Saving for a Sunny Day

Eamon DwyerUncategorised

For some reason fear helps to motivate people.

I’m sure there’s some science to it. Depending on your mood however, opportunity and the possibility of something good happening can be equally as adept at encouraging action. By analogy, I think about how quickly my 5-year-old will get changed before going to a birthday party, versus how slowly she will get dressed for school. The possibility of something good can and does motivate.

As a financial planner, it’s been wired into my DNA from an early age to paint the picture of doom and gloom for my clients and then (halleluiah!) create piece of mind against that backdrop in the form of a disciplined solution. Like paying for life insurance against the fear of financial ruin due to the death of a breadwinner. Like saving into a pension plan for fear of retiring with a poor standard of living. Like saving for a rainy day.

All of these things are important and we do our job well. This practice is tried and tested and works, most of the time. However, say you have most of the bases above covered – either through private arrangements or through workplace benefits. Then, let’s say you have some disposable income at the end of each month and you are wondering what to do with it (for fear the bankers might get it and pay you nothing in return). You are in good form – please don’t kill my buzz here!

What mindset should we enter in such a scenario? What if we became really positive?

If you’re feeling upbeat and in a planning frame of mind, the last thing you want to hear about is a discussion about preventing disaster. Instead, how about:

• I think I’ll save more into my pension plan so that I can retire at 63 instead of 65 OR
• I think I’ll invest my money each month into a medium-term investment strategy so that I can go on a Caribbean cruise in 3 years time OR
• I think I’ll invest my money so that I can fund the deposit on a second home by the sea by the time I’m 40

Whatever! The concept of saving for a sunny day and doing something positive with our hard-earned cash is something we are exploring more and more (note Father Ted’s article in the Sunday Times last Sunday).

Sure, it might be a slightly too rosy symptom of a recovering economy and I’m well aware that not everyone has disposable income at the end of each month. But for those who do work hard and are lucky enough to have a few bob left over, taking a proactive approach via disciplined investing can be a really productive endeavour.

Investing by instalment is safer than many realise due to the ability to average in to volatile markets. It allows you to take on more risk than you normally would, thereby (based on another bit of scientific research) allowing you to generate a better return over volatile periods. And importantly, if focuses you on planning for yourself and your family. Where do you want to get to and how are you going to make it happen?

No one else will.

Eamon Dwyer
Managing Director, City Life