Only 25% of Britons are making this smart retirement savings move

Paying yourself first is a fundamental savings concept. But many Britons don’t seem to be doing this.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Paying yourself first is one of the most fundamental concepts in personal finance. It refers to the process of directing a proportion of your salary into your savings before you take care of your monthly expenses. Without doubt, the easiest way to ensure that you do actually pay yourself first each month is to set up a direct debit where a proportion of your salary is skimmed off into your savings as soon as you’re paid. 

The easiest way to save

Yet a recent study showed that only a minority of British adults actually do this. Indeed, according to Skipton Building Society, which surveyed over 2,600 Britons on their finances earlier this year, only one in four people in the UK have a direct debit set up to divert a proportion of their salary into their savings. This goes a long way toward explaining why savings rates are so low across the country.

You see, when you don’t pay yourself first, it’s very easy to blow your whole pay packet and have nothing left over at the end of the month. Plenty of people have good intentions when it comes to saving, but if money is sitting in their bank account, it’s all too easy to spend it at the shops, or on a big night out with friends on the weekend.

Of course, setting up a direct debit isn’t always necessary if you’re disciplined with your money. Many people direct funds into their savings manually. But the key, if you’re serious about boosting your savings, is to always pay yourself first. When you receive your salary, first direct a proportion of it to savings, then take care of your expenses and then, finally, spend the rest if you want to.

Another savings mistake

Another fundamental wealth concept is getting your money working for you. Yet Skipton’s research suggests that plenty of people across the UK don’t seem to grasp this concept. Indeed, the building society found that more than one in five Britons actually keep their cash savings in a ‘piggy bank’ at home. This is quite alarming.

If your money is sitting at home in a piggy bank, then it’s not generating interest and it’s certainly not growing faster than inflation. What that means, as I explained here, is that the money is actually losing purchasing power as time goes by. In other words, in five or 10 years, it will buy you fewer goods and services than it would today, simply because prices will have risen over time.

If you’re serious about boosting your retirement savings, it’s absolutely crucial to have your money working for you and growing at a rate above inflation. And the best way to do that is to allocate a proportion of your money to growth assets such as shares, funds and investment trusts. These assets will grow your wealth over the long term and ensure that your money is not eroded by inflation over time.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Investing Articles

2 industry-leading value stocks investors should consider buying

These value stocks are at the top of their respective industries, and look like current bargains with the potential to…

Read more »

Black father and two young daughters dancing at home
Investing Articles

Just released: our 3 top small-cap stocks to buy before August [PREMIUM PICKS]

Small-cap shares tend to be more volatile than larger companies, so we suggest investors should look to build up a…

Read more »

Investing Articles

If I’d put £5k in a FTSE 100 index fund 10 years ago, here’s what I’d have now!

Charlie Carman explores the performance of the FTSE 100 index over the past decade and the merits of passive versus…

Read more »

Investing Articles

£15K stashed away? I could turn that into a second income worth £49 a day!

This Fool explains how she would look to gain a second income through investing in UK stocks, and the steps…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

With the Apple share price near an all-time high, would I be crazy to buy more?

After touching all-time highs yesterday, the Apple share price is on a roll. But is there still enough growth ahead…

Read more »

Investing Articles

Nvidia stock has fallen 13% from its 52-week high! What next?

Our writer explains why Nvidia stock has dipped recently and highlights some risks associated with investing in the AI leader…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

The AstraZeneca share price is up 88% in 5 years, but is it just getting started?

The AstraZeneca share price has had a great few years, as acquisitions and clinical trials delighted shareholders. So is there…

Read more »

Investing Articles

Here’s why I’m watching the Anglo American share price

The mining sector has always interested investors. But after a flat few years, I'm wondering what's next for the Anglo…

Read more »