getting your grubby little paws on it. Perhaps a regular saver where you get penalised will make you leave the money alone. Or put it into a pension scheme. You will lose some control, but at least it’s protected from you and your whimsical needs.
The time frame
There’s always other things! Saving for a house. A new car. A motorbike. What ever. And putting something away for retirement, which is years away only delays our current needs.
The long long time frame is hard to get your head around. When we are young and straight out of university or just starting work can we really think about retiring already? You retire when you are 65 right? And that’s ages away. The answer is obviously yes, we should start thinking about it as soon as possible. Not just thinking as that will get you nowhere. We also need action. There are so many articles about the effects of compounding, and how much more this helps us when we start saving early. Like this little pearl right here.
Why 65 (or 67)?
With planning we can reach financial independence earlier. The government tells us to retire at 65 and so this is what we plan for. I hadn’t really given it a second thought until recently. Most pension projections assume you will retire then, the state pension starts then, it’s when the average Joe will tell you to retire and probably when all of your mates are thinking of retiring. But why then? It’s just an arbitrary age.
Tell people you are thinking of retiring earlier and they will stare at you like you are mental. But there’s surely nothing to stop any of us reaching financial independence before then and having the option to retire early. It will take sacrifices, sure. Mainly sacrificing the tat we don’t need.
So up yours Mr government. Who would have thought that saving early makes you a bad ass rebel?
Complications (start with cash and go from there) Some products are complicated. Stupidly complicated. Especially for what should just be a vehicle for savings. I believe that if you can’t understand a product, then you shouldn’t invest in it. I’m not saying for a second that investing should then only be for the Steven Hawkings or Warren Buffets among us. But we should keep the products that we invest in and the investment strategies used nice and easy.
As I (very slowly) gain more knowledge then I will start looking into more complex products. As long as I can properly understand the risks and costs, then it can be considered.
Even the simplest strategy can become mind blowing once you start adding in investment expenses, volatility, rebalancing, tax, potential for government regulation changes, inflation etc. Keeping it simple will keep you engaged with the long term goal (And possibly with your other half should you become obsessed).
Let’s say you want to get some exposure to bonds. Before you even start you have to decide if you want direct exposure, exposure through a fund or an EDF, corporate bonds or gilts, fixed interest or index linked or an amortising bond? And they are supposed to be simple!
So start with cash savings.
So, what am I chirping on about?
Only the gods of compound interest and volatility know and they won’t tell me.
It took me a while to get going with savings, and maybe you haven’t started, don’t know where to start or keep dipping into your financial nugget…
A couple of false starts with ISAs, limited success with some regular savers (and then spending most of the proceeds on maturity) and some dodgy purchasing of individual shares made sure I didn’t get going until I was 27. A change of job prompted me to properly look at the company pension and I started putting 20% of my net salary a month into it.
I largely forgot about it until this summer. It had been accumulating and compounding away in the back ground like a right little legend. I hooted so loud when I checked my progress that the moon shifted in it’s orbit. Maybe sometimes the best thing to do is just to save regularly and ignore it for a few years.
And you know what, like everyone, I wish I’d started earlier and so will you. So start now or I will eat your brains.