In Need of Inspiration

amillionlittlepieces

Im feel like I have ran out of steam working towards my financial goals.

Last year I managed to pay off most of my debt, completing this year by paying off my car loan. Debt free!! Woohoo!
I have since managed to save a deposit for a house (purchase going through now)
I have a stocked emergency fund for about 4/5 months worth of expenses
I have a reasonable pot of money for house related purchases.

So my next two savings goals are:
Paying off my mortgage quicker (although rate is 1.65% so saving may be better initially)
Saving for early retirement / financial independence.

The whole debt paying off process and short terms savings seemed to be easy to focus on. Having achievable goals that could be ticked off every few months kept me going. Seeing that the debt figures could dwindle with every penny paid, and likewise, savings grow with every penny saved, kept my mind on track. My spreadsheet had a huge percentage paid figure and tracked each month where I was compared to the last. Adding that £2 topcashback made a clear difference.

When I think about my current two, long term goals, the thought of frivolous spending seems to be less significant.

A new car purchase might cost me £2k per year in depreciation compared to my current £750 depreciation. But will £1,250 a year difference make a huge dent in aiming for £500,000 savings? It doesn't feel like it would.
When I had debts, buying a new iPhone was out of the question. But now, a single hit of £600 doesn't feel like it's going to damage my long term goals at all.

Now I know that it all helps etc etc but I just feel like my focus and drive has shifted. It's not just the big purchases like the above, but the small ones, which also made the biggest differences when I was paying off debts. My biggest vice is food. Eating out a lot more than I should.

Is anyone else out there looking to max their savings with long term goals and how do you all keep focused!?

Apologies for the long post but I really don't want to slip any further down this slope.

AnotherJoe

The rule of thumb for a pension is to save as a percentage, half your age when you start saving and stick with that percentage.
So, if you are let's say 34, you should be saving 17% of your earnings going forward. When you are 40 and 50 you'll still be putting 17% into a pension.
Look at buying new cars and iPhones and meals out, etc, out of whatever you have left after day to day expenses including your pension payments.
The other "rule" of pensions is, don't turn down free money. If you have a scheme whereby your employer puts in a percentage to match you, up to a limit, you should take that. That contributes towards the overall percentage. Eg if employer matches up to 5%, then you only need put in 12% since employer is putting in the other 5%

Also, read the Moneyvator website which has a lot of suggestions on long term pension saving. But I think it fair to say, the main focus should be on starting a pension, selecting a very few long term investments, and then letting that plan run in the background. No need for it to be a main focus or obsess over it on a day to day basis. . In the first few years little will seemingly happen but as the sums invested grow larger and compound interest takes over, you'll be surprised how rapidly it grows in real terms.

System

amillionlittlepieces wrote: »

Im feel like I have ran out of steam working towards my financial goals.

Last year I managed to pay off most of my debt, completing this year by paying off my car loan. Debt free!! Woohoo!
I have since managed to save a deposit for a house (purchase going through now)
I have a stocked emergency fund for about 4/5 months worth of expenses
I have a reasonable pot of money for house related purchases.

So my next two savings goals are:
Paying off my mortgage quicker (although rate is 1.65% so saving may be better initially)
Saving for early retirement / financial independence.

The whole debt paying off process and short terms savings seemed to be easy to focus on. Having achievable goals that could be ticked off every few months kept me going. Seeing that the debt figures could dwindle with every penny paid, and likewise, savings grow with every penny saved, kept my mind on track. My spreadsheet had a huge percentage paid figure and tracked each month where I was compared to the last. Adding that £2 topcashback made a clear difference.

When I think about my current two, long term goals, the thought of frivolous spending seems to be less significant.

A new car purchase might cost me £2k per year in depreciation compared to my current £750 depreciation. But will £1,250 a year difference make a huge dent in aiming for £500,000 savings? It doesn't feel like it would.
When I had debts, buying a new iPhone was out of the question. But now, a single hit of £600 doesn't feel like it's going to damage my long term goals at all.

Now I know that it all helps etc etc but I just feel like my focus and drive has shifted. It's not just the big purchases like the above, but the small ones, which also made the biggest differences when I was paying off debts. My biggest vice is food. Eating out a lot more than I should.

Is anyone else out there looking to max their savings with long term goals and how do you all keep focused!?

