And quite apart from saving for the usual things we expect to encounter in adulthood like buying a house, marriage and children, it’s difficult to overstate how important it is to build a contingency for when things don’t quite go to plan. This might be anything from an expensive MOT or redundancy, right down to random expenses like attending a friend’s wedding.
Instead of putting it off until the future or relying on what other people say that you should be doing financially, it’s advisable to wise up to the savings game yourself. There is quite literally a wealth of articles available online to help you fathom the world of ISAs, investments and savings accounts, often with nifty budgeting tools to help you determine your own savings requirements.
So how can you start to prepare early for the financial realities of life?
1. Learn to set goals
Not having a clear-set goal is how procrastination prevails. For best results, determine clear, achievable targets for the month, quarter, or year and put milestones in place for reaching them. If you’re not sure how to work out your target, there are a number of free tools online to help you do so, like this one from the Money Advice Service.
Though having clear goals is important, be careful not to set the bar too high. If you are overambitious with your plans, then it’s far more likely you’ll miss the target, which makes it easy to just quit altogether. Small, manageable targets are the key to success.
2. Budget – and stick to it
Setting a budget is easy – sticking to it is the hard part. With debit and credit cards now the mainstream payment method, it’s all too easy to get swept away spending money without really realising how much.
One really top tip to counter this is to set a weekly budget for everything you need in your day-to-day. This might be, for example, £50 per week, to include the weekly shop, transport to and from work and all weekday lunches, treats and after-work drinks. Draw this out in cash and see how quickly it goes.
Most people will be surprised how fast they run out of what they believe to be a reasonable weekly budget, so being strict like this will help you tighten up and appreciate the value of your money.
3. Master the art of self-control
Credit and store cards make impulse spending all too easy. You might see a pair of jeans or shoes that you justhaveto have before pay day, but then forget about until the credit card bill comes round.
If you do have some form of credit card, keep a record of everything you spend on it as you go through the month. Not only will this mean that you don’t get a nasty shock when the bill lands on your doorstep, but it will keep you aware of what you’re spending.
It can be tempting to live slightly beyond your means, but don’t forget that all debt will need to be paid off at some point…
4. Pay down expensive debt
In a nutshell, debt costs more than savings earn. Someone who has £5,000 in a fixed-rate savings account will likely accrue around 2 per cent interest over a 12 month period, earning £100. If they also have £5,000 on a credit card charging the average 13 per cent APR, they will pay £650 in interest over the same 12 month period.
Of course everyone wants to be debt free and unfortunately, that’s not always realistic. However, at this point, it’s advisable to think about building credit. Where possible, try to avoid making the minimum repayments on expensive debt like credit cards and concentrate on getting it paid off completely.
As you get older, your outgoings will only get more demanding and the longer you harbour debt, the more it will cost you.
5. Find out where you can save
Putting money into a savings account is probably the most risk-free way to save money whilst allowing it to grow. Granted, interest rates are currently struggling to beat inflation, but the reality is that even low interest rates are better than none.
Different accounts are right for different savers, at different times, and under different circumstances, so wherever you decide to put your money is a personal choice.
There are generally two routes: a Cash ISA is a tax-free wrapper for your savings with an annual limit, or you could opt to put money into a savings account, which will commonly have no limit and offer a higher rate of interest than a current account.
Due to Financial Services Compensation Scheme (FSCS) regulations, a bank is now one of the safest places your money can reside, as your balance is protected up to the value of £85,000.
6. Cut small spending to create big savings
If you’ve ever worked out how much you spend on insignificant everyday treats, you’ll know that the results can be quite surprising. Things like buying your lunch at work rather than making it, grabbing a coffee on the way into the office, or buying a magazine every week can really mount up over time.
Get a handle on the unnecessary pennies you spend on a daily basis and the pounds will look after themselves.
7. Build a brighter retirement
When you first start work, retirement seems like a long way off. You’re likely to have over 40 years of work ahead of you, so it’s understandable that you might not see the point of saving for it just yet.
A scary statistic is that in Britain, the average person prepares financially for around seven years after finishing work, but will actually spend more like 19 years of their life in retirement. The reality is that as a nation we are now living much longer, and with UK government actively transferring responsibility for later life to the public through cutting state pensions and increasing the retirement age, it’s never too early to start preparing.
By 2018, every UK citizen in employment will have been enrolled into a workplace pension scheme as part of the ‘Auto-Enrolment’ initiative.
8. Embrace the magic of compound interest
The earlier you start saving, the more you will benefit from compound interest. Basically, the more frequently interest is added to the principal sum, the faster the principal grows and the higher the interest will be.
The earlier you get started, the more compound interest you’ll accrue over your lifetime. It’s essentially free money for just a bit of forward planning and self-restraint.
Don’t bury your head in the sand – start now
Despite what people often think, you’ll probably have more money in your twenties than ever. Ok, this doesn’t apply to everyone, but people in their first few years out of university are likely to have much fewer expenses, leaving them with a reasonable amount of disposable income even though their wages are relatively low.
If you think it’s time to start putting aside reserves for the future, why not check out the range of Aldermore Personal Savings accounts or get in touch to find out how we can help you build a brighter future.
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