Saving is difficult at the best of times, but it can be particularly challenging for young adults, those just starting out and confronted by expensive housing and living costs. We all know it’s in our best interest and we’ve heard all the platitudes - “keep a six-month emergency fund”, “save 15-20% of income” and “saving for a specific purpose will help you reach your goals”.
In some instances, such sentiments are true, for example a good saving habit does often go hand-in-hand with a specific end-goal like a first-home deposit. This is reflected by our Financial Research Survey (FRS) that reports over one third of Brits only save for a specific purpose.
Unfortunately, good advice alone isn’t enough impetus for all of us because like all habits an individual’s financial habits are determined by personality and upbringing, and more often than not subconscious thoughts and emotions override any rational good-intentions ensuring we do too little or nothing at all to grow any savings and investments.
Throughout my own process of developing a sustainable saving habit I have found myself building up a pot of savings before succumbing to impulse and whittling it all away. Conversely friends more suited to routine find regular saving easier to maintain.
However, over the past twelve months, I have sustained regular saving for the first time, and despite a plethora of financial services apps installed on my mobile, I find myself engaging most with Moneybox.
Moneybox is simple, and it offers a small range of products including general saving and investment accounts, which makes choosing very straightforward and an ideal starting point for first-time investors like me. Investment accounts and equity ISAs come in three options; cautious, balanced and adventurous. Each option carries different risk and is made up of various preselected funds, removing the need for any research or prior investment knowledge. The app is also simple, very user friendly and a blog section provides helpful information for first-time investors.
Equity ISAs and similar ‘drip-feeding’ products are popular with first-time investors, with around 80% of Moneybox’s customers aged under 34 according to the FRS. Although Moneybox currently only commands a small share of the overall investment market, it is growing steadily and is now outpacing market leader Hargreaves Lansdown for new business, which itself benefitted greatly from the swell of young first-time investors entering the market during the first COVID-19 lockdown.
I use Moneybox to invest into an equity ISA and the obvious benefit of any ISA is a £20,000 annual tax-free allowance however, I am nowhere near able to save that amount to take full advantage! Instead, ‘unintended’ or let’s say ‘secondary’ benefits of saving into an equity ISA have been most beneficial at helping me develop sustainable saving.
The long-term nature of equity investing means relatively more friction when attempting to withdraw funds, compared to an easy access account for example, and this has prevented me from falling victim to impulse on several occasions!
However, automated weekly deposits have perhaps been most beneficial as they remove any decision-making process; whether to save or not, which has been particularly helpful during months I was over-budget and felt saving wasn’t a priority. In the past had the choice been mine, I would have decided against saving… ‘at least until next month’.
Make a start and keep it simple
In conclusion, my advice to any struggling young savers and investors is to first understand your financial personality and what prevents you from saving. Then start small and keep it simple, headline product features like interest rates or annual returns don’t need to be the most important factor while you establish a sustainable saving habit. Instead, start with a product that best suits your personality; something with automated deposits perhaps, round-ups or a lock and key to prevent you ever accessing your cash!
As for cheesy saving platitudes, a penny saved is in fact a penny earned.
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