Apologies for the long post but I really don't want to slip any further down this slope.

No apology needed, any advice you receive here may also help others too.

For motivation this jumped out at me because I think you can look at it differently.

Once you enter drawdown stage you will probably be looking to take around 4% per annum. Some will tell you it would be lower in a low growth environment, but actually there is plenty of research that makes a case that it can be higher. But let's not get sidetracked by that now; at the moment you are at the accumulation stage and need motivation.

So look at £1,250 saved as giving you another £50 a year to spend each year every year for life, or the £600 iphone as £24 a year extra. I'd stick with a cheaper phone!

On the investing side and working towards financial independence I'd also recommend the Monevator website

I hope that helps. Keep going.

bowlhead99

amillionlittlepieces wrote: »

Is anyone else out there looking to max their savings with long term goals and how do you all keep focused!?

Seems like the difference is, before you had set yourself a target of paying off a certain amount of credit ASAP or by a certain date (from your signature, looks like it took 4 years or so) ; but now your new goal is some arbitrary 'save as much as I can for retirement to get to £500k or whatever over my entire working life'.

And as you've identified, such a long term goal is not at all useful as a short term motivator, because if you blow your budget today or this week or year or decade, you might still be able to get 'back on track' later, especially as you've already proven to yourself that you could clear up x amount of debts in y years when you put your mind to it.

What you need to do is convert those long term goals into achievable short term ones. For example, if you need a £500k pension pot at age 60something to generate a £20-£25k annual income in retirement, you are not going to be able to get there if you get to your mid 60s with only £100k in the pot. When you try to work out how your savings and investments will need to grow to get you there, you can probably think in terms of building up to £x thousand by y age and have some intermediate goals.

But when you look at those intermediate points you probably think well, I'm not going to be destitute if £100k by forty turns into £100k by forty one and I get back on track afterwards. Which is probably true. But to be honest, in the grand scheme of your entire life, it probably wasn't critical that you cleared your car loan by this summer - if it took until Christmas instead while you focused more on your house deposit, you'd probably still get through life unscathed.

So you probably need to set shorter-dated targets for savings and for investments that give you some interim points of focus.

For example if you like going out to eat, then going out for a third £20 curry this week is going to impact on you getting the £400 together for a visit to the Fat Duck in December. You have moved from buying a car with a car loan to buying your next car with savings (without going into your 'emergency' savings) so what is the target for that? You bought a house and saved some maintenance money, but what's the plan for the house upgrades or extension or upsizing? Christmas is four months away, do you have the party and presents fund sorted? How about the commitment you could make right now to at least half-fill your investment ISA allowance every year as part of longer-term planning?

Some of this longer term investing stuff can be done by direct debit or at source from your employment, which is the best way to keep it out of your filthy clutches. So for example, make better pension contribution to your work pension so less money even makes it to your bank account. Then when your mortgage goes out on the xth of every month, have a direct debit pulling your investment ISA contribution out at the same time.

That way there's less sloshing around in the current account with which to hit your spending and saving targets, and after all your hard work getting debt-free you are not going to go into debt over a curry, so you do have to force yourself to choose between that £20 curry and putting aside that tenth or twentieth of a trip to Ramsay's or Heston's.

Also, make sure you treat your stocked emergency fund and your house maintenance fund as sacred. If you have 4-5 months living expenses in a bank account, you could easily buy a £600 iPhone out of that bank account - but don't. By all means, buy one out of a separate savings pot set up for just that purpose, alongside your car fund and your holiday fund and your special occasion fund - as long as those savings pot only starts to get filled after you've 'paid your future self' your long term savings and investment money by direct debit at the beginning of the month.

Apodemus

wneil wrote: »

So look at £1,250 saved as giving you another £50 a year to spend each year every year for life, or the £600 iphone as £24 a year extra. I'd stick with a cheaper phone!.

