Recently I was out for a run in the grounds of Montacute House and whilst stretching some very tired limbs, I was fortunate enough to watch a squirrel collect an acorn and bury it only yards away from me. Comically, it then very carefully, delicately and precisely covered up the burial site with two freshly fallen leaves (which promptly blew away only a few seconds later).

Squirrels don’t eat every acorn that they come across; they bury them to be retrieved at a later point when food may have become scarce.

Such a strategy could be considered one of the principles of financial planning. Rather than spending every penny that is earned, it is often considered prudent to put some money aside, by saving or investing, for the future.

At FFP we often refer to this as “delayed gratification”. Delayed gratification can take many forms – it might mean having more money to spend in retirement or retiring five years earlier than normal. It might mean spending less on day-to-day needs to help fund a trip of a lifetime. For younger people, it might mean saving for a deposit to buy their own house or having enough money to set up their own business.

A cup of coffee and cake, every working day, can easily cost £100 each month. The latest smart phone – and there’s always a new model around the corner – can easily cost £50 per month. By being more careful with current expenditure it is relatively easy to build up a cache of money for the future. By saving approximately £300 per month, rising in line with inflation (2%) and obtaining a return of 4% a year, a deposit of £20,000 can be built up in a short a time as five years.

For longer term savings goals, like early retirement, the magic of compounding can come into play. Saving the same amount as shown above – £300 per month, rising in line with inflation (2%) and achieving 4% return, would increase to over £263,000 in around 30 years. If you were able to achieve a 6% return the amount would be closer to £365,000. These are life changing amounts of money.

Real financial planning, when properly implemented, enables people to live the life of their dreams. While it may sound simplistic, we can fulfil many of our dreams if we control what we waste. We all fritter money away; if we can stop frittering too much away – and crucially, invest the saving – we will be able to do so much more than we ever imagined.

November 2019