You don’t have to have a big income to save for the future. How much you can save for the years ahead is just as much about your mindset – the value you place on preparing financially – as to how cleverly you use the resources you have at hand. Retirement is likely to hit us all at some stage and now, in the 21st century, through saving well we have the opportunity to make that post-work period not only comfortable, but a time to explore that exciting bucket list.
Saving money to fund retirement is as important as saving for those short-term needs. But are we saving enough? Is there any way we can enhance that pay-out when we finally say goodbye to the responsibilities of work? How can we take control?
Visualise your retirement
We all need motivation for putting those extra few pounds away and unfortunately retirement at times can seem a little vague, distant and uninteresting. So, try to visualise what you want your retirement to look like. Where will you be living? What do you want to be doing? Who will be around you? Have a clear idea as to what you are saving for. True, your needs and aspirations will change throughout your life but by creating those foundations early on, you will get into the mindset of putting that extra bit of money away for something real and tangible.
Are you sure you have no money to save?
As we head little by little towards a cashless society, we tend to use the pounds, but the bits and pieces (the copper and silver coins) unfortunately get lost along the roadside (literally!). Do you know how much money you have in your wallet, purse or trouser pocket at this very moment? Take a minute to do a little roundup – we think you will be pleasantly surprised!
These bits and bobs which would perhaps never get used, can be added to little savings pots in your home. They then begin to have a value. You can decide what they will be used for – short term or long-term savings. And though these amounts can seem tiny individually, once they start building, they can make a great difference to your overall savings – and future.
Getting into a savings mindset can make a real difference to how effective your money resources are and how smooth and satisfying your future life could be. But don’t let an overly comfortable savings habit blinker you to the value of what you can put away:
Jamie Smith-Thompson, Managing Director at Portafina, says:
“Saving is like trying to maintain a balanced and healthy lifestyle. We know it’s good for us but it’s so easy to put off thinking about it until tomorrow. A great way to combat these mañana moments is to use different or unusual approaches with the aim of upsetting automatic and entrenched behaviours when it comes to saving.”
Different ways of saving
Living in the moment and spending all income on treats can be a great temptation, but if you fail to look ahead on your life journey, then you are unlikely to prepare for the hurdles or big milestones ahead. Most people tend to put their money into four (sometimes virtual) specific pots when saving for the future:
- Everyday treats or bills: this money is either recognised as weekly/monthly expenditure, or a separate account is created to cover those little monthly needs. As it is needed to be readily accessible it is kept in low interest current accounts.
- Rainy day money: this needs a special account as it prepares us for those inevitable brown bills landing on our doorsteps. It also allows us more flexibility and spontaneity when treating ourselves. Bank accounts still need to be accessible but with a little interest.
- Milestone savings: this is savings for the big things that we expect to happen on our life journey. This could be marriage, children, mortgage, a new car etc; this also needs to be an account which is going to earn good interest as the funds are likely to be standing around for some time. ISAs are a great way to save longer term and earn interest too.
- Long-term savings: this is saving for the post-work period. Having savings means you do not have to rely on the State Pension alone and you have more of an opportunity to live the life you want. Many pensions allow access to your fund at the age of 55. Although, taking money early isn’t right for everyone as it could leave you with less to live on in retirement.
Compartmentalise your savings
If you leave too much money in your ordinary current account, it is being stored securely but is it really working as hard as it can for you? Interest rates are likely to be low in a current account so it is being wasted while it just sits there. Can you transfer money to a higher interest account?
“Think about how you can compartmentalize your savings so that only those funds you need for instant access are in low interest accounts.”
Short-term investment savings account -for instance ISA accounts (your savings are not available for several years but the interest is good) – can be great for putting money away for the longer term.
Monitor long-term savings and your pension’s performance
Opting-in to your employer’s pension can be a great way to get on the pension ladder. You will begin saving for your retirement at an early age. It takes the hassle out of putting it all in place and comes with a free contribution from your boss. However, if you have other personal pensions, it is worth regularly checking them because high charges, poor performance and bad management could be taking chunks out of your retirement plans without you noticing.
- Read through the reviews sent to you by your pension provider. Is your pension performing as well as you would like? Don’t worry, if the world of pensions all seems a bit complex – give us a call and one of our regulated financial advisers can walk you through.
- If things are not going so well, consider refining your contribution or changing your pot to a more effective fund or provider. Again, a regulated pension adviser at Portafina can review your options and benefits in line with market competition.
- It may be that a regular contribution every now and again will be good enough to keep your pension on track and buoyant.
- Regular advisory sessions with your pension adviser will keep your retirement pot front of mind. You can make changes effectively when needed and keep a close eye on new benefits, competitors, regulations and performance.
- Your retirement money of course will not just be about you. Your partner will play a part in that retirement visualisation. So why not get together with your partner to create a goal together? This will refine your focus and make building savings a lot easier and more fun as you plan the future together!