There is nothing to be gained by saving money.
Everyday the value of the pound in your pocket is worth less than it was the day before, meaning the longer you hold onto it, the more worthless it becomes.
If you are anything like me, then you were raised with the idea that the way to win with money is to work hard, not to waste money, and to squirrel away what you can into a nice savings account to eventually buy yourself something nice or to have something saved up for your later years.
To some extent that was good advice for the time, twenty to thirty years ago when interest rates were in double figures or high single digits. But times change.
Up we go
Prices are rising all the time. Food, fuel, materials, tax, national insurance are all going up. Daycare for kids and social care costs for our loved ones just keep going up. For a lot of people these days having anything left over is at the end of the month is good news.
Saving it must feel pretty good, right? In the bank account for a rainy day.
But do you know how much saving that money, is actually costing you?
(sun room)
Netflix killing our youth?
For an example of why I think saving is a pointless endeavour, let’s go back to something Kirstie Allsopp said recently.
You probably know that she used examples of Netflix, Easyjet and coffee as being reasons for financial drain for many in the UK today.
Indeed she hinted that this is why young people can’t get on the housing ladder. She’s right in a sense. If we spend money on something then that money isn’t there to be spent on something else. That’s easy to get to grips with.
It’s not my place to speak on behalf of Kirstie, but the sentiment, I reckon, of what she is saying, rather than the specifics, is what’s important. To take on the mammoth task of getting together money for a first time house purchase, you will have to make sacrifices somewhere.
But I think that’s simply acknowledging the the facts.
I think it’s harder than ever for first time buyers to raise funds. Sacrifices will have to be made, although anyone with an ounce of wit knows that isn’t the whole story. First time buyers are being priced out of a house move in terms of salary to housing cost before they even start.
So I understand people’s annoyance about comments like these. They never sound good coming from someone who has plenty of money and for whom lifestyle choices are a lot more abundant.
Fact Check!
But hear me out.
Let’s say we are talking about these specific sacrifices – netflix, gym, coffee, holidays. Cutting out these expenses and saving the money instead isn’t going to make a dent in raising money for a deposit and here is why.
(office)
Coffee every work day is, say, 20 times per month. At £3 each, that’s £720 per year.
Gym… say £40 per month, puts that at £480? Let’s say an even £500.
Easyjet? Let’s say a decent all inclusive holiday in Europe at £800. Seem fair?
Netflix at £6 per month is £72 per year. Let’s go £80 to keep these figures nice and even.
That’s £2100 – hell, we will push it out to £2500. Round it up. Maybe you bought a scone with your coffee.
The average house price in the UK has just reached £276,759 and prices rose by 10% in the year to November 2021. If you’d saved £2,500 that year from cutting back on all those niceties, you’d still find yourself further from owning an average house than you have ever been. House prices have shot up in value by over £27,000. By saving £2500 you have brought the deficit down to just under £25k. So, just the £24,500 of savings to go… and that’s just to keep pace.
Tough choices ahead
Anyway, regardless of how you feel about Kirstie’s comments, the next generation are going to have to make some tough choices about housing and so on. Where they choose to live is going to play a big part. How they are going to go about raising the money for such a move is another issue. But I’ll tell you this – it won’t be through saving.
(sun room)
Inflation is ruining you
So you aren’t a first time buyer. You have a nice house right now, today and you are settled. All is well. You don’t have to worry about getting on the property ladder. You are done. So it’s ok just to save now, right?
Wrong.
Inflation is soaring right now. So very quickly, let me give you a simple illustration of why this bad for all of us!
Say you had £100 saved last year and inflation is now 5%.
That means your £100 is going to buy you about 5% less stuff than it did last year. What used to cost £100 is now £105 and because prices have gone up and your £100 is still £100. Your purchasing power has decreased.
Saving your money in even the best high interest account available is still below the rate of inflation. That means that even in the most optimal saving conditions, your money will still erode away. Every day, you will lose money in real terms.
Stop saving money
Inflation, that’s how we measure the increase in prices, is getting away from us and savers, who have had to endure absolutely miserable rates over the last decade or more are seeing their hard earned money losing value year, after year, after year.
I’m not about to suggest you need to start spending every penny you have because it’s going to be worth less this time next year. Anyone who has read this blog before knows I’m a bit averse to spending any money on anything that doesn’t bring me value!
Confidence
In my opinion I think it’s worth having liquid savings in the traditional sense – in a bank – ready to go for emergencies. Members of the finance community call this an ’emergency fund’.
We are very creative.
That money behind us can give us a little bit more confidence going forward with spending and can take the pressure off a little bit, knowing we have that fallback.
Of course, you have to honour your bills and commitments.
And after that it’s time to get creative with how you utilise your own money. Saving and stashing more money than you need to is costing you big time in real terms. Maybe you can pay off high interest debt in bigger chunks? Maybe you can make a nice over payment on a mortgage? Paying off anything with a higher rate of interest compared to your savings rate is going to be a good money move.
Even better, if you can do anything with your money that can beat the rate of inflation then you are really doing well. Finding a way to have your money make more money is definitely the best way to get ahead in the fight against inflation, because saving is, in may ways, simply throwing money away by giving up.
Don’t accept it
Are you ready to accept the fact that too much saving is costing you money. Are you ready to accept that by not being proactive you are getting poorer? If you aren’t ready to concede defeat to rubbish savings interest rates and rising prices, then I’ve got this video you can watch next that will help you start making a bit of extra money right now with no startup costs at all.