How to save for security without trading in your lifestyle

The podcast discusses the importance of saving for security without sacrificing your lifestyle. It mentions the benefits of preventive healthcare and the challenges of accessing medical services. It also introduces the concepts of savings ratio and liquidity ratio to help determine how much to save and for how long it can cover expenses. The podcast emphasizes the importance of having liquid cash for unexpected expenses and highlights the need to strike a balance between living for today and saving for the future. Hello, Jeremy Leach here and welcome to the Insight Post for the 19th of May 2024. How to save for security without trading your lifestyle. Last week at a chill in our local deli, a couple of customers and I talked about the new health facility at York, designed to identify and prevent future problems, rather than diagnose and treat existing problems. One of the customers in the deli recommended it, echoing my recommendation last week to get a health check. We all agreed that prevention was essential rather than cure, given how difficult it is to see a doctor at the local surgery these days, how the cost of non-government funded healthcare is prohibitive, and how even statutory sick pay is hardly enough to cover day-to-day expenses. However, prevention does not always work and plenty of other non-health issues can lead to a sudden and unexpected call on funds. Money always comes into it. Two key financial ratios are particularly appropriate to the scenario we discussed in the deli. Your savings ratio simply tells you how much of your gross monthly income goes into savings. If you save £5,000 per annum from a gross income of £50,000 per annum, your savings ratio is 1 in 10 or 10%. The other related ratio, your liquidity ratio, tells you how long your savings will cover your monthly expenditure. If your monthly spending is £1,000 and you have a readily accessible cash savings liquidity of £10,000, your liquidity ratio is 10 months. What should these ratios be? Your savings ratio will depend on how much liquidity you already have and how much you feel you need. The latter will depend on your emotional needs as well as any practical. A client of mine, for instance, insisted on keeping liquid cash of at least £100,000. Any less and he felt uncomfortable, even though it was not financially necessary. Consider factors such as state benefits, company healthcare, insurance policies and business revenue projections. What are savings? Liquid cash, which you can get hold of in less than five days, is a security fund to cover you against unexpected expenditures. Your car breaks down, for instance, and a sudden loss of income. You have an accident, break a leg and are forced to put your consultative business on hold for a short while. Savings directed at investments in pension funds will support your longer term aspirations and retirement. How do I cultivate a savings mindset? George Clayton, author of The Richest Man in Babylon, suggests that a little of what you earn is yours to keep. He recommends treating most of our earnings as belonging to someone else, such as utility companies, grocery stores, petrol stations, etc. What is left belongs to you and is yours to keep. Thinking about savings in this way changes the dynamic from giving as much of it away to others to keeping as much as you can. The balance between living for today and saving for tomorrow is a fundamental element of your mindset. The concept goes back to enough, knowing when you are enough and when you have enough.