A lot of people find that saving money in the current financial environment is difficult. And that’s not really surprising, as UK wages haven’t really climbed much at all in the last decade while expenses have risen.
However, if you’re struggling to save, there are a number of simple strategies that could help you become a better saver. Here, I look at three straightforward savings techniques that could help you put away a little bit more for the future.
The ‘pay yourself first’ technique
This strategy – which is often recommended by financial experts – involves saving a little bit of your income as soon as you receive your pay cheque, instead of waiting until the end of the month to save.
The reason this strategy works is it forces you to be disciplined with your money. If you don’t pay yourself first, it’s all too easy to blow your entire pay packet and have nothing left over at the end of the month. However, if you do pay yourself first, saving becomes a priority.
The ‘1p-per-day’ strategy
If you want to start small, the 1p-per-day strategy could be worth trying. The way this works is that on the first day, you save 1p. Then, for every day going forward you save an additional 1p. So, on day two, you’ll save 2p and day three you’ll save 3p etc.
The beauty of this strategy is that your savings can really add up over time even though you have started with small change. If you save every day, by the end of the year you’ll have a pot of £667.95.
The ’round-up’ strategy
Finally, you could also consider the round-up strategy. This is where you save your change after every purchase. For instance, if you buy a coffee for £1.80, you then save 20p.
These days, this strategy is really easy to execute as a number of apps such as Moneybox can do all the hard work for you and redirect your change automatically. For those who struggle to save, this could be a good option.
What to do with the money
Of course, in the current financial environment, saving is only half the battle. If you want to build your wealth, you need to get that money working for you. If it’s sitting in a cash savings account earning 1.5%, it’s essentially losing value over time, due to inflation.
This is where growth assets such as shares and investment funds come into play. With these kinds of assets, you can expect average returns of around 6-10% per year over the long run. If your money is growing at that kind of rate it could make a big difference to your wealth over time.
For example, if you have £5,000 saved now, and you leave this money in a cash savings account earning 1.5% for 10 years, it will only grow to around £5,800. However, if you put that £5,000 into a diversified portfolio of growth assets and achieve a return of 8% on your money, it will grow to around £10,800. That’s a big difference.
So, while saving is crucial, it’s important to realise investing is the real key to building wealth. And if you’re looking to learn more about investing and how it can boost your savings, you’ve come to the right place…