If you’ve never really been a saver, the prospect of building a pot of money to fund your retirement may seem daunting.
So start small. Could you save £1? Most people would answer that question with “yes.” And if you can save £1, why not £1 a day?
If you can do that, you’re off to a good start because you’ll be saving £7 per week, or just over £30 each month. And that’s how it begins – commit to that and you’ll have started a saving habit, which is a decent first step towards building a pot of money for retirement.
Little tweaks mean a lot
The next step is to think about ways you can increase your monthly savings. And I know there will be many demands on your income because the costs of living can be high. But if you examine your lifestyle and spending habits, you’ll probably identify some areas where you can reduce spending and channel the money to your savings.
What can you change? Are you spending too much on barista-style coffee (like me), or on pre-prepared lunches such as sandwiches and takeaways? What’s your monthly bill on smokes, vapes and alcoholic tipples? Have you got a super-duper phone contract or top-of-the-range Sky subscription? Are you getting the best deals on your gas, electric, insurance and monthly outgoings?
I’m not suggesting you give everything up, but small tweaks, savings and downgrades can add up to big monthly savings, which could fuel your savings and you likely won’t notice much difference or feel any ‘pain’. And if you can get your monthly savings up to £100 per month, you’ll be making real progress.
The magic ingredient
The next step is to make the money you’re saving work hard for you. Small increases in the interest rate or return that you earn on your money can make big differences to how fast the money grows because of compounding. And the process of compounding is the ‘magic’ ingredient that will propel you to a decent-sized retirement pot over time.
Putting your money into the highest interest rate cash accounts you can find is a good way to start off on the road to compounding your money. However, over the long haul, the returns from shares have outperformed all other major asset classes. So, I’d put my monthly savings in shares and share-backed investments on the stock market.
It doesn’t need to be a difficult process. Providers such as Hargreaves Lansdown can provide you with a tax-efficient investment wrapper such as a Self-Invested Personal pension or a Stocks and Shares ISA. And it’s easy to select investments to put in them from its website.
You could go for individual shares if you’ve got the time and inclination to do your own research and portfolio management. But it’s perfectly possible to get a decent investment outcome by investing in managed funds or low-cost index tracker funds too. In many cases, you can make low-cost regular monthly investments by standing order as well, which makes the mechanics of regular investing simple.
It’s well worth having a scoot around the websites of Hargreaves Lansdown and other providers for ideas. Good luck on your investing journey!
