Saving Grace ... With Alex Barnes
Alex Barnes - CEO A J Barnes Financial
Saving Grace... with Alex Barnes
It's a new year, which often comes with a plethora of resolutions that gradually fade as the months roll by. According to a recent survey, 31% of people in the UK have put 'saving more money' in their list of new year's resolutions. So why is it so hard to put money aside, and are there proven ways of doing so? Trailblazer sat down with Alex Barnes, CEO of A J Barnes Financial, to discuss what the best savings methods are.
Should we save for the sake of it or have a target/purpose?
I think having a purpose over the money certainly helps in a few ways. Initially if we look at the behavioural economics of having a purpose over the money – say a new dream car, dream home, escaping to retirement etc then the money is more likely to be saved each month and more likely to stay saved with a goal in mind. Not having a target can risk the fund being dipped into and depleted before its full potential is realised.
So if it’s a house you are saving for then have a look at houses of that type you like, look online for inspiration for decorating inspiration. If it’s a car then go online and do the same – use the manufacturers configurator to build the car etc. The clearer the picture of the goal the more determined we are to save for it and the more likely we are to put more away and keep it away.
What are the best apps to help people save?
First and foremost, whatever savings, current accounts, debts, investments or pensions you have I would suggest getting them all logged into regularly and take an interest in what’s going on with them first. Most providers have apps of their own so create a financial folder of apps on your phone. I know this sounds a low-tech solution, but I’m always amazed at the amount of accounts that people don’t look at or see. Open banking regulations changed it now means it’s easier for you to download one app to combine and see all of your accounts on one app but beware, it raises critical questions about data privacy, security, and financial exclusion. Even regulated firms aren’t immune from cyberattacks and having all your information and passwords in one place presents a potential risk.
What percentage of our salary should we save?
This would largely depend on your goal. I’m tempted to say as much as you can afford but I know you wanted colours nailed to a mast here, so I’ll give it my best go. First of all, I would create either physical “pots” or accounts for different needs. Firstly, we need an emergency fund of at least 3 months’ salary. After this we look at planned expenditure in the next 5 years and set an account up for that. After this we look at your nest egg long term goals and what to do with these.
There is a general rule of 20% that says according to a popular rule called 50/30/20** you should spend 50% on essentials like rent and food, 30% for discretionary spending, and the rest for savings.
It’s not always this simple but if you earn £2,500pcm this would see you having £1,250 for essentials, £750 for discretionary spending and £500 to save. Over 10 years that’s £60,000 of capital saved that otherwise wouldn’t have been. Add potential interest in and you have a tidy pot!
Is it best to invest or save?
Both – Saving should be used for emergency funds and planned expenditure in the next 5 years. Investing should be at least 5 years and the longer the better.
Where do I start when investing?
The world of investments is complicated so I would use an advisor you feel you trust and can have good open dialogue with. You can check individuals out on the Financial Conduct Authority register at https://register.fca.org.uk/.
With more than 2,600*** funds available to UK investors doing it yourself can be a minefield. Then you have different platform choices and no advice to fall back on if things don’t go to plan. Working with a financial professional you can trust I believe is therefore vital as this allows you to not do so much of the “heavy lifting” and opens a channel of support and advice on your investments you might not otherwise have.
Find out more here
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https://www.investopedia.com/ask/answers/022916/what-502030-budget-rule.asp
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Strategic Insight Simfund Dash, UK-domiciled fund excluding ETFs and investment trusts as at April 2017.
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A J Barnes Financial Planning Ltd is an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the group’s wealth management products and services, more details of which are set out on the group’s website www.sjp.co.uk/ products. The titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives.