60 years ago, a revolution happened in the savings industry- it was the ‘standing order’. The standing order became the ‘variable direct debit’ of its day, and people were able to establish regular savings plans that worked like magic; taking money from your bank account without troubling you at all.
My mother used to buy me savings stamps from the post office, which I stuck in my savings books, and a man from an insurance company used to call at our house and take money from my Dad. I remember these things from childhood.
But when I was 17, I got an evening job and started saving £10 per month with Sun Life of Canada into a maximum investment plan. When the policy matured ten years later, it paid off my first big self-employed tax bill.
Setting up a savings plan
A man, not much older than me, came to our house and he spelt it out to me over the dining room table. I remember that meeting so well. He set up a standing order for me; it was from the bank account my mother had made me set up when I started bringing home cash from working with John Heanon, felling trees.
I have always considered the direct debit or standing order as the most valuable part of a savings plan and I now consider the capacity of payroll to make deductions on my behalf into ISAs, pensions and even credit union savings accounts, as pretty wondrous.
What you don’t see, you don’t miss, and it’s been part of my financial DNA to save 10% of my salary since the man from Sun Life of Canada suggested I did so in 1977.
The value of saving into equity funds
As I’ve got older, I’ve discovered the value of saving into equity funds. The value of some of my savings (those that weren’t blighted by high charges) are now, 20-30 years on, out of all proportion to what I paid in. Even taking into account inflation, I have done really well by saving into share-based plans.
Part of this was because of the times when I continued investing when shares were depressed. Thank goodness I did not panic and stop saving in 1987, as a few of my clients did. Again, I heeded the things I was told about pounds cost averaging – basically, a pound buys more investment when markets are low – and kept my nerve.
All this doesn’t make me Warren Buffet, but it proves to me that the simple lessons that I was taught when in my earliest years and through my teens were worth listening to.
When I sold savings plans, I told people that saving between 5% and 10% of their earnings into a plan would build them a vast capital reservoir by the time they got to their fifties. Relative to some people, I don’t have vast capital, but I have enough to meet emergency needs and the means to pay myself a proper income when I retire from work.
Keep saving simple
I worry that the simple messages I was given are obscured today by over-elaboration. I hear talk of financial education including detail about swaps and options, of people being taught about the properties of different types of bonds – of understanding the meaning of a yield curve.
Other people fret about debt - especially student debt. I saved to pay off my debt (to the taxman) and I suspect that good savers do not get into so much debt – they know the value of financial security.
Others give you sage tax advice, suggesting that tax is the primary driver for saving and that you should time your saving to mitigate tax.
But to my mind, nothing replaces the importance of regular saving, and saving meaningful amounts – I’d say at least 5% and better if you can stretch to 10% of gross income. If you do this, I don’t think you’ll go far wrong.
Are you a regular saver? Do you like to keep things simple or do you prefer to take risks? We’d love to hear from you so please share your comments below.
This article has been commissioned by retiresavvy and any opinions voiced are the author's own.