How Saving Makes You Feel Like A Million Dollars

Saving is not meant to be a thing for parents or older people only, just in case you think it is. A growing trend on social media is young people discussing saving and budgeting and Fintok is hugely popular.

Young people are not the traditional saver. And why indeed would you think about saving when you still have your whole life in front of you? Well, err, precisely that. Starting to save when you are young is so much better as time is on your side. And, who knows, when done well, saving up a million dollars sometime in the future may even be possible.

The benefits of being an early saver

Saving does not have to start when you are making loads of money, because by that time your expenses probably will also be high. Making £100,000 a year and spending a £100,000 is not that much different to having an allowance of £200 a month and spending it all. The result is the same: spending without saving a single penny. Saving is a state of mind; it makes you think about more than the here and now alone and gives you a sense of control and a sense of safety. Besides, the UK Government allows you to save completely tax free within an ISA. Taxes may be the last thing on your mind right now, but if you think of having to hand over between 10% and 20% of capital gains tax (CGT) on your savings to the tax man in the future, the ISA is a no-brainer.

How small sums add up over time

Saving and investing is a business of small sums over a long period of time. If you are young and start putting away 10% of your allowance inside an ISA and add to these savings with proceeds from summer jobs and gifts (if you are lucky) from parents, grandparents and godparents, your ISA account will over time turn into a nice little nest-egg.

So, assume you have opened your ISA and have accumulated your first £100 in savings to open the account and you earn 2% on your savings. You then keep the ISA for 10 years and save £10 per month for the first 4 years and then £20 per month for the last 6 years. These are not amounts you will miss enormously in your monthly budget and once they are deposited in your ISA you may well forget you ever had the money, but it slowly and surely fattens your bank account.

Pure ‘safe’ saving

So, 10 years, 2%, £100 to start with and then adding savings of £120 a year (x4) and then £240 a year (x6). At the end of the 10 years, without doing anything, you will have £2194.82. So, shall it be worth it? The low interest rate for savers is a bit disheartening and that is why so many savers invest in stocks as often dividends are higher than interest rates. But nevertheless, any type of saving beats not saving at all. The best aspect of regular saving is that your money is safe and that the total saved sum over time (1) feels like a gift to yourself and (2) makes you budget-aware and financial literate in the meantime. The latter will set you up well for adult life.

Saving and investing should become a life-long habit. Saving a monthly sum from your allowance and later from your salary will all add enormously to a feeling of control over your own (financial) destiny. Saving and aiming for financial freedom is liberating. It will add to a real sense of wellbeing, which is almost as good as a million dollars already, long before you may reach that milestone.

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