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6 top tips for long-term saving

Saving for long-term goals requires willpower and a plan. Here's how to get started.

The trick to saving is thinking long-term

By most financial definitions, "long-term" means at least 10 years. The trouble is, as a species, humans tend to be pretty bad at prioritising the distant future over today’s take-away coffee, must-have technology or weekend away.

To help you afford the big things in life, here are our top 6 tips for long-term savings.

1. Set clear goals

People with specific savings goals save an average of £550 more per year than people who don’t. If you know what you’re sacrificing today’s delicious coffee for, you’re more likely to stick to it.

The key is to make goals specific, measurable and time-limited. Something like saving £10,000 over the next 10 years.

Specific goals like these also help you work out how much to put aside each month and keep track of how you’re doing. Plus, you’ll know exactly when you’ve met your target, so you can work towards another goal.

2. Get into the savings habit

You’re more likely to stick to saving if you do it regularly, rather than saving lump sums. Even if it’s a small amount, it adds up over time.

For example, if you put aside just £3 per day, you’ll have £1,095 by the end of the year – which you’ll appreciate a lot more than a daily supermarket sandwich.

The best way is to automate it, for example by setting up a regular standing order into a savings account. After a while, you won’t even notice the money leaving your account.

The earlier you get into the habit, the better. The magic of compound interest means the longer you save, the more you earn in interest – and the less you actually have to put aside to reach your goal.

3. Be realistic about how much you can save

That said, there’s no point putting away £400 every month if you’re only left with £100 for bills, groceries and, yes, enjoying yourself.

Find an amount you can afford to put aside without really noticing, but that still achieves your goals. And don’t forget short-term savings as well. It’s important to have money put aside for emergencies.

4. Make your money work for you

It’s important to earn interest on your savings so they don’t lose their value. The trouble is, most instant-access savings accounts pay interest that’s lower than inflation.

Once you’ve built up a sizeable sum, consider long-term savings accounts, investments and bonds. They typically pay higher interest or returns in exchange for locking the money away.

5. Don’t put all your eggs in one basket

Bigger lump sums will earn bigger compound earnings, but spreading your money reduces the risk of losing it.

And although locking savings away is great for stopping you from raiding them, it’s also good to keep access to at least some of it – because life is what happens when you’re busy making other plans.

There may also be limits on some of your best options. With a lifetime ISA, for example, the government gives you a bonus of 25% of whatever you put in, but you can only deposit up to £4,000 a year – so you’ll need at least one other account if you’re saving more than that.

6. Don’t forget tax

If you earn enough interest on your savings or returns on your investments, then you might have to pay tax.

Most people are allowed to earn up to £1,000 in interest a year before paying any tax, but this allowance depends on which Income Tax Band you're in. For this to apply you would need to have around £40,000 at least in savings accounts that aren't tax exempt.

However, some accounts, such as ISAs, are tax-exempt. That means any money you make in interest or returns doesn't go towards your personal allowance for income from savings. You can save up to £20,000 a year in ISAs.

Get into the habit

The most important thing is to get into the habit. You might miss out on a couple of coffees, but you’ll be glad you did when you get the keys to your dream home or are living a comfortable retirement.