Hello fellow Protagonists.
On your travels have you heard or personally said anything similar to the following:
If I had £X, now would be such a good time to buy a house to rent out and make a killing
I knew that company would be huge, if I put money into them at the start I would be rich
This is how I would use my £1,000,000 lottery win to never have to work again
I could retire if someone just gave me £X
Or… lets be more realistic:
How am I ever going to buy a house when I need a deposit of £X?
How am I going to start investing when I only earn £X?
Will I ever retire?
Well then, come and take a seat adventurer. I am about to blow your mind. I am willing to share what I believe is the Golden Ticket to conquering these concerns. All for the limited price of £214.27 (excluding VAT). A number like that must have been well thought out, I mean look how precise it is.
Hold on friend, put your coin pouch away… and your wallet. This one is on the house.
If you want to start to Buff your personal finance journey in one simple way; on something within your control,
Focus on your Savings Rate
Your Savings Rate is simply the percentage of all your income that gets put to the side, which has been given the quest to reach your financial goals. Each £1 saved becomes a fresh faced recruit used to build houses, hold the fort, work for you, or slay debt.
The most important thing a Savings Rate offers is the freedom to make that choice of what you want to do with your money.
If paying off your car or credit cards are your priority, send your recruits there. If you want to start investing or contributing to a pension, march your recruits over there. If you want to create a savings fund for a housing deposit or emergency fund, you can do that to. You can also split up your recruits to mix and match.
Remembering back to what is in our control. There are very few aspects in the financial world that are in our control. This is one reason why I believe money and finances can frustrate people so much. Movement in the housing market, stock market, and tax increases, are three examples I can think of straight off the bat that we have no control over.
So what percentage should we be saving? The beauty is that’s your choice. There are many suggestions, ranging from 10% all the way to 70%. Let’s keep this under our control and decide rather than being told what to save. Starting at 1% could be a good idea for people just starting out. This could be around £15 a month for many. Then once 1% feels comfortable you can increase this to 2% (£30), and so on. It is also your choice if you want to use before or after tax number to follow.
Personally I have tested the water with different Savings Rates. Too low and I felt that there needed to be more momentum. Too high and I felt that it restricted the frequency of treats and experiences too much for my liking. I have settled around the 25% mark, post tax. This is not to say that you should follow this percentage as well. 1% is more than 0.
We are all on our own unique adventures where nobody has the right or wrong answer. You will know what feels right when you get there. This could also mean that your, and my, Savings Rate will change through time, as our situations also change.
Remember that if you are already paying into a pension, this counts towards your savings rate. Good start! This includes those who were placed on the auto enrol system brought into the UK back in 2012. This could be around 4% already, and is before tax.
There is nothing stopping you choosing a number rather than a percentage, say £200 a month. Choosing a percentage can help keep continuity for those whose salary is inconsistent. Maybe you are self-employed, work on a commission basis, or frequent changes in working hours. It can also help keeping your savings relative when facing pay rises or pay cuts. 10% is 10%, where £200 could be easy one month and very challenging on another. If a number helps you to focus on saving more than a percentage does, then that is your path.
Your quest
I would only advise not to go guns blazing with this one. Increasing your Savings Rate from 0% to 20% instantly could cause a similar reaction as never going out for a jog, to suddenly signing up for a 5K Tough Mudder.
Work out what your current Savings Rate is, and assess if you are comfortable with what this is offering you. If not, then add or subtract 1% accordingly. If that current rate is 0%, open up an easy access ISA, right now not caring what the interest is, and move your 1% in there. Having your savings in a separate account shows us nice and clearly that this is not our normal spending money. sharing this account would be like building a toilet in your lounge, convenient but sends mixed messages.
Remember that this is an emotional task, as much as it is practical. To prove this to the gamers out there. If you ever had your eye on a new expensive character skin or set of armour, that required free in-game money (do you remember those days?), I bet you could grind and save for it, without being too tempted to spend it on impulse on other things. Now replace the armour with a housing deposit. why then is this so much more difficult in real life? Because it usually requires consistency, and emotions are involved.
Please let me know if this has helped you assess or take action on your Saving Rate.
GLHF
Warrick