When it comes to our savings, one thing’s clear – 1 in 3 Brits are living dangerously close to the edge. The Money Advice Service recommends keeping three months’ essential outgoings in savings to cover an emergency or unexpected bill. However, just under a third of people in the UK have less than £1,500 in the bank, and 15% of people have no savings at all.
In fact, there is an even more damning statistic. Over half of Brits do not add to their savings on a monthly basis.
Looking at the above, it may seem impossible for many to save £1,000 a year let alone £10,000.
But I am here to tell you that saving over £10,000 a year is certainly possible. In fact, I think the average UK worker should save £10,000 a year.
Firstly a change of mindset is required. 40% of Brits blamed lacklustre lacklustre earnings for not adding more to their savings. We need to move away from this blame culture and take responsibility. In order to escape from poverty, we need to break the shackles of preconceived habits. We need a mentality shift.
Poverty is generational. Struggles with money are generational. You pick up a lot of things in life through osmosis. It is the reason that a member in the bottom 10% of society, for example, is more likely to be obese, to smoke, to drop out of university and less likely to read for knowledge than someone who is in the top 10% of society. During the formative years of our lives, we soak up behaviours, habits and patterns – whether it be money, relationships or public behaviour. The bad behaviours we pick up can be un-learned later in life, but it is more difficult. It is that knowledge that determines, to a significant degree once you are in the lower middle class, how much money you amass.
Years ago, Human Resource departments figured this out when large percentages of certain demographic groups would not enrol in a pension plan because they hadn’t been exposed to how they work. (The solution ended up being automatic enrolment for everyone, since people aren’t likely to take the time to opt out of the system.)
How To Save £10,000 A Year Earning The Average Wage?
The average UK wage is currently £29,000 a year. Takeaway taxes and national insurance contributions and you end up with £23,255 a year or £1,938 a month.
So how do you save £10,000 from after tax pay of £23,555?
Firstly, you need to have a look at your pension contributions. Boring I Know! But if pensions were called ‘Legalised Tax Havens’, I bet more people would take interest. And that is exactly what they are.You can save into your pensions tax free. Furthermore, most employers offer a pensions match i.e. they match your contribution into pension scheme.
Say you pay a 6% fixed contribution into your pension every month, that is £145 a month which adds up to £1,740 a year. Many employers match an employees contributions so the employer also saves £145 a month (£1,740) a year on the employees behalf. This brings the amount saved by the employee in the year to £3,480!
After having 6% of your wage deducted for your pension payments, you now have a take home pay of £1,822 a month or £21,865 a year.
Your yearly take home pay has only dropped by £1,690 yet you have saved into your pension £3,480!
That is why I call pensions a magic money box!. It is free money. And it sucks a lot of people do not take advantage of it.
Next we need to look at our outgoings to see where we can can the fat.
My housemate has very kindly allowed me to share his monthly expenses ( I would have used mine but I think people would be put off by my frugality ). He has written the below in first person.
Two caveats here. The first is that he lives outside London. The second is that he is single.
So although it might not be applicable to all due to personal circumstances, I am sure my example will show how it is possible to save £10, 000.
Let’s look at all his outgoings for a typical month.
Housing – £460. This is inclusive of rent for a two bedroom city centre apartment, council tax, water, gas and broadband bills. A lot of my London friends cannot believe how cheap rent is outside the capital. For what I get, I would be easily paying £1000+ if I was living in London; it is such a huge difference. I would need a raise of 30% plus to even tempt me to move to London.
Transport – £80. In actual fact my transport is free. Living in the city centre, I simply walk to and from work everyday. No traffic. No hassle. And I get my exercise in daily. I have put £80 as I every so often take the train to go and see friends and family living in different city’s. Railcards help so much in this respect.
Food – £300. More often than not it is less than this. The reason being is I cook most of my food. Being a sporty person who loves football and the gym, I try and cook at home as opposed to go out. This is both healthy and cost efficient.
Entertainment and Nights out – £150. Still being in my mid-twenties, I do enjoy a good night out with my friends. Again most people living outside London can not relate to how cheap a night out is in the capital. I have been out in London a few times and was shocked how expensive it is! £6 a pint. An expensive can ride home. No thanks. Besides the people are way friendlier up north.
Clothing – £60. I am not a big fan of shopping. But if I find something I really like, I will splash the cash. I buy most of my office wear from Next ( they fit me better than any other label) and most of my other clothing online.
Mobile Phone – £12 month. Sim only contract. I never understand the need to upgrade my phone every-year.
Gym – £15.
Football – £25.
Netflix – £9.
Miscellaneous – £120. Other bills and expenses that come up.
All in all a budget of £1,231 a month.
With your take home pay being £1,822 , there is a good buffer of £591 a month hitting your savings account. Over the year, that adds up to a cool £7,092.
Taking the amount saved into ones pension scheme earlier on of £3,480, the total amount saved in a year is £10,572!
So there you have it, that is how to save £10,000 a year.
And this is where the fun begins. Once you get your hands on this money, it can be life changing. By saving and investing £10,000 a year in cash generating assets, you can truly transform your financial well being. You can make your money work hard for you by letting it compound over time. You can attain financial independence.
Pay Yourself First
Now I know many people don’t have the willpower to save. They simply see money at the beginning fo the month and splurge. But there is a little trick to avoid this temptation. It is called ‘Paying Yourself First’
Pay yourself first is the idea that that you should routinely and automatically put money into a savings account before anybody else gets their hands on it. This means that you should put money into your savings account before you pay your bills, buy your groceries or purchase anything else. The first bill you essentially pay each month is essentially to yourself.
Many people approach saving by putting an amount into their savings account after paying all their bills, groceries, clothes shopping, nights out and every other expense. The problem with this approach is they save what’s left over. Many times, you find that you hardly have any money left over at the end of the month and your savings account remains in the low triple digit figure.
But if you pay yourself first by treating your savings account as a bill that has to be paid at the beginning of the month, you will automatically have to put money into your savings account. By putting money in your savings account, you will have less money to spend on the junk you normally spend it on month in month out. By using this approach, you will see your savings account swell and save money you would otherwise have spent on non essential items or on invisible consumption.
By paying yourself first, you are mentally establishing saving as a priority. You are showing that you have a high self worth as you pay yourself first rather than the electric company or credit card company. You spend a good amount of time at work everyday and you need something to show for it rather than money just disappearing off to utility companies and the like. You deserve to be paid first.