Saving for your future is often easier said than done
It is widely known and psychologically accepted that, as human beings, we are very bad at visualising our future selves.
What will our lives look like in 5, 10, 20 years’ time? As a result, we are collectively terrible at deferring gratification. This is exacerbated by modern day consumerism and excessive consumption in Western society. However, are the problems deeper rooted?
Marketeers have been exploiting this human disposition for many years - ‘keeping up with the Joneses’. When it comes to short, medium and long term financial decision making and planning for a fruitful financial future and life well lived, our job as Financial Planners can often seem at odds to societies deeply engrained doctrine. Balance is the key to success.
Rewarding our future selves
Every good plan must start with the end in mind. It is vitally important to think about and visualise various milestones and objectives you (and your family) want to achieve throughout your lives. Plan early. Once goals have been determined and initial plans put in place, it is important, above all else, to remain disciplined. Simple, not easy.
Below are a few top tips and behavioural ‘nudges’ to help you stay on track with your longer-term financial plans.
Making it easy and desirable – Top tips
- Personalise/name your savings and investment accounts. You are much more likely to save (and stick with it) if you can visualise and see the immediate value of saving for specific goals and objectives.
- Set up automatic savings (pay yourself first). Make it regular. Make it automatic. Savings should be upfront, not just ‘whatever you have left at the end of the month’.
- Increase savings (and pension contributions) in line with salary increases. This won’t feel painful and should be done before adjusting to a higher salary. Don’t fall victim to ‘lifestyle creep’.
- Separate accounts for different goals. Often referred to as a ‘multi-pot strategy’, this is an effective way of visualising and quantifying the progression towards your different life goals and milestones. It also helps set the level of financial ‘risk’ you can afford to take with each objective, based on your time horizon and so forth.
- Set regular reviews of savings and expenditure. Take stock and regularly review your finances periodically (monthly/quarterly) and make adjustments where necessary. Small changes add up.
- ‘Fun money’ accounts. Make sure you enjoy the journey and ring fence money for enjoying life and holidays. Live life. You are much more likely to save (and enjoy the process), if you take a balanced approach.
- Save to spend. When making a surplus or discretionary purchase, try and only do so if you can afford to save or invest the equivalent value in to a separate savings/investment vehicle. This will change the way you view unnecessary purchases and put your future self at the forefront.
Whilst saving and investing for an uncertain future is important and necessary, it is vital to balance enjoying the present moment too. Remember what money is and represents – it is a means to an end, not an end in itself. Money matters, but life matters more.
If you would like to speak to a qualified financial planner about this, or any other matter, please give us a call today on 01275 370670 or 020 7269 7960. We would love to hear from you.
This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed. Errors and omissions excepted.