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 saving long term.
1. Set clear goals
Having a specific saving goal in mind can help you save more. Which makes sense – knowing what you’re sacrificing today’s delicious coffee for can give you the boost of willpower you need to leave the coffee shop.
The key is to make goals:
- specific
- measurable
- time-limited
- as broken-down as possible.
So, let's say you want to save £10,000. That's a lot of money! But if you want to reach that target in 10 years then it's £1,000 a year... or £84 a month... or £19 a week. Suddenly that £10,000 feels a lot more do-able.
And that doesn't include any interest or investment returns which can bring your goal even closer.
2. Get into the savings habit
You’re more likely to stick to saving if you do it regularly when you get paid, rather than saving lump sums or waiting to see if you have any money left at the end of the month.
Even if it’s a small amount each time, it adds up. If you put aside just £3 per day for example, 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 to make sure you stick to your habit is to automate it, for example by setting up a regular Direct Debit into your ISA. After a while, you might not even notice the money leaving your current account!
And 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 or investment returns.
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
Earning interest or investment returns on your savings can help your money grow without you needing to do anything.
The trouble is, if the rate of interest you're earning is lower than the rate of inflation, the value of your money could shrink over time. Put simply, when prices go up, the same amount of money can buy less.
So, it's important to shop around for the best interest rates and to consider long-term savings accounts, which typically pay more interest if you don't make withdrawals.
Or you could consider investing your money, which has greater potential to out-grow inflation and interest rates. In fact, in every 5-year period between 2000 and 2021, stocks and shares out-grew interest rates*.
When you invest, the value of your money is likely to go up and down over time, so there is a risk that you could end up with less money than you paid in if you withdraw your money at a time when its value is lower.
You can get started in investing with a stocks and shares ISA.
*Source: Barclays GILT study 2023.
5. Have an emergency fund
Locking savings away is great for stopping you from raiding them, but it’s a good idea to be able to access at least some of your money at short notice. You never know when you might suddenly need it.
Putting money into an emergency fund as well as your long-term savings can give you peace of mind that you have money to use if you need it.
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 roughly £40,000 at a minimum in savings accounts that aren't tax exempt.
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.
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