Because ‘savings’ and ‘London’ rarely ever feature in the same sentence
It’s no secret that London is home to some of the highest living costs in the world.
The median annual salary for London is £34,473, but there are many people – especially young people – living on well below this.
After rent and bills are paid, the remainders of pay packets go to food and necessities – so how are we meant to save for that big holiday or to get out feet firmly on the property ladder?
In light of Financial Capability Week this week we spoke to Andrew Johnson, Advice Manager at Money Advice Service who has revealed his 13 top tips for saving when you live in London.
1. Loose change adds up
By the end of the week, many of us have a few coins left over in pockets and purses – and even down the back of the sofa. Gather up these odd coins each week and put them in a jar. Even just a £1 a week in loose change will give you a cushion of over £50 by the end of the year. Looking after the pennies really can mean the pounds look after themselves.
2. Keep track of what you spend
Sometimes it’s hard to know where the money goes. Try keeping a spending diary for a week or two where you write down everything you spend from the smallest stick of chewing gum to filling the tank with petrol. This will help you identify items you might be able to cut back on.
3. Reconsider your smoking habit
If you smoke 15 cigarettes a day, that’s costing you almost £2,000 a year. If you’d like to kick the habit and boost your savings into the bargain, get the NHS on your side. Use the NHS cost of smoking calculator to help you give up smoking.
4. Make sure you’re getting the best deal on your bills
Shop around for the best deals for your phone, internet and fuel bills and review your suppliers every year to see if you’re still getting a good deal.
5. It’s all about the side-hustle
There are no simple ways to increase your income. Possible options might be take on extra work – perhaps a job you could do from home, such as child minding, or turning a hobby into a small business, selling things you make. If you have a spare room, you might think about taking in a lodger.
How to find places in your budget where you can save
6. Do up a budget
The best way to assess what you are spending and get control over your finances is to complete a budget. Our free Budget Planner puts you in control of your household spending and analyses your results to help you take control of your money. Alternatively try keeping a spending diary for a week or two where you write down everything you spend from the smallest stick of chewing gum to filling the tank with petrol. This will help you identify items you might be able to cut back on.
7. Have a goal
Having a savings goal can help determine which account is best for you. If you have more than one goal you could use different accounts for each one.
8. See if your bank offers bonus rates
Some accounts may offer a high bonus rate which is designed to tempt you in – but bonuses drop off after a certain period. If you don’t have time to keep switching, avoid accounts offering bonus rates and look for a rate that’s been more stable historically.
9. If you don’t know where to start with bank accounts, try comparison websites
Best buy tables and comparison websites are a good starting point for anyone trying to find a savings account tailored to their needs. Not all comparison websites will give you the same results, so make sure you use more than one site before making a decision.
10. Set up a savings account
If you want to earn a bit more interest then consider a regular savings account but remember, with these types of accounts or fixed term accounts you might not be able to access your money immediately without paying a penalty.
What is the best way to create a budget?
11. Review your budget every few months
Life is unpredictable so try to review your budget and your spending if there’s a change, or at least every couple of months. You might get a pay rise, which means you can save more, or you might find your household bills increase.
12. Put time aside to manage your money (like you put time aside to go to the gym, see friends etc.)
Taking the time to manage your money better can really pay off. It can help you stay on top of your bills and save £1,000s each year.
13. Use an app to help you budget
There are also some great free budgeting apps available and your bank or building society might have an online budgeting tool that takes information directly from your transactions. Just grab as much information as you can about your income and spending (bills, bank statements…) and get started.
It’s never too late to start getting smart about money.
Maybe you’ve made it this far with few problems … you’ve done pretty well all alone just by winging it. Good for you.
But retirement planning isn’t about the past 30 years of your life — it’s about the next 30. And that’s harder. There are decisions you can’t undo, and mistakes are tougher to recover from when you don’t have a paycheck to back you up.
Here are five big money mistakes people make every day that a comprehensive retirement plan can help you avoid:
Written by Bill Smith, the host of the television and radio show "Retirement Solutions." Author of "Knock Out Your Retirement Income Worries Forever." He is the CEO of W.A. Smith Financial Group and Great Lakes Retirement Inc. His firms specialize in retirement income planning, wealth management, wealth preservation and estate planning.
Big Mistake No. 1: Choosing your retirement date based on age alone.
People often decide to retire at a certain age because it coincides with some well-known retirement milestone. They’ll settle on 65, for example, because that’s when Medicare kicks in, or 66 because it’s their full-benefit age for Social Security. Some even say 59½, because that’s when they can access their retirement accounts without any extra penalties. But before you decide when to retire, it’s crucial to assess your income needs and if you’ll have enough to meet them. If you retire before you’re 62, will you have enough money to draw from until your pension and/or Social Security payments kick in?
Remember, if you’re taking money from a tax-deferred account (such as a 401(k) or a traditional IRA), Uncle Sam will want his share. If you need $5,000 a month, you’ll have to withdraw closer to $6,500 just to net that amount. At the very least, you’ll spend down an enormous portion of your money very quickly, and you could put your entire retirement at risk. Which takes us to …
Big Mistake No. 2: Investing all your money in stocks.
