The Philosophy of Saving

“Saving for no reason is like employing people and telling them not to come into work – ever”

Just as Abenomics, Reaganomics and all the other -nomics before and after them, Nizzynomics is developing its own approach to the art of wealth building. Today, we want to share our approach to saving 💷 and hopefully it sparks some new thoughts for you – challenge our ideas too!

We like framing things in steps and decision trees so there’s less things we need to hold in our 🧠 but check out these key things we consider:

1. Why save? Asides from guarding from inflation & protecting spending power… (A) create a long term emergency buffer (B) to make a short term purchase/payment, (C) to build up a lump sum to invest – stacking cash for any other reason doesn’t make sense to us :/ we send it to work instead!
2. How much to save? (A) depends on the lifestyle and the sort of risks one is exposed to. For instance, if you lost your main income stream how much would you need to survive for x period of time? Once this number becomes clear, it gives you an idea of how much cash it makes sense to hold idle. (B) If you’re looking to make a purchase or pay for something soon, it doesn’t make sense to lock up your cash in a savings account or put it at risk by investing it. So keep it in an unlocked account that can easily be drawn down from when ready to spend. We like to keep 3 months worth of living expenses plus 15% (C) When it comes to investing, an amount too small restricts your power of returns and may be better invested in a skill or personal development that will in time increase your earning potential. Think about it, putting £100 in an investment that returns say 10% in a year – you made £10 congratulations. But surely that £100 would have been better invested in say, basic example, a photography course which if you were determined enough would make it possible to yield a better return after doing a number of jobs and invest with more power later. Anyway the point is, there’s no harm in stacking cash short term to give yourself bigger investment ammo. Topping up in small amounts thereafter makes sense.
3. Where to save? We’re comfortable with risk so we treat our long term investment accounts as saving accounts. These are wrapped in tax efficient ISAs and we add more than usual when markets are weak. We’ll talk about investments in another post. (A) Anyway, because of this, we don’t mind holding cash in relatively SMALL amounts as an emergency buffer – this lives in a standard accesible savings account that can be accessed anytime for free. Also, depending on our view on FX rates, we may hold cash in a different currency. (B) typically we keep cash savings intended for purchases/payments in the same place as (A) given it will be spent usually within a month or two – interest earned is negligible in the U.K. for now anyway. The important thing is that we don’t want to lock up or risk these pots of cash. (C) We keep savings for investments in lockable accounts with ‘slightly higher’ interest rates and look for benefits attached such as LISAs when saving for property. Depending on our view on the investment landscape, we may use a lower risk vehicle in the meantime before building up enough ammo to deploy properly.
4. How long to save for? (A) saving for emergencies is sort of a ‘forever’. Once we have our number we maintain it. If we dip into it for reasons such as life, we put it back when times are good again. If it takes too long to build up this buffer i.e. more than 6 months then our lifestyle is probably too expensive and we should really focus on increasing our surplus. (B) Timescales when saving for a purchase obviously depends on what you’re buying. If it’s anything substantial like a house, there are tax efficient and rewarding ways to do so. Anything small should sit in an account (savings or cash) that can be drawed upon easily, quickly and risk-free. (C) While saving up for a lump sum to invest, take as much time as you need to. Long term opportunities will always exist in some way shape or form and you don’t need to race anybody. The use of locked up savings account offering ‘better’ interest rates makes sense here. Especially given that cash has been committed to a long term function anyway. It could take a year of disciplined saving or a month or a week to reach a block sum like £1000. Anything longer than this for an employed adult in London probably suggests some habits need to change.

And there you have it – the philosophy that underpins our savings decisions. Hit us up on any social media platform or by email if you have any questions or want to challenge our ideas! Check out our other cool tools too ;)

@nizzynomics

info@nizzynomics.com

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Until next time 🥂

(written by a 24 y/o London based investment banker)