Are You a Casual Saver or a Disciplined Investor?
In my experience as a financial adviser with over 24 years in the industry, when it comes to managing money, people often fall into two categories: casual savers or disciplined investors. Understanding the difference between the two and learning how to transition from a casual saver to a disciplined investor can significantly impact your financial future. Let’s explore what each of these terms means and provide practical tips to help you become a disciplined investor.
What is a Casual Saver?
A casual saver is someone who saves irregularly and without a clear plan. Typically, a casual saver will put aside whatever money is left over at the end of the month – if there is any left at all. Because their approach to saving is unstructured, they often find themselves prioritising other expenses or indulging in impulse purchases, which leaves little or nothing for savings. This lack of discipline can hinder long-term financial growth, making it difficult to build a substantial savings cushion or achieve larger financial goals.
What is a Disciplined Investor?
In contrast, a disciplined investor takes a proactive and systematic approach to saving and investing. Rather than relying on what’s left after monthly spending, they commit to a regular savings plan, often by setting up a direct debit that automatically transfers a fixed amount into their savings or investment accounts. This regularity instils a sense of discipline and ensures that saving becomes a non-negotiable part of their financial routine. Over time, this approach can lead to substantial growth in their savings and investments, helping them achieve long-term financial stability and specific financial goals.
The value of investments can go down as well as up, and you may not get back the full amount you invested.
Top Tips to Transition from a Casual Saver to a Disciplined Investor
If you find yourself identifying more with the habits of a casual saver, you’re not alone, so don’t worry. There are several strategies you can adopt to become a disciplined investor. Here are some top tips to help you make the transition:
1. Calculate Your Monthly Expenditure
Start by understanding where your money goes each month. Calculate your essential expenses—such as bills, groceries, and fuel—so you can determine how much you can realistically afford to save. Knowing your monthly expenditure allows you to budget effectively and allocate a portion of your income to savings without feeling stretched.
2. Set Up a Regular Direct Debit for Savings
One of the most effective ways to become a disciplined investor is by setting up a direct debit that automatically transfers money from your checking account to your savings or investment account each month. This ensures that saving becomes a priority rather than an afterthought. By treating savings like any other bill that must be paid, you’re more likely to stick to your financial goals.
3. Scrutinise Your Spending Habits
Take a close look at your bank statements from the last three months. Where is your money going? Are there areas where you could cut back, such as daily coffees, takeaways, or online shopping? By identifying and eliminating unnecessary expenses, you can free up more money to put toward your savings and investments.
4. Prioritise Debt Repayment
If you’re carrying high-interest debt, such as credit card balances or personal loans, focus on paying these off before ramping up your savings. The interest on debt can often outweigh the returns on savings, so clearing debt is a crucial step towards financial health. Again, a financial adviser can help you develop a strategy for managing and eliminating debt efficiently.
5. Build a ‘Rainy Day’ Fund
While it’s important to focus on long-term savings and investments, having a readily accessible emergency fund is crucial. Set aside a separate amount in your bank account for unexpected expenses, such as car repairs. This way, you won’t have to dip into your long-term savings when the unexpected happens.
6. Seek Financial Advice
Professional financial advice can be invaluable in determining the most tax-efficient way to save and invest your money. A financial adviser can help you understand whether a pension, ISA, or another investment vehicle is best suited to your goals, taking into account your specific circumstances and objectives. For example, if you’re saving for retirement, a pension might be the best option. However, if you’re saving for a short-term goal, like a wedding or a house deposit, you may need more accessible savings options.
7. Choose the Right Savings Vehicle
Consider saving into something like an ISA (Individual Savings Account), which can help prevent you from dipping into your savings prematurely. Unlike a standard savings account, which offers easy access to funds, an ISA provides a layer of protection against impulsive spending, allowing your savings to grow over time.
Conclusion
Transitioning from a casual saver to a disciplined investor isn’t about making drastic changes overnight – it’s about building consistent, healthy financial habits. By setting up a regular direct debit, understanding your spending, choosing the right savings vehicles, and seeking professional advice, you can start making your money work for you. Remember, saving doesn’t have to be complicated; it’s all about discipline and making realistic decisions about how to best use your financial resources. Start today, and watch how small, disciplined steps can lead to significant financial growth over time.
By Christine Tarran, independent financial adviser and owner of Tarran & Co Financial Planning, based in Darlington. Find out more about Tarran & Co’s services at www.tarranandco.co.uk