If there’s a downturn in the market while you’re depending on your investment accounts for income, it could be devastating — especially if all your money is in equities. If those stocks drop 10%, 20% or more, and you have to sell them to pay your bills; you’re going to run out of money before you know it. The term “sequence-of-returns risk” should strike fear into every retiree’s heart. And don’t forget, those dividends that sound so good when you’re buying in aren’t guaranteed if things go bad.
Yes, with this bull market, it’s tempting to stay with stocks, but in retirement, a diverse portfolio is vital.
Big Mistake No. 3: Waffling on whether to buy an annuity.
There are pros and cons to annuities — the key knows what’s best for you and your unique situation. And that’s another reason why it’s important to have a plan. This isn’t a decision you should make based on what others tell you. Your adviser can help you determine whether you need an annuity based on whether you’ll require guaranteed income at some point in your retirement. And if it would benefit you to have one, he can help you decide how large that annuity should be.
Big Mistake No. 4: Losing track of an old 401(k) account.
This is another one of those things that gets away from people because they get busy. It isn’t that you forget about it completely — it’s just not getting any attention anymore because you aren’t adding to it. Which means the account probably isn’t being updated to reflect your risk tolerance as you near retirement? Also, if the account isn’t part of your overall plan, it may not include the proper investment vehicles to help you accomplish your goals.
You may think of it as benign neglect, but someone should be managing that money — either you or your financial adviser — whether you roll it over into an IRA or not. You absolutely don’t want to just leave those dollars out there, waiting for something bad to happen in the markets.
Big Mistake No. 5: Being unrealistic about rates of return.
People hear that the S&P 500 has averaged a 9.6% return since 1930, and that’s what they expect to earn. That number, of course, is deceiving. There are good years and bad years, and the typical investor will react to each in just the wrong way — selling low out of fear and buying high out of greed.
Unfortunately, many retirees have that 8% or 9% return in mind when they decide their withdrawal rate in retirement. If they only get 5% or 6%, they either have to adjust their budget accordingly — which takes discipline — or take on more risk. It’s better to project a more conservative number that works within your overall plan — maybe 4% or 5%. If you get higher returns, great — but if you don’t, you’re far less likely to run out of money.
Final take: 4 keys to retirement success
Retirement should be something you can look forward to with confidence, and winging it won’t give you that. Here are some keys to success:
1. Take market risk seriously when it comes to investing retirement money.
2. Don’t rule out any kind of financial product without having a true understanding of how it would fit into your plan.
3. Take control of all your retirement dollars; make sure you’re not forgetting about anything.
4. Seek help from a professional who can guide you. A retirement specialist can help you build a plan and will assist you as you make your way to and through this next stage of your financial life.
For those seeking ways to build wealth (or just to get rich quick), there’s no shortage of advice out there.
Personal finance sites abound online, and self-styled radio talk show experts dispense wisdom with varying degrees of accuracy.
But one study found that your fundamental attitudes about money can be a predictor of your ability to accumulate wealth.
The study, published in the Journal of Financial Planning, looked at the correlation between certain behaviors and four “money scripts” — or, put another way, four money personalities.
And, spoiler alert: Only one of the four money scripts is particularly conducive to getting wealthy.
But Tom Murphy, a certified financial planner and CEO of Murphy and Sylvest, said the good news is, like anything, once you recognize that you look at money a certain way, you can take steps to change.
“Recognizing why you are doing what you’re doing is strongly correlated with changing it,” he said. “Lots of times, once people understand their money personality, how they deal with money, they can actually go in and change their behavior.”
Murphy said that money beliefs shaped by childhood trauma are, of course, much harder to overcome.
Nevertheless, parents who are conscious about the way they talk about money to their children — even in tough times — can help teach fundamental lessons about saving.
“Here’s how you teach the right lesson: When the child wants something, you tell them that’s fine, but they have to use their own money, and in two weeks, when it’s broken ... then they don’t have it anymore,” Murphy said. “Give the child the opportunity to make a bad decision.”
He gave similar advice about investing: If you manage small amounts of money as a kid, you have a better sense for how it works when you’re an adult.
“They either like it or they don’t — that’s a hugely valuable lesson to learn,” Murphy said. “And lots of people don’t learn that until their 20s or 30s.”
So which money personality do you have? Here’s how the four break down:
1. Money avoidance: Money avoiders believe money is morally corrupting — that rich people are greedy and therefore they, themselves, don’t try to amass wealth when they get it.
2. Money worship: Money worshippers believe that money will solve all their problems, and that their happiness and power is tied exclusively to having enough money.
3. Money status: Those who follow the money-as-status script believe that their self-worth is equal only to their money. They tend to believe that it’s important to buy new things as a marker of status, rather than because they really need them.
4. Money vigilance: People who are money-vigilant emphasize frugality and saving — and they’re also a little bit secretive about how much money they have.
You can probably guess which one tends to produce the most wealth over time: No. 4, or money vigilance.
But Murphy said lots of people hold a mix of these beliefs — and can exhibit combinations of unhealthy behaviors, like compulsive gambling or giving too much of your money away to charity. Even hoarding money and being unwilling to spend any can be emotionally detrimental.
Still, Murphy said that, above all, it’s important to pay attention.