A man who both spends and saves money is the happiest man, because he has both enjoyments. –Samuel Johnson
That piggy bank we remember from childhood wasn’t just a place to store our birthday money and spare change: it was a lesson, a way our parents encouraged us to get into the habit of saving. Many parents even go so far as to deposit half of any monetary gifts their children receive directly into a savings account, just to drive the point home. Adults who took that lesson to heart might set up automatic deposits into long-term savings or retirement accounts from their salary every month – a modern mechanism for implementing this age-old lesson.
But, what are we saving FOR? Many new investors arrive at their financial advisers with little more than an idea of the level of income they need to fund their lifestyle On the other handd, there’s a fad among millennials who work as hard as they can, save as much as they can, and try to retire before age 50.
But why? After all, “you can’t take it with you.”
It’s important to have financial goals, and committing to a regular savings plan is good first step towards achieving them. But if you treat your long-term financial planning as just a series of targets to hit, or numbers you have to drive up as much as possible, your return on investment is going to be a lot higher than your Return on Life – the feelings of happiness and fulfillment that your financial planning should provide you.
How much are we saving?
The Household Saving Rate in the United Kingdom decreased to 4.30 percent in the first quarter of 2018 from 4.70 percent in the fourth quarter of 2017. This is far lower than the average of 8.56 percent from 1955 until 2018.
Experts tie this historically low savings rate to increased household spending, which continues to outpace wage increases, and high levels of revolving debt, like credit cards.
Figures like these drive many people to the opposite end of the spectrum: they save as much as they possibly can, especially if they’re nearing retirement.
We tend to think that the person saving more is doing a better job of managing his or her money than the person saving too little. But neither extreme is going to maximise your Return on Life (ROL). Spend too much enjoying the now, and you might end up having to work much longer than you want to – maybe even all the way through retirement. Save too much too early, and you and your family might miss out on the experiences that you deserve to enjoy with your hard-earned money: big family vacations, a new home, creature comforts, entertainment and culture that will enrich all of your lives.
Worse, new retirees who have spent their lives stuck in “savings mode” often have trouble transitioning to the reward mentality that should provide for a meaningful retirement. These retirees worry so much about running out of money that they often neglect their own wants and needs, to their emotional and physical detriment.
So how do you find that balance between enjoying today and preparing for tomorrow?
First, ask yourself if your rate of savings is in line with your reality. Are you saving so much that you’re not enjoying life as much as you could be? Or are you hovering around that 4 percent savings figure, telling yourself that you’re putting enough money away when you know, deep down, that you’re not?
Next, take the ROL Assessment or talk to your adviser about your financial goals, and your vision for a dream retirement. Work together to find that saving/spending balance that’s going to align your savings with your reality, and hopefully, your goals and dreams. Find that sweet spot, and your money won’t just be numbers on a balance sheet. It will be yours.