Firstly, if you want to have more money in the future than you have today, we’ve got news for you. Unfortunately, your only option is to save!
Here are some saving tips to get you started:
1. Record your expenses
The first step to start saving money is to figure out how much you spend. Keep track of all your expenses—that means every coffee, household item and cash tip. Once you have your figures you can organise the numbers by categories, such as petrol, groceries and mortgage, and total each amount. This starts you off with a good breakdown and knowledge of how you spend your number.
2. Budget for saving
Once you have an idea of what you spend in a month, you can begin to organise your recorded expenses into a workable budget. Your budget should outline how your expenses compare to your income—so you can plan your spending and limit overspending. It is also important to keep a small portion of money aside in case of issues such as car maintenance etc.
3. Discover easy ways to cut your spending
If your expenses are so high that you can’t save as much as you’d like, it might be time to cut back. Identify nonessentials that you can spend less on, such as entertainment and dining out. Look at ways to decrease these expenses, and not necessarily stop enjoying them all together.
4. Set yourself saving goals
One of the best ways to save money is to set a goal. Start by thinking of what you might want to save for—perhaps you’re getting married, planning a holiday or saving for retirement. Then figure out how much money you’ll need and how long it might take you to save it. You can split these goals into long-term and short-term goals.
5. Keep priorities in mind
After your expenses and income, your goals are likely to have the biggest impact on how you allocate your savings. Be sure to remember long-term goals—it’s important that planning for retirement doesn’t take a back seat to shorter-term needs.
Once you have money set aside in savings this is when investing can begin. At Rockwell our advice is very simple, we would not advise any client to take on risk with long-term investing until they have about six months take-home pay in the equivalent of a deposit account, a risk-free easy access account. This means that if the washing machine goes, you’re still able to replace it. If the car needs a repair, you have a pot to dip into.
Once you are past that threshold, we would often advise investing any excess funds into the mark. If you don’t, you’ll be faced with the threat of inflation, which is currently starting to creep back into the psyche and becoming a real issue. This means the purchasing power of our extra cash is diminishing by the week. Because of this, we need to be earning a return on that money to just be able to buy the things we want to buy in the future.
Once you accept that you need to take on risk, life becomes very easy. At that point, it’s really about committing to a monthly direct debit amount that removes the decision-making process each month.
It’s important to note that you can only assume the risk if you feel comfortable that you can deal with the consequences of a fall in the value of that investment. The only way you can deal with the consequences of a fall in the value of that investment is if you have a sufficient cash pile there that is completely insulated from that investment. A reserve of money that you can fall back on, while you sit back and let the markets do their thing.
Whatever your investment strategy, we always advise that you don’t put all of your eggs in one basket, whether that be single equities, cryptocurrency or any other asset class. When it comes to our savings, hope isn’t the best strategy. We need a level of certainty to know that down the road our risks will pay off. Ultimately most of us are saving for the long term, 20/30 years down the road, and by then we want all the bumps along the road to have evened out.
Risk management is a very important part of what we do for our clients and we always aim to avoid any nasty surprises. No adviser can guarantee investment performance. What we can do is closely align your portfolio with your goals and deliver regular reviews to keep things on track as circumstances change. Book a consultation with a member of the Rockwell team to learn more about our approach.
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