The red flags that show you aren’t saving enough money
Written by Adon Beddoes on August 08, 2018.
You might receive a tidy pay check each month, however it’s not how much you earn that will secure your financial future, but how much you save. Never before has the accumulation of wealth for retirement been so important yet many people are failing to set enough aside. And it’s not just pension savings that you need to think about, there are other reasons to set money aside too.
With that in mind, I’ve put together this list of nine signs that mean you aren’t saving enough to safeguard your financial future. If any of these resonate with you, it’s probably time to change your financial habits!
1. You spend everything you earn
If you’re having to count the pennies at the end of each month and scraping together just enough to pay the bills you won’t be able to build up any kind of savings. There are only two solutions: earn more or spend less. For most people with a full time job, unless you can negotiate a salary increase or find a more lucrative position, the latter is the more realistic option. There are many ways to reduce your expenditure and small lifestyle changes can add up to big savings, whether it’s ditching the daily morning Starbucks or shopping around for a more cost-effective insurance plan.
2. You tell yourself you’ll save ‘mañana’
If you don’t have the discipline to save now, why do you think you’ll change your attitude to saving tomorrow? Sure, your income may rise but so will your expenditure. As people earn more they tend to develop more expensive taste, or along comes a family and increased earnings have a tendency to evaporate before your very eyes! However much you earn, start a savings habit, even if it’s just a small amount each month. If you factor a specific amount into your fixed costs each month along with accommodation and your monthly bills you will find that very soon you won’t miss the money.
3. You don’t have any retirement savings
However young you are and however remote your retirement may seem, the time to start saving for it is NOW. If you haven’t started saving, you’re certainly not alone – according to a 2016 survey by GOBanking rates.com a third of Americans have no pension savings - but that doesn’t justify putting it off any longer. Aim to put aside 10% of your salary. Even if that really isn’t possible for you, anything is better than nothing. Then, take some advice on how best to invest it from a qualified professional financial adviser who will find solutions giving you better growth than paltry bank interest.
4. You have no financial safety net
You don’t have to look far online to realise that there are millions of people living on the brink of financial disaster. In the UK for example, housing charity Shelter, found that 37% of working families would be unable to cover their housing costs for more than one month if one partner lost their jobs. That’s a frightening way to live and the reason why you should aim to have an emergency fund squirrelled away somewhere easily accessible. I usually recommend this equates to six months of essential living costs.
5. You haven’t set money aside for future purchases
Whether it’s a car or a holiday, a deposit on a house or a child’s university education, few of us can afford these big ticket items out of our monthly pay packet. These are the kinds of things we should be setting money aside for to avoid getting into expensive debt. Work out your savings priorities (aside from retirement which is a no brainer for everyone) and create savings goals around them. Some will be more immediate than others and you can find appropriate vehicles to invest those savings depending on the time frame. If your child is still in primary school for example, you can look at a longer term investment to save towards their university education fees, and this will probably produce a higher return than money saved in a vehicle suitable for a property purchase you hope to make in the next five years.
6. You haven’t started investing
As I touched on in points 3 and 5, by investing, I mean finding investments which will give you a higher return than bank deposit interest. There is a dizzying array of possibilities from simple equities to diversified funds, a buy-to-let property, a real estate investment trust (REIT) or bonds to mention a few. To avoid making bad investment decisions, I would advise seeking the help of a professional financial adviser.
7. You spend too much on the mortgage
It is extremely common for people to overstretch themselves when purchasing a home but we all saw how this could end in tears both in the early 90s and, less dramatically, in 2013. As a general guide aim to spend around 30% on housing expenses. Remember, even though your property will hopefully deliver a return over the long term this is not guaranteed and you need to keep back some of your income and diversify your investments with other savings options.
8. You have no idea how much you spend
It’s shockingly common for individuals to have very little idea of what proportion of their income flows out of their bank accounts for different expenses. Most of us know what our rent is but do you know how much you spend each month on eating out, clothes or your morning coffees? Tracking cash flow often throws up some surprises and can be helpful in identifying areas where you can cut back to free up cash to save. If you don’t track your expenditure, start doing it. There are loads of apps that can help, or if you’re a luddite a simple Excel spreadsheet or even a notebook will suffice.
9. Your credit card repayments are minimum every month
Huge great red flag this one. If you are only paying off the minimum each month you are definitely overspending and need to find ways of cutting costs. Savvy card users will pay off their balance in full each month which will keep their credit score high. If you’re not doing that, it’s time to really focus on getting your credit card debt zeroed. You should prioritise that over any kind of savings as the interest rates will usually be higher than any return you can achieve - unless you are taking a huge amount of risk with your investments.
Saving may sound boring but the benefits it brings are huge, particularly the peace of mind you get from knowing that whatever life throws your way, you have it covered. My clients tell me of its transformative power time and time again. If you’re looking for a financial adviser to get you on the right track, drop me a line at email@example.com to arrange an appointment.