Thursday, 8 November 2012


The returns are too low, it's not worth it.

I'm 50, it' far too late for me.

I'll get round to it sometime.

I don't have any spare cash.

I'm paying off my debt first.

There are better things I can do with my money.

There are many reasons (or excuses) for people not to have any savings, and these days with credit still being easily available, (although not as cheap), should you even bother?

It does seem as though most people are in agreement - the UK currently has the lowest savings rates for decades, but this doesn't necessarily mean all those people are right not to save.

Saving will make your life easier

As a kid I was always exhorted to put my pocket money away in a savings account. It was explained to me that for every £/$/€ I put away in the bank, they would add to it at the end of the year.

Even back then, and even with the idea of someone giving me free money, I thought savings accounts represented poor value. I still do. However, I do now see a lot of value in having some cash stashed away somewhere, and I'm not banging on about having an emergency fund again - Well I might do for a short while... ;)

Anyway, I had been reading a post about pensions and the wisdom associated with saving for your pension early, which is self evident. The thing that struck me though, was the following phrase: "The earlier you save, the less you have to save." Now I'm dreadful at being disciplined enough to save properly so I sat up and took notice.

This makes a lot of sense and it doesn't specifically apply to just pensions either. We all should know, that having that emergency fund makes unexpected bills, and therefore life, easier to deal with, and because you don't have to borrow, cheaper as well. Regardless of what the savings rate is, it is almost always lower than any borrowing rate - But looking at the emergency fund in this way, it also means that using savings to pay for other stuff that isn't necessarily an emergency, is cheaper as well.

Take my recent purchase of my electric guitar, (when I say recent I mean 2007). I'd managed to get my debt in some sort of order and was slowly paying it off, but because of my previous circumstances my credit score was pretty low. Also, I'm absolutely rubbish at putting money aside for saving, so I knew I would have to borrow to get my new guitar. It was also clear that I would have to borrow at quite an unfavourable rate to get my hands on the money.

I put down £100 deposit and took the remaining £1400 on finance, (yes, it is a nice guitar), which I paid for over 3 years at £75/month 0_o or effectively paying twice for it because of the high interest rate. All in all, I had shelled out £2,800 for it over 3 years and what I had to show for that was a used guitar that was worth maybe a third of that figure. 

Now if I had managed to save up that much previously, it would have taken me just over a year and a half (20 months), to get the money together at £75/mth to make the purchase. Had I continued saving at £75/mth afterwards for another 16 months I would have had a total of £1,200 in my savings account AND the guitar too, and that's before we take into account any interest that my savings may have generated. All over the same 3 year period. The only benefit of using the loan is I got my guitar 20 months earlier.

Let's say I then wanted to buy another guitar of similar value: In the first situation, I would have to borrow the money again, which would cost me again, but in the second situation I would already have nearly enough to buy it outright from my savings, and would only have to wait 4 months this time before I had raised the required amount to make the purchase. Here, the loan method only benefits me by 4 months.

You can see that the savings method is serving me better and better over time, and I would only really have to be patient the one time, when I first start saving up a decent amount. Of course, if I had started saving earlier, I wouldn't have had to wait at all. As I mentioned previously:

The earlier you save, the less you have to save

You've probably heard how it applies to pensions. If you started your own pension pot at 18, and stopped paying into it at 30, you would benefit from 30 odd years of compound interest before you needed to use it. Someone starting their pension at 30 would need to pay more in each month, and all things being equal, would have to continue making payments until retirement age to get the same pension.

Or what about a deposit for a house? The quicker you switch from renting to owning your own home, the quicker you switch from effectively lining someone else's pockets to actually investing in property.

There are many more examples I can think of, off the top of my head and I'm sure you can think of a few yourself too, so I'll wind up this post by looking at those initial reasons/excuses:

The returns are too low, it's not worth it - even without a return, it's still worth it

I'm 50, it's far too late for me - it's better to start saving at 50 than it is at 51...

 I'll get round to it sometime - sometime is too late - start now or miss out 

I don't have any spare cash - your savings will save you money

I'm paying off my debt first - you need an emergency fund

There are better things I can do with my money - ultimately there are few things you can do better with your money, than make more of it, and besides, you can do much better things with more money.

So, even if you are a bit hopeless and a late starter like me, it's certainly better late than never. Open an account and start your savings plan tomorrow.

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