My personal views on saving are made very clear on Financial Expert. In my article ‘How to Retire at 50‘, I explain that our ability to save will dramatically affect our future lives.
First and foremost, our attitude towards saving will determine whether we can become financially independent of our jobs, and enable us to retire early, or remain in work and live a more lavish lifestyle.
Simply put – if you can restrain your spending to safely your monthly income, you will be able to achieve financial independence and build up your own sum of capital.
If you consistently spend outside of your limits, then you will remain dependent on your job, the government or banks for financial support for the rest of your life. This article will explain how to save money in a way that is more effective than the average saver.
Tips for Saving
1. To lower your spending, lower your demands
If you have a reasonable job then living comfortably within your means is easily possible if you only demand the basics in life. The pursuit of comfort, luxury, and status is a frivolous, unfulfilling, and never-ending goal. 20 years in the future, cars will be much faster, safer, and fuel-efficient but our enjoyment from them will not have increased.
This is because we quickly adapt to higher quality products and accept them as the norm. The promise of an upgrade or premium version of a basic product is often too much of a temptation, but after going through an adjustment period, you will be just as happy with basic products as you were with their luxury counterparts.
The fulfilling satisfaction of adding to your savings when you get a bargain will give you a pleasure kick by itself. There’s nothing embarrassing about pivoting to a low-maintenance car, because you can use those savings to buy what more of what you really enjoy.
If you can accept a lower standard of luxury, then you can retire early which will make you rich in time.
2. Change ‘want’ to ‘need’
When confronted with a purchase opportunity- ask yourself, ‘do I need this’ rather than ‘do I want this’.
Having a somewhat insatiable appetitite for new things, we generally ‘want’ everything, but to be a good saver, you need to spend only when absolutely necessary. I consider the following purchases necessary:
- Basic Food & Home Products
- Computer, Phone & TV
- Affordable Rent/Mortgage & Utilities
- Purchases towards life goals (E.g. Travelling)
- Smart Entertainment (e.g off peak movie tickets)
- Non Branded Clothing
3. Force yourself to save
Taking willpower out of the equation can go a long way to improving the saving skills of habitual splurgers. Begin our free investing course to explore ways to invest the money you automatically deposit into your choice of a stockbroker. You’ll find many neat ways to trick yourself into saving more in the best investing books.
4. Visualise your savings as an income machine rather than a ‘rainy day’ fund.
Coming from an academic finance background, my perspective on the value of savings is different from the average householder. If you begin thinking of savings interest as a second salary, you may become much more enthusiastic about sacrificing spending. If you know how to invest in shares and diversify wisely then you should expect nominal returns of 7% per year on average from your investments.
This equates to £3,500 for every £50,000 in savings you have in your bank account. On a micro level this means when you save £150 on a mobile phone by choosing a Pixel instead of an overpriced Apple phone, you could gain an income of £20 per year for the rest of your life each time you make this decision.
Picture this £20 income in cash in a Christmas or similar festive card each year for the rest of your life. This is a gift from you to yourself in return for opting for a budget phone.
This saving starts to look like a good deal doesn’t it? With this in mind, becoming a ‘good saver’ is merely morphing your attitude from a ‘want’ for products now, into a desire for high income in the future.
As everyone would enjoy a higher future income, this is an attitude that could potentially begin to take a hold of everyone if they put in the effort at the start. Isn’t it time you had an effective money plan?