09 Jan It’s the New Year again!
It’s the New Year again. Where did 2019 and the last decade go?
For some of us, this time of year inspires us to try and stick to some New Year’s resolutions, whether they be lifestyle, diet, fitness or finance-related. If you’re like me, and as I said last year, life tends to get in the way, and despite our best intentions, your resolutions might be slipping already.
Financial resolutions can often be the hardest to keep, either due to unplanned expenditure or possibly the winter doldrums; booking that summer holiday or just feeling the need to treat yourself in the ‘depressing’ winter months.
I read a lot about trying to set specific financial resolutions or objectives such as spending less or saving more, and I came across an interesting way to encourage young people to save, which actually could be used by anyone.
I have seen it called the ‘1p challenge’, however, the same principle can be applied to £1, £10 or £100 depending on what you’re able to save, but to make life easier let’s assume a starting figure of 1p. You start by saving 1p on day one, then 2p on day two and 3p on day three etc.. Keep doing this for 365 days so that by the last day you save £3:65.
After a full year, you’ll have saved £667.95 not including any interest that you may have earned. This isn’t much, but if these funds are then added to a pension and you obtained tax relief the amount could become £1,113.25, assuming you’re a higher rate taxpayer.
The amounts and daily saving are not really important, what is, is the starting to get into some kind of savings habit.
I’ve always found it’s how you frame savings for yourself that’s important. Try not to think about saving as a drag, or a reduction in what you can spend now, rather think about any savings as a way of paying yourself now so that you can fund future expenditure. You’re just deferring what you are going to spend the savings on.
Also, make sure that you pay yourself first, i.e. if you’re paid monthly then set up a regular transfer to your savings account or investment the next day so that a set amount is saved before you start using your earnings for that month. If you wait until the end of the month to see what surplus you have left, it’s highly likely that in most months there won’t be any. You know it’s there, so it gets spent. We are all only human!
Once you start the savings habit, it will become second nature and just something you do.
Another thing to consider if you are contemplating financial resolutions is to set specific long term goals that you want to achieve in your life. I don’t mean saving a set amount, I mean what do you want your future life to look like or what have you always wanted to do but never seem to have the money or time to do?
In the same way as getting fit not really being a goal, saving more is not a goal. Give yourself a target that relates to something you want to do. At this time of year, I’m usually at my most unfit (I blame Christmas) but am also arranging or have arranged the summer festivals and/or concerts that I’m going to. This gives me a personal goal to get fit enough to stand up and jump around for long periods, but the goal isn’t purely to get fit but to be able to do something I love with the energy to enjoy it.
If you apply the same thinking to financial or other goals, then you’re likely to stand a much better chance of achieving them.
The 1p challenge might be a good way to try and introduce a new or additional savings habit, but if you anchor the funds to a long term goal, then you’re much more likely to stick to the savings plan.
So before you embark on a new or repeat set of New Year’s resolutions, think about what you really want the end result to be and, while you do so, you can rejoice that dry January is upon us. Or you can do what I prefer and wait until February to go dry. It’s a shorter month!