I do that one the other way round, and find it much more powerful: to sustainably spend that extra £1,250 on depreciation each year I would need to save an extra £31,250 (£1,250x25) into my retirement fund. The iPhone would be £15,000 (£60x25) divided by its expected life (five years?) so true cost to me would come to £3,000. Even a £62.50 Starbucks coffee becomes a bit steep!

amillionlittlepieces

AnotherJoe wrote: »

The rule of thumb for a pension is to save as a percentage, half your age when you start saving and stick with that percentage.
So, if you are let's say 34, you should be saving 17% of your earnings going forward. When you are 40 and 50 you'll still be putting 17% into a pension.
Look at buying new cars and iPhones and meals out, etc, out of whatever you have left after day to day expenses including your pension payments.
The other "rule" of pensions is, don't turn down free money. If you have a scheme whereby your employer puts in a percentage to match you, up to a limit, you should take that. That contributes towards the overall percentage. Eg if employer matches up to 5%, then you only need put in 12% since employer is putting in the other 5%

Also, read the Moneyvator website which has a lot of suggestions on long term pension saving. But I think it fair to say, the main focus should be on starting a pension, selecting a very few long term investments, and then letting that plan run in the background. No need for it to be a main focus or obsess over it on a day to day basis. . In the first few years little will seemingly happen but as the sums invested grow larger and compound interest takes over, you'll be surprised how rapidly it grows in real terms.

THANKS AnotherJoe I'm 29 at the minute and pay 8% into my pension with my company matching it. I also have around 25% of my income spare each month to invest and save. I've been a reader of the Monevator website now for a few months and I'm keen to get this started once my house purchase goes through. I think the challenge will be in getting out of the mindset of day to day finance management

amillionlittlepieces

wneil wrote: »

No apology needed, any advice you receive here may also help others too.

For motivation this jumped out at me because I think you can look at it differently.

Once you enter drawdown stage you will probably be looking to take around 4% per annum. Some will tell you it would be lower in a low growth environment, but actually there is plenty of research that makes a case that it can be higher. But let's not get sidetracked by that now; at the moment you are at the accumulation stage and need motivation.

So look at £1,250 saved as giving you another £50 a year to spend each year every year for life, or the £600 iphone as £24 a year extra. I'd stick with a cheaper phone!

On the investing side and working towards financial independence I'd also recommend the Monevator website

I hope that helps. Keep going.

I quite like this idea, thanks. I'm thinking I might set up a 'Purchase Review' sheet in my personal plan. In this I could type in say £1,250 and it would shoot out a number of implications, one being how much it could give me per year. Thanks very much, could be a nice little tool

amillionlittlepieces

bowlhead99 wrote: »

And as you've identified, such a long term goal is not at all useful as a short term motivator, because if you blow your budget today or this week or year or decade, you might still be able to get 'back on track' later, especially as you've already proven to yourself that you could clear up x amount of debts in y years when you put your mind to it..
.

That's exactly where I'm coming from. I think sectioning the overall goal into short term goals is a great idea. I love tinkering around with projections and forecasts so where I have calculated my required amount to save, I might see if I can set this up as a cash flow forecast and track against that. This was I can see how any any small adjustment affects the short and long term goal. Thanks for the advice!

amillionlittlepieces

Apodemus wrote: »

I do that one the other way round, and find it much more powerful: to sustainably spend that extra £1,250 on depreciation each year I would need to save an extra £31,250 (£1,250x25) into my retirement fund. The iPhone would be £15,000 (£60x25) divided by its expected life (five years?) so true cost to me would come to £3,000. Even a £62.50 Starbucks coffee becomes a bit steep!

Another great idea, thanks! This is another calculation that could go on my Purchase Review page (which I'm hoping will scare the hell out of me everytime I put a purchase in there!!)

Mrs_Z

Hi,
Here's another vote for for breaking down a long term goal into short term. I wish to retire early @ 55yrs and won't be able to draw my pension until I'm 63 (according to the current rules!) so that means that I need to have enough reserves to bridge 8 years. Likelyhood is of course that I'd take a part time job during that time, but I want to keep that as an extra bonus and not factor it in calculations.
I have 7 years to reach that goal (feels like a very long time but at least it's a single figure) and have calculated how much I need to have in the pot at the end of December each year from now until then to reach that goal. It's a challenge and a half but also doable with careful (non)spending and saving/investing/etc. Wish me luck!:rotfl:

Eco_Miser

amillionlittlepieces wrote: »

Is anyone else out there looking to max their savings with long term goals and how do you all keep focused!?

A lot of people use The "Save 12k in 2016" Thread! which effectively gives you monthly goals and a some of support. You choose the target amount (the title made more sense in its first incarnation in 2012).