5 Year Money Saving Plan​

• Set your goals - properly

  Let’s start with the basics. What are you saving for? And how much will it cost? Write both down - because you’re 42% more likely to achieve a goal you’ve written down than one rattling around in your brain. And you’re even more likely to reach that figure if you keep track of your progress.

  So consider the difference…

  • Option one: thinking “I will buy my first home in five years” in your head.
  • Option two: writing down “I will save £30,000 for a home deposit, within five years” and then tracking your progress each month. The research says option two is way more likely to succeed. So do that!

  You’ve now set yourself up for success - just by writing down a number.

• Dream big, think small

  Let’s say your target is to save for something big. We’ll stick with £30,000 for a house deposit for now.

  Looking at that total is like standing at the foot of Everest, wondering how you’ll ever get to the top. It’s going to seem like an enormous climb. So start breaking it down. Don’t think “£30,000.” You don’t need to - you’ve already written it down. Instead, think “£116 a week”.

  Now, think even smaller - because you don’t need to save £116 from this week. Take it easier at first - focus on getting into good saving habits that will stick. So maybe this week, you just save £50. And then £65 the week after. And then get yourself up to £125 gradually to account for the difference.

  If you’re lucky enough to be buying a home with someone else, maybe you can split those figures between you. So now, you can conquer your savings Everest together - one small step at a time.

• Pay yourself first

  You might have heard the saying “pay yourself first.” This should probably be “save first,” if it were more accurate. Here’s what it means…

  Most people get paid straight into a current account. They pay their bills first, which is smart. But then they go about their lives, ordering takeaway, going to the cinema, going on family trips…

  It’s only after all that money’s spent that the leftovers get saved - if there is anything left at all.

  So if that sounds like you, it's time to flip your thinking on its head. Paying yourself first means paying 20% of your income into an account you don’t touch - ideally, one with a good interest rate.

  Your expenses should add up to no more than 50% of your income. So you should be able to set up direct debits for your bills without missing the money. “Paying yourself first” uses the same approach but for savings…

  Set up a standing order from your current account to a linked savings account - for around 20% of your paycheck. Set it for a couple of days after your usual payday.

  If that 20% isn’t enough to hit that savings goal, go back to step one.

  Your options are:

  1. Work out how to spend less on expenses
  2. Work out how to generate extra income

  Don’t give up on your savings goal until you’ve had a good look at both.

  What you do next with that 20% in savings could be a game-changer - depending on your risk appetite…

• Accelerate your savings

  Thanks to the magic of compound returns, you don’t have to save every penny of that £30,000 yourself. The trick is to put your money somewhere that pays you compound returns - like an account with a healthy interest rate.

  However, interest rates on savings accounts are currently low - generally, lower than inflation. They’re especially low if you don’t want to lock your money away in term deposit accounts. So even if you get a generous 2.5% interest, your money’s still losing 2.5% of its value if inflation is 5%. However, it’s still far, far better than getting 0.1%, or even 0%. So finding a bank account with the best interest rate possible is a great place to start!

  Let’s go back to that £116 per week that will get you £30,000 after five years. With an interest rate of 2.5%, that comes down to just £108.

  This is the beauty of “compound returns,” or in this case, “compound interest” - because your returns are coming from an interest rate.

  It’s the effect of earning returns on your returns. And time is the key factor.

  Let’s use a different example. Say you invest £1,000 and it returns exactly 10% every year for five years. After the first year, you’ve made an extra £100. So now you have £1,100. The following year, you’re not making 10% on £1,000 - you’re making 10% on £1,100. So that’s £1,210. That continues until you have £1,645 after five years. That’s a 64.5% return on your investment.

  But we know 10% isn’t achievable from high street bank savings accounts. So what about investing?

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