It's a scary thought, but one that's becoming increasingly common, especially with ever increasing living costs and rising inflation: I have no savings by 30. What do I do? It can feel like you're falling behind before you've even started, but don't worry - there are plenty of things you can do to get your finances back on track. In this blog post, we'll discuss some steps you can take to start building up your savings and get your financial life back on track. In reality, the fact that you're even reading this post is a great first step!
I have no savings at 30: what's the problem?
We're all for making the most of your twenties, and just like you, we're fed up of reading stories of young people who've bought houses or reached financial independence with outside help who then give advice to those less fortunate. So we're not judging! However, given the incredible power of compounding over the long term, it's vital that you start putting something aside as early as possible - you want to give your pot as much time to grow as possible, ideally with plenty in a diversified portfolio of non-cash assets (the S&P 500 has returned just over 10% a year since inception in 1957, so you can't really afford to stick to cash). However, it isn't at all sensible to jump straight into investing without ironing out your financial situation and putting together a plan first. With that in mind, we've prepared a short guide.
Putting together a 5 step plan
The first step is to assess your current financial situation. This means taking a close look at your income, your expenses, and your debts. It can be helpful to use a budgeting app or tool to track these things, so you have a clear picture of where your money is going each month. It's also often straightforward to create a basic Excel spreadsheet to list out your line items.
Once you know where you stand financially, you can start to make a plan to improve your situation. Here's the list of jobs to be done, in order. You can skip ahead to wherever you fall on the list, or start right at the beginning if you want a full rehash.
The first place to make immediate changes is in your outgoings. By no means are we suggesting a completely frugal life devoid of joy, but in listing out where your money is going, it's easy enough to switch things out for cheaper alternatives or cancel subscriptions you're no longer using.
- Essential Bills (gas, electricity etc)
- Expenses pertaining to your work (transport to work etc)
Here's where we'd next suggest making minimum payments on any debt you have, now that essentials have been covered.
2. Emergency Fund
Next, it's probably a good idea to first build up an emergency fund, first consisting of one month's living expenses, and then when you've covered non-essential bills, increase this to 3 months. Now you know that should something go wrong, you lose your job or worse, you are default-alive for at least 3 months.
You should also start to think about paying off high yield debt (10% +APR) after this, or consolidating any loans you have to reduce rates. There is a significant amount of literature available on this, so we won't try and improve on it. I have no savings at 30 is strictly now no longer the case!
3. Your Pension
Now, opinions differ here, but we think next you should max your employers matched pension contribution. What does this mean? Well, your employer will match any pension contributions you make from your salary up to a certain percentage, usually in the low teens. By maximising this contribution, you're essentially having free money added to your retirement pot! This might not seem so appealing to a 30 year old who wants the money sooner, but you can't turn down free cash! Have a look through the docs and figure out what terms you have been given.
At this point, you might want to think about increasing your emergency fund up towards 6 months. At this point, you can give yourself a pat on the back! You're doing pretty great, and your finances are starting to look up. It might start to take longer to move ahead now as you are left with less disposable income, so take your time.
At this point, you want to start gradually closing off all your debts. Begin paying down the moderate interest debt (5-10% APR) that you have eschewed since now, starting with the highest rates. If you're paying for a car on finance, consider the terms you're getting and whether you can do better, either by renegotiating, downgrading or outright buying a vehicle (not possible for everyone, of course!). Often it's easier to get better deals outside the manufacturer, so consider this too.
Try and leave some allowance for small luxuries and don't sacrifice everything in the name of saving - especially once you've covered off the above, afford yourself some room for enjoyment.
5. Saving for the Long Term & Retirement
I have no savings at 30: well now, you do! If you're saving for a house, you might want to now consider adding any excess into a Help to Buy ISA or Lifetime ISA. You can read more about these on our guide to the ISA here.
Beyond that, if you have any other short term goals, (holiday, car, etc), consider saving for these in a high interest savings account where short term market fluctuations can't cause it any harm!
Longer term goals are best saved for using a combination of stocks and shares ISA, which is our preference, and continual additions to your workplace pension, which are secondary. Investing in public markets in a tax sheltered ISA investment account is what you should be doing over the long term, and with £20k allowance to use up per year, you can increase your savings quite dramatically without exhausting this.
Once used up, you probably won't need much help from us any more! But you'll then be investing in a taxable account, the gains from which will be subject to capital gains tax after passing £12,300 (at time of writing). Perhaps seek more detailed advice at this point.
Finally, you can track progress across all 5 of these steps on the Strabo dashboard. It can be daunting and also very difficult to approach both budgeting and long term investing, and with our real time performance updates and custom goal setting widgets, you'll be able to follow your way through each of these steps as they pass. Sign up today to take this further. We'd love to hear if there's anything we've missed - I have no savings at 30 should hopefully now not become I have no savings at 40!