Saving Tips for Young People
As I look back to my younger years, I remember finding it difficult to decide on an effective saving strategy and to know how much money I should be putting aside. There were items I wanted to save for and buy, and I had to weigh up the benefits of setting aside more money for them against short-term enjoyment at weekends. And then, of course, there was the thought of saving for more distant goals - driving lessons, cars and future house deposits.
There's no doubting the importance of saving as a life skill, and I believe that more attention should be given to it as part of an overall financial awareness topic in education. With that in mind, I thought it useful to put together some thoughts and tips for saving.
An introduction to saving
Saving requires you to set aside part of your income over a while to accumulate the cash needed to buy the things you want. This could be the latest iPhone, a gaming computer, a cool outfit...anything really. It is also beneficial to save into a rainy day fund that can be used to meet emergency expenses. Saving is an important, but difficult, skill to master. It requires a lot of patience, discipline and sacrifice - but in return, you get the financial discipline to afford the things that make you happy.
In an ideal world, most people would have the disposable income to save up for all the items they desire. But this is not always the case. In the real world, some items still seem to be unattainable - due to income constraints. The good news is that there are many strategies that you can use to make the items of your desires attainable through savings. These tips, which will be discussed at length in this guide are:
- Increasing your earnings
- Saving larger portions of your income
- Saving for longer time periods
- Opting for something cheaper
- Making your money work for you
In most cases, you should be able to make at least one of these strategies work for you. Here's how to implement them.
1. Increasing your earnings
This is the most obvious strategy for young adults looking to increase their savings capacity. Most young people are not aware of the income boosting strategies that are available to them. If you don't already have a job, then you could perhaps start actively searching for job opportunities in local businesses and your general neighbourhood. Expand your search to online spaces such as social media platforms where job opportunities may be advertised. If your current circumstances don't allow you to get a job, you still have options to increase your disposable income. These include:
- Request cash instead of gifts on your birthday and during the holidays. You need to do this with a lot of tact, so as not to come off as ungrateful and tasteless. It helps to let your loved ones know that you are saving for something that is important to you.
- Find out if you can boost your allowance by getting paid for handling extra chores around the home.
- Find out if you can get paid to do odd jobs and run errands around your neighbourhood. These include services like dog walking, babysitting and gardening.
- Find out if there are items that you, or your family members, no longer need. You can make some good cash by selling them off.
If you already have a job, here are some tips on increasing your earnings.
- Find out if there are better-paying positions you are suitable for. In most cases, your employer will prefer to promote from within rather than hiring someone new. It can also pay (literally) to ask for a raise. Your request for a pay increase will be better received if you already have an exemplary record in meeting your work responsibilities or if you have been on the same salary for a long time.
- Start searching for better-paying jobs that you are well suited for. You might be pleasantly surprised.
- If your schedule allows, seriously consider getting a second job. There are many jobs, like driving for Uber, that offer a lot of flexibility - which makes them ideal second jobs.
- Find out if there are opportunities to monetize your skills. There are many opportunities, especially on online platforms, to make extra money by tutoring, coding or doing custom artwork. Similarly, you can find out which skills are in demand, and start learning them in order to financially benefit from them in the future. This is a great tip - the more you increase your skills, the more you set yourself apart from others, potentially making your accomplished skill set more unique and valuable to employers.
2. Saving a larger portion of your income
This is another effective strategy to increase your savings capacity - but it requires a lot of skill and discipline when it comes to budgeting. Budgeting helps you keep track of your expenditure and better plan how to spend your income. In today's digital world, there are many free (or affordable) budgeting spreadsheets and apps that you can use to keep track of, and better regulate, your spending. With a little online research, you can find one that is perfect for you.
Budgeting is one of the most important skills young people can master if they are to become successful functioning adults. This is not an exaggeration. Being able to keep track of your finances ensures that you're able to live within your means while being able to afford the things that are important to you. To save larger portions of your income, you first need to limit unnecessary expenditure.
Here are some tips on trimming your spending.
- Go through any subscriptions that are charged on your cards and other online payment accounts. You could be paying for services that you no longer require.
- Limit your credit card expenditure. Credit card payments attract interest, and in some cases, the interest is quite punishing. Consider making more payments in cash to avoid interest charges and to better live within your means.
- Be mindful of each expenditure item to cut down on unnecessary spending. Avoid impulse buying by always asking yourself if the purchase you are just about to make is necessary. Only spend on items which you need. It also helps to have scheduled spending trips where you make plans on what to spend on, rather than being guided by your unchecked impulses. Buy in bulk. This is a good tip for those who no longer live at home. Buying essential items in bulk means that you enjoy discounts which reduce your overall expenditure.
