26th April 2016 at 12:20pm
Everyone wants to save money but life can get in the way, and it’s all too easy to put off saving. Creating a savings mindset can allow you to enjoy life today – and still plan for the future.
Saving and planning ahead puts you in control so that you can relax and live your life how you want to, knowing everything is in order. It can help you achieve longer-term goals too, like moving house, having an amazing family holiday or being able to retire early.
That’s the upside. If you’re not saving and planning, you are much less likely to achieve your goals. And you might struggle to manage the things life can throw at you unexpectedly, such as job changes or having to pay for unexpected bills, needing a new car, major roof repairs, or children’s school trips spring to mind, to name a few.
You want your future to look pretty good too, and that includes considering your pension. When you are 20 it is easy to feel that reaching pensionable age is years away; and yet ask those who’ve reached that stage in their lives and they will tell you they wonder where the years have gone and say how concerned they are over what their pensions will give them.
So, just how do you create a mindset that will give you the life you can enjoy while ensuring you look after your future?
1. Track your spending
People are often surprised at how much they spend on all sorts of non-essential items. Track your spending habits for one month and make a note of every single penny you spend. This will show you where your money is being spent.
This allows you to make decisions about whether you wish to continue spending at the same rate on the same things.
For example, a small bottle of water can cost anything up to £1 and it is easy to buy two or more bottles a day, especially in the summer months. That could be £14 a week or £56 a month, yet it costs only a few pence to use a home water filtering system and refill bottles on a daily basis.
As the old saying goes, “take care of the pennies and the pounds will take care of themselves”.
2. Set yourself a proper budget
Having tracked your spending, you need to set yourself a realistic budget.
A budget helps give you precise control over what you have to pay, how much you can save and how much you can spend.
Once you have paid your necessities such as rent or mortgage, bills, travel and the like, the remaining money is yours to do with as you please.
However, the key to successful budgeting is to be realistic – if you aren’t then you won’t stick to your budget. For example, if you try to save too much and don’t leave yourself enough weekly spending money for fun activities, you are likely to run up debts or have to take money out of what you have saved, which is self-defeating.
3. Beware of impulse spending
For those of you who love to shop, you may find that this is one tip that could save you hundreds of pounds every year.
Start using the “Need or Want” strategy. Before you spend anything, ask yourself, “do I really NEED this item, or do I just WANT it?”.
You may find that many of the items you purchase were bought on impulse. Window shopping costs nothing and if you don’t trust yourself to keep to this plan then only take a small amount of money with you and leave your purse or wallet in a safe place.
If you do see something that is a real bargain, or that you really want, you can always go back for your money.
If you feel you can’t curb your impulse spending or shopping – or perhaps you know someone like this – it’s possible there may be an element of compulsive spending coming into play.
It’s a complex issue but some people get an emotional ‘high’ when spending that makes them feel good about themselves, even if they can’t afford it. It can be very addictive and a hard habit to break.
Cognitive behaviour therapy can be used to discourage overspending and try to ‘reset’ how people feel about spending.
4. Set up monthly direct debits for your regular bills
Bills, like buses, seem to along come together and can be a financial challenge.
Rather than being hit with quarterly charges, set up monthly direct debits for utilities such as gas, electricity, water, council tax and telephone. It can also be useful to pay as many other bills as possible on a monthly basis, too.
However, you do need to be careful with items such as insurance as some of these companies may penalise you for monthly payments by adding on an interest payment that raises the total annual charge. In these cases it may be better to pay off the amount in one hit and, if you have set up a monthly savings account, even these bills can be dealt with pretty painlessly.
5. Planning for your retirement
People often do nothing about their pensions as retirement all seems so far away, and the planning can seem overwhelming.
The reality is it’s not as hard as you might think. You can do lots online these days and there are useful calculators and guides to make the process easier.
For example, you can take a look at the Standard Life Guides and Calculators page. It shows you how saving a small amount each month, and increasing this amount over time, can make a big difference to your final pension outcome.
If you’ve joined your workplace pension your employer will deduct your payments direct from your salary and do all the work for you. And you get tax relief on what you save and your employer may even pay into your pension too.
Finally: Set targets, review, assess and retry
Once you start implementing these tips and become more familiar with money saving opportunities, take the time to set targets and review your progress.
Assess what you have been doing and see if you need to revise some of your strategies. If you check things regularly and plan ahead, you will stay in control and be ready for the future too.
The information in this blog or any response to comments should not be regarded as financial advice and is based on our understanding in April 2016.