The Benefits Of Saving Regularly
There are often two types of investors. There are investors who already had money in their pocket, and now wish help to invest it somewhere. Alternatively, there are investors who didn’t have any money beforehand, but now they do, they want to build up their pot of money.
While both investors are aware of the benefits of saving, not many understand the benefits of saving regularly. What’s more, many investors don’t fully appreciate the benefits of committing to saving regularly.
By committing to saving regularly, perhaps a set amount every pay check, you are much more likely to build up your money, rather than spending it. Unfortunately, some saving accounts are easy to access, meaning the temptation to dip into them should you wish to can be tricky to avoid.
As you’re not investing your money into the market at a single point, it removes the risk of getting the timing just right. However, using the stock market for your regular savings applies to those wishing to save for the medium and long term.
The ups and downs of the stock market are one reason why investors are afraid of it. However, the approach is known as ‘pound cost averaging’ is one to consider. Pound cost averaging is the approach of investing small amounts very regularly.
As the name suggests, it is the cost you spend buying stocks which average out over time. It helps an investor instill good behavior because you’re establishing a routine. This routine enables investors to consider the stock market as an ongoing activity, rather than one which relies solely on gain or is affected by a temporary loss.
How to Save:
For those wishing to save for the long term, choosing to save regularly is highly effective. You first need to assess why you’re saving. Often, savers decide to put money aside for their children, which may start from the moment their child is born until they leave for university at 18.
Whatever your saving goals are, there is a variety of ways to achieve it. One such way is an ISA. An ISA is an Individual Savings Account, which offers tax-free interest payments. It means, by choosing this, you could get more for your money. However, there are limits, known as an ‘ISA allowance.’ This currently stands at £20,000 per annum
If you’re saving for a medium (5-10 years) or long-term goal (10+ years), choosing stocks and shares ISA could prove more beneficial. A stocks and shares ISA is very different from a typical cash ISA. Rather than merely paying money in, you’re investing in assets that have greater potential for growth compared to a cash isa account. Although cash ISAs are relatively secure, investing in stocks and shares does have varying degrees of risk associated with them.
Saving regularly can be the difference between affording the lifestyle you want, and not. A great example is the retiree who bought a Mercedes 2-seater sports car after leaving the world of work behind for the last time. How did he manage to do this? Simply by committing to saving a regular amount each month into a stock market investment unit trust. It took 20 years to achieve this goal, but by ensuring he didn’t miss a single payment, he could treat himself in cash to the car of his dreams. This is what long-term saving is about: enabling you to afford the luxuries you want after you’ve worked so hard all your life.