- Before making a purchase, take some time to shop around (especially when buying online) on multiple retailers. You can find better prices and even attractive promotional offers (such as discounts) in competing stores.
- Find out if you qualify for a student discount - which many retailers offer. Register for the loyalty programs offered by stores that you frequently shop in. Apart from being able to redeem loyalty points, most stores have regular promotional offers that are exclusively available to registered members.
- It is important to achieve a healthy balance between limiting your expenditure and depriving yourself of too much. As an extreme example of what is possible with saving can be seen with the Financial Independence, Retire Early financial plan followed by some very committed savers. Balancing a healthy and happy lifestyle with cutting out unnecessary expenditure seems a good in-between plan. Saving is all about finding the money to buy the things that make us happy - it seems counterproductive if the process of saving adds to your unhappiness.
3. Save for a longer time period
The amount of time you need to save for something is determined by its cost, and the disposable income that you can free up to save every month. For example, if you want to save up for a £500 PS5, and your monthly budget allows you to save £50 every month, then you will have to save for 10 months to be able to afford the PlayStation - assuming the price doesn't change and your disposable income levels remain constant. You can work out a timetable for saving towards a goal by using our calculator in our article how long will it take to save?
Patience is key to an effective saving strategy. If you are saving for a big-ticket item, on a limited income, then you should consider saving for a longer time period. It is important to note that with time, you might find that a newer or better product is available for the same amount you had budgeted for. Therefore, if you can't save up for the PS5 in 6 months, save up for a year and you just might reach your target in time to buy the new and improved PS6.
4. Save for something cheaper
All aspects regarding budgeting, saving and all other financial management concepts are usually determined by one's present circumstances. There is no getting around it. Your budget and savings will always be determined by your income and expenditure levels. While you can be creative in maximizing your income and minimizing your expenditure, there are limits.
It is important to be realistic and recognize that sometimes, that which you desire is simply unattainable. This is a hard, but true, fact of life. In these cases, instead of giving up, you should temper your expectations by budgeting for a lower-priced alternative.
In some cases, you might be impressed by the features and quality levels that more affordable options offer. In fact, some of the pricier items on young people's wish lists are only expensive due to brand recognition and features that might not be important to those people buying them. Older models also tend to be significantly cheaper while offering almost the same functionality as the newly released (and super-expensive) models. This is especially true when it comes to smartphones, laptops and other consumer electronics that get new models every year. The second-hand market is also a good place to find cheap items, most of which are in excellent condition.
5. Make your money work for you
For the most part, in this guide, we have discussed saving as the process of accumulating funds by periodically adding money to a designated savings pile. But, when saving for an expensive item, or for a longer period of time, you can get more from your savings by making your money work better for you. This can be done through the earning of interest or by astutely investing your savings. For example, when your savings plan requires a period of 3 years, such as when saving for a holiday, then you could consider shopping around for a savings account that offers competitive interest rates. Comparison platforms like the UK's savings champion are perfect tools you can use to determine the best savings account in terms of interest returns. It is important to always remember that compound interest offers better returns on your savings.
While savings accounts don't offer mind-boggling interest rates, whatever returns you can get from them represent a significant improvement on the 0% interest you would get from current accounts and other non-interest-paying savings options. When you are saving for a period of three years or less, you are usually not advised to invest these funds. This is because most investments require a longer maturity period - this is why savings accounts are ideal.
When saving for more than 3 years for big-budget expenditures such as weddings and house deposits, then you can adopt a riskier strategy by investing. While savings accounts offer low returns, they are essentially a risk-free platform. Investments on the other hand offer much more in terms of returns but carry an increased level of risk. Making your money work for you either by earning interest or by investing enables you to reach your target much faster. UK residents can set up an ISA to protect their investment earnings from income tax. For minors, your parents can help you set up a junior ISA. It is important to always rely on expert opinion when investing - unless you are an investment expert. You can sign up for robo-investing platforms such as Wealthify (backed by Aviva) and YouInvest (run by Aj Bell) which use proprietary algorithms to pick stocks for you based on your needs and preferences.
As a young person, you have already taken the first step towards securing your financial independence - you are learning about savings. Saving goes beyond putting some money away for the new PlayStation or smartphone, it is a lifelong journey that enables us to afford things that we cannot immediately afford. It is also an important skill for setting away some funds to meet emergency expenses. If you practice the provided tips and read up more on saving techniques, you will be in a better position to manage your finances. I hope this has been an insightful guide. Use the comments section below to share your best tips for saving or making money.
Savings tips by James Whittington, financial planner. You can check out his personal finance podcast here.
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