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By: Tim Bennett
12.09.2019
This week, Tim goes back to basics and explains why saving makes sense at any age.
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Four reasons to become a saver
The problem with saving, for many younger people, is that the benefits don’t become clear for some time – why save when you can spend today? However, anyone who has saved regularly from a young age will be aware of the benefits and the pitfalls of not doing so. Here is a reminder.
Background
Concepts such as “delayed gratification” (jam tomorrow and not just today) and “looking after your future self” can seem a bit amorphous to a youngster facing the challenges of clearing debt and making their way in the world of employment. So, it is worth remembering why saving from a young age is so important.
1. Happiness
The old cliché that money can’t buy happiness may not be strictly true. Studies show that, up to a certain level of income, wealth and happiness are linked.
The key thing most people don’t realise is that this relationship runs out of momentum as people earn higher incomes.
That rather begs the question as to why anyone would bother saving once they achieve a decent level of income for themselves and their families. The answer lies in the fact that, although our ability to enjoy consumption may tail off as we become wealthier, consumption is not infact the full story. Money acquired through saving can also bring three further benefits, at any income level;
2. Choice
As individuals we value the ability to make choices, even if we never exercise them all – this is also known as “optionality”. It is a great advantage to have choice about where we live, how our children will be educated, when we dial down work and how and when we clear debt. Why? Because it contributes to our sense of financial freedom and over wellbeing. This is hard to quantify versus our pure ability to consume, but that doesn’t make this type of optionality any less valuable.
3. Independence
Most people want to be free from the constraint imposed by debt at some point in their lives, whether that is student loans, personal loans or a mortgage. Many also prefer not to have to ask other family members for money. Saving is a route to achieving this sort of independence, which allows us to make our own choices unencumbered by financial obligations to other people.
4. Security and peace of mind
No-one wants to travel far through life not knowing what they will do in the event of an emergency or a health scare. Equally, few people want to carry on working full time beyond a certain age. So, saving can help to build a sense of security and reduce lifetime anxiety. Again, this is hard to quantify but it is nonetheless valuable.
Meanwhile, once key savings goals are achieved, older family members, in particular, may ponder how best to leave a good legacy. This is, for many people, every bit as important as enjoying themselves as they live their own lives. Saving is the means through which many people create the means to do this.
Life satisfaction
The conclusion, that several studies draw from these observations, is that higher incomes do seem to bring greater life satisfaction, as do higher savings levels. This applies at an individual and country level. This is not a short-term effect, related to a specified income level of consumption but more about living life fully and well, in the broadest sense.
What saving is not about
In that context, I will wrap up by dispelling some myths about saving. It is not an exercise in;
What saving is about
Rather, saving is about systematic and appropriate wealth accumulation, at a level that each person can afford. In that context, regular reviews of an individual savings strategy are vital as both our ability to save, and the goals we are saving towards, both change.
For more information
To discuss the best ways to put together an appropriate savings plan, that takes account of your objectives and goal, please contact a Wealth Planner, or email me on [email protected]
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