Step 1: Setting the foundations for success
Millions of us go through life knowing that we should be doing more to save and invest for the future, but we leave it at the bottom of our to-do-list because we don’t know where to start. In fact, Moneybox research found that nearly two thirds of 18 – 35 year olds do not feel they have all the information they need to confidently plan their financial future.
This isn’t surprising when most of us weren’t taught how to save and invest at school, although 90% of 18-35 year olds wish they had been, and many traditional financial providers are only interested in selling us products, not helping us to achieve financial outcomes.
This means that our money isn’t working as hard as it should be and could also mean we don’t have a plan in place when unexpected events arise. We asked Moneybox users if the Covid-19 lockdown changed their savings habits or attitudes towards saving money. Over 34% said they feel more uneasy about their financial future, with “planning and having emergency savings” being the overwhelming money lesson learnt.
At Moneybox, we believe everyone should have access to the tools and information they need to confidently plan for their financial future. You really don’t need to be an expert to make the most out of your money and it is easy to set the foundations for success. The first step is to understand your current financial situation and establish your goals, both short term and long term.
Set your goals
It’s well worth sitting down and setting out your goals so you know what you’re working towards and can put together a plan for the best way of getting there. Plus, they will help steer your money to where it can work its hardest, leaving you to reap the rewards. This doesn’t mean you have to have a clear 10 year life plan, but for example, if you know you want to buy a house at some point, there are things you can do now to help you get there.
While everyone has different goals, it is likely that you’ll need money for the short term as well as the long term and these come with different strategies. If you have goals that you’re hoping to achieve within the next year or two (think holidays, rainy day account, new car), saving is probably the best path to take. Whereas if you’re working towards a goal 5+ years in the future (e.g. first house, retirement), you may want to consider investing as it can offer higher returns and you’ll have more time to ride out the ups and downs of the stock market.
If you’re in a relationship, it also could be a good idea to discuss your goals with your partner. The Money Charity via Refinery29 advises to start talking about money as early as you can in a relationship – “It links to our long-term goals and what we want to get out of life. It’s surprising how often people in relationships have different priorities in terms of their spending and don’t know how much their partner earns.”
Get to know your money
To start working towards your goals, it’s important to understand how much you have to save or invest. Take the time to know what’s coming into your bank account versus what’s going out each month, including where you’re spending it.
Always include paying down any debt you may have each month. Interest rates on credit products can be eye watering and can have a negative effect on your finances over time if left unpaid, so paying off any debt should be one of your top priorities.
If you find you’re saving less than you thought, there are great tools to help you budget and decide how much you want to spend. The Money Advice Service has an online budget planner that you can save and log back into at any time. Or you could try downloading the Money Saving Expert excel spreadsheet planner and save it on your desktop. If you’re not yet thrilled by the idea of budgeting, there are ways to jazz it up. Check out Budgeting, But Make It Fun via Refinery29 for some handy tips! You could also link your spending with budgeting apps like Chip or Money Dashboard. These track and review your transactions and can make suggestions on where you may find some savings in your spending. However, bear in mind that these budgeting tools and apps are a case of ‘review spending first, save second’. Whereas, to really smash your savings and reach the goals you’ve set, you’re more likely to benefit from saving first, spending second.
Check out our top tips to help you kick-start your savings habits in Step 2: How to save without the sacrifice.