Small changes can have big consequences. That’s particularly true for your finances, where squirrelling away a little money here and there can add up over time. It’s always more tempting to spend than save, but if you see how small savings made from day to day can build up over the long term, you might be more tempted to get into the habit of putting money aside. Here are six ideas to consider.
Track your spending
Personal finance apps make it far easier to monitor your day-to-day spending. They can help track recent transactions, keep a monthly budget, manage subscriptions and know when taxes need to be paid. They can also examine your spending trends and help you understand where the lion’s share of your money is going.
Some in foreign countries will even put your spare cash to work by moving it into a savings or investment account. They round up every purchase you make to the nearest euro and automatically put the difference into a cash account or investment portfolio.
If these small deductions help you save as much as €200 a month, invested at 3% a year this will build up a total of approximatively €65,825 in 20 years and enable you to retire a little bit earlier.
Depending on the mechanics of the scheme, it could be worth double the amount you put in.
Enrol in your employer’s retirement scheme
This really can be free money. Some employers offer access to a pension scheme into which both you and the company make contributions, and which often benefit from tax breaks, so every contribution you make is magnified. Depending on the mechanics of the scheme, it could be worth double the amount you put in.
Such schemes offer the benefit of compounding – €100 invested at 20, compounded at 3%, would be worth €331.5 at the age of 60, while the same €100 invested at 40 would be worth just €182 20 years later. The later you leave it, the more you will need to invest to have a comfortable retirement income.
Refinance your home loan
The gap between fixed interest rate home loans and a lender’s variable rate can be substantial. At present, borrowers in some countries can obtain rates fixed for a certain period at 1.8%, while a standard variable rate can exceed 4.5%.
On a €500,000 25-year mortgage, this can be the difference between a monthly payment of €2,779 at the variable rate and €2,083 at the fixed rate.
If you are able to save rather than spend that money, it can help to build up long-term savings. The €704 that would be saved each month, invested at 3%, could deliver a total of approximatively €311,074 25 years later, more than enough to launch a comfortable retirement and fulfil any bucket list ambitions you may have.
Working the sales
Big-ticket purchases are seldom time-sensitive. You can live with an old, threadbare sofa for a little longer, or hold off on new kitchen appliances. There are significant savings to be made by waiting until these are on sale at various times during the year. The timing of sales is generally predictable – they tend to take place after Christmas or around the start of the year, as well as during the summer.
At any time of year, it pays to be a savvy buyer. The internet has made it far easier to find the best price for individual expensive goods such as TVs, computers, furniture or domestic appliances such as washing machines.
It stands to reason that stores will hike up prices for winter clothes ahead of the Christmas season, or swimsuits in the summer; it’s usually cheaper to buy when demand is lower.
It is always worth buying items out of season, where possible. It stands to reason that stores will hike up prices for winter clothes ahead of the Christmas season, or swimsuits in the summer; it’s usually cheaper to buy when demand is lower.
Avoiding impulse buys
Online shopping is the enemy of good financial habits. It is all too easy to buy without giving it serious thought, or because you’ve had a bad day. Where possible, impose a wait of 48 hours before you take the final purchase decision. That will give you a chance to reflect on whether you really need the item, or whether it would be better to save the cash.
Financial experts also recommend not storing your payment card details on computers or other devices. While it may be more efficient to do so, it makes it much easier to spend money. The more time you have to think about a purchase, the better.
Monitor your direct debits
Direct debits may be a convenient way to pay, but they can linger on long past the usefulness of what they bought. For example, you might still be paying for insurance for mobile phones that have long ago been upgraded, or retain subscriptions for services you no longer use.
The outlay may only be €10 or €20 a month here or there, but it adds up to money that could be put to much better use. Even €50 a month could help create a useful amount of savings if invested for long enough.
Most bank accounts allow you to check the list of direct debits that are coming out of your account; make sure you cancel any that are paying for something you no longer use. This can be a painful process, but looking back at how much money you’ve wasted over the preceding couple of years could galvanise you into action and ensure you remain vigilant in the future.
Building wealth is all about developing good financial habits. As you start to see your savings increase, it can be a powerful motivator to keep going. It can take time to put these reflexes in place, but small steps can make a big difference.
It’s always more tempting to spend than save, but seeing how small savings can build up over the long term can be a powerful motivator to get the habit of putting money aside.