Monday Mythbusting: 6 myths about savings you should ignore
Everyone has an opinion about savings, whether it’s how early you should start saving, how much money you should squirrel away, or what you should do with your savings once you have them.
With so many competing opinions flying around, it can be hard to know who to listen to – or who not to. That’s why, in the next of our mythbusting series, we’re exploring the misconceptions about savings you should be aware of if you want to make the most of your money.
1. Successful savers save most of their income
Saving money isn’t easy. There’s always something you need to spend money on – your next mortgage payment, a credit card bill, or replacing the old boiler that makes a weird shrieking noise any time you turn on the hot tap.
And if it’s not something you need, it’s something you want: a new pair of trainers, a night away, or an upgrade on the car that’s now held together with sellotape.
That’s why overambitious savings goals are doomed to fail. You might like the idea of setting aside 75% of your disposable income, and sure, it would look great sitting in your savings account, but that doesn’t make it achievable. And when we don’t achieve the targets we set for ourselves, we have a tendency to ditch the exercise altogether.
That’s why the most successful savers actually save little and often. The tactic works exactly as you think it might. Instead of aiming to save a chunk of money in one go, put small amounts of money away throughout the month. They’ll turn into bigger sums when you get to the end of the month, and hitting your mini-targets will keep you motivated along the way.
2. You should only spend what you have (and avoid credit)
Many of us are trained to think that taking on new credit (especially credit cards) is inherently bad. It’s easy to see why. There are horror stories out there of people letting credit cards run away with them, and as the biggest debt solutions provider in the UK, the team at Creditfix hear those stories more than most.
It’s important to spend within your means, of course, but some people take that to mean you should only rely on the money you have in the bank. The reason this is a misconception is because credit itself isn’t the problem. Abusing credit is.
Taking on new credit is the key to unlocking a lot of people’s financial goals in life, goals they simply wouldn’t be able to reach off their own backs. If you want to own your own home, buy a car, or launch your own business one day, the chances are you will need to do some borrowing.
And that’s OK. As long as you borrow an amount you can comfortably afford, taking on new credit can be positive. Not only does it help you achieve your goals, it also allows you to build up a positive payment history. This can actually help you with your savings targets, boosting your credit score and helping you get better deals on credit in the future.
3. It’s too early to save for retirement
This is something we all think when we’re young. Or don’t think about at all, as the case may be. After all, who thinks about retirement in their twenties, when they’ve only recently entered the world of work?
While saving for retirement might not be a pressing concern for you, you’ll never regret starting early. Right now, the state pension in the UK is just over £9,000 per year. That may sound like a reasonable chunk of ‘free’ money, but when you spread it across a calendar year, it’s barely enough to cover the essentials in what are supposed to be your golden years.
The state pension age also isn’t guaranteed. Right now the state pension age in the UK is 65, but it won’t stay that way. As medicine and technology advance, people are living longer. For people currently in their 20s and 30s, the state pension age is expected to be around 70 by the time they reach retirement.
Not many people like the idea of working until they’re 70, but even if you have no plans to retire early, you’ll want to live as comfortably as possible when you do. That means starting early. If you don’t have an employee pension, try acting like you do, by putting away 5% of your monthly wage (or whatever you’re comfortable with).
Even if you do have an employee pension scheme, it never hurts to chip in extra. You could try matching your employer’s contribution if it’s more than your own, or paying in a lump sum if you come into some unexpected money. When the time comes to wind down your career, you’ll be glad you did.
4. Investing your savings is for other people, not you
Bringing up the term ‘investing’ sometimes makes people a bit uncomfortable. It can conjure up images of Wall Street bankers playing around with seven-figure sums, or successful business people ‘diversifying their portfolios’ – whatever that means.
It’s these perceptions that can make people feel like investing their money isn’t an option for them, or that it’s not safe – that it’s an activity only people who know the stock market inside out should pursue. That’s simply not the case.
It’s important to point out that investing can be risky. If you decide to get involved in stocks and shares, there’s a good chance you will lose money at some stage, even if you end up in the black in the long run. But there are less risky ways of making your savings go further.
You can look into savings accounts with a better rate of interest, for example. They’ll earn you a small amount on top of your savings just for keeping your money in a certain account. While they won’t earn you a fortune, they offer an essentially risk-free way of building up your savings over time, and you can always look into more proactive investing later.
5. You should have X amount of savings by Y years old
You see these kinds of articles everywhere, and they never offer you any practical advice on how to build up your savings. All they do is make you feel bad about yourself.
In our social media-obsessed age, everyone is encouraged to judge themselves against the people and lifestyles we see on our screens, and it’s no coincidence that people tend to share the best of themselves online.
If you had a pound for every time you’ve seen someone post online about how you can ‘hustle’ your way to success the way they have, you’d probably have a very healthy bank balance by now. This obsession with appearing successful can drive people to spend money they don’t have in pursuit of a lifestyle they can’t afford, then feel bad about not being able to afford it.
The same goes for savings. As the old saying goes, ‘Comparison is the death of joy’, and that’s certainly true of your bank balance. Comparing your savings to your peers’ is ultimately a dead-end. Everyone’s circumstances are different, and a panic about being left behind by friends and colleagues in the savings stakes is only going to demoralize you.
That doesn’t mean you shouldn’t set financial goals. It just means you should make sure they’re your goals, relevant to your own personal and financial circumstances, rather than goals based on where others think you should be on your financial journey.
6. Not having savings is some kind of failure
This last myth is the most important one to bust. While it’s great to have some money put away for a rainy day, and savings can be useful for many reasons (some of which we’ve ran through here), not having savings is OK too.
As mentioned previously, everyone’s circumstances are different, and there could be any number of reasons why you haven’t had the means, or the opportunity, to build up a savings fund. For a lot of people, putting money away for some unspecified time in the future is a luxury they can’t afford, especially when there are important things happening right now.
If this is the case for you, the first thing to say is that you’re not alone. More than half of young people in the UK (20-29-year-olds) have no savings whatsoever. And it’s not just young people. Nearly 25% of all adults in the UK don’t have a savings account to fall back on.
The second thing worth mentioning is that, just because you don’t have savings right now, doesn’t mean you won’t have in the future. As time goes by, there’s every chance your financial circumstances will change, and putting away some money might become an option.
Even if you’re starting from scratch, every saver has to start somewhere, and it’s never too late.