How to find £100 a month to add to your pension (without earning more)
Are you pension savings lower than you would like? Let’s explore some ways you can find £100 a month to add to your pension, without earning more.
A few days ago I traveled to London to record PensionBee’s 50th podcast episode. The topic of the episode was what to do if you were aged 50 or over and had no pension savings.
A shocking number of people are in this group. According to research by SunLife, nearly 7 million people aged over 50 in the UK have no private pension savings. This number represents 20% of all men in this age group, and 33% of all women.
There are many good reasons why people can find themselves in this position (in my mid-40s I only had about £1,000 in a pension myself). These can include:
- Lack of financial education/awareness
- Fear of the safety of pensions
- Taking career breaks
- Relying on the pension of a spouse/partner
- Not having enough spare income to invest in a pension
Famously, this age group missed out on both the security of widespread final salary defined benefit pensions, and the introduction of auto-enrolment, which will have come too late in their careers to build a significant nest egg.
So what do you do if you find yourself in this group? The good news is that there is still a lot you can do to make a difference to your financial future – even if you can’t earn more money.
In the podcast, we explored some of potential scenarios from starting to invest over the age of 50. PensionBee have an excellent example on their website.
How you could build a pension pot of £200,000 after the age of 50
At 50, Sarah has no private pension savings, so she starts to save £400 a month into a personal pension. The government then adds an extra £100 in basic rate tax relief, giving her a total of £500 a month.
With an average growth rate of 5% after fees and inflation, Sarah would have a pension pot worth around £200k in 20 years time. This could give her an extra £8k of annual income. Combined with the full State Pension, she would have over £20k a year to live on after her 70th birthday.
If you are over the age of 50 and in a similar position to Sarah, could you find £400 a month to invest in a pension? Yes it might be a squeeze, but we believe it’s worth making some sacrifices now in order to have a more comfortable retirement.
Even if you can’t find an extra £400 a month, could you find £100? With the government’s tax relief top up, you would have £125 a month to invest. Over 20 years, again assuming an average interest rate of 5%, you could have almost £50,000, £20,000 of which would be compounded growth.
If this sounds more feasible, let’s look at some of the ways you can find an extra £100 a month to invest in a pension, without increasing your income.
Conduct a money audit
The first step in finding £100 to invest in your pension is to work out what your current financial situation is by conducting a money audit.
This is easier than it sounds, it just takes a little bit of time (though trust me, it should be worth it). Start by compiling a comprehensive list of everything you have spent money on over the past three months, and how much income you have coming in.
You can use a pen and paper to make this list, but I recommend using a basic spreadsheet (I have made a free one for you here if you want to steal mine). Here’s what to do:
- Open a new spreadsheet
- Have your last three months’ bank and credit card statements/banking app to hand
- Go through all your accounts (bank and credit cards) and write down every outgoing
- Make a note whether a payment is recurring, or a one-off from month 1, 2 or 3
Why three months? This helps you spot the regular payments, and you can get an average impression of how much you spend on an ad hoc basis.
When you have finished, sort your data as follows:
- Collect all recurring payments, so you have a picture of what your regular outgoing are
- Sort your one-off payments by month and total each month to get a picture of what your ad-hoc outgoings are
Next, identify and add up all sources of income. Work out what you earn every month consistently, and what any ad-hoc payments add to up each month (for example, money you make on a side business).
How to analyse your money audit data
On a top level, deduct your total outgoings from your total income each month to get a picture of your overall financial health. Are you living easily within your means currently? Or are you struggling to make ends meet, or even spending more than you earn?
Once you have all the above information, we can use it to help you find extra money to put towards your pension each month.
Next we’ll look at what money is coming out. How much do you spend each month on recurring payments and ad hoc purchases?
What to do with your learnings
There are two ways you can find an extra £100 a month to invest in a pension:
- Increase your income
- Decrease your outgoings
We’ll now look at ways you can reduce your outgoings.
Can you reduce your recurring payments?
Is it possible to reduce your recurring payments? These are likely to be things like utility bills, subscriptions, financial products, such as pet insurance and car loans, and repaying student loan etc.
Some of these will be non-negotiable, such as student loan repayments. Others can be eliminated or reduced. Here are some suggestions:
Split your recurring payments into three groups:
- Essential – things like student loan payments and already-agreed car finance or insurance plans
- Essential but negotiable – things like utility bills, car finance and insurance plans coming to an end
- Non-essential – things like streaming and gym subscriptions
Here’s what we do with each:
- Essential – make a note in your calendar of any date these may come up for renewal so you can negotiate or look for alternatives if applicable
- Essential but negotiable – look for better plans or options to see if you can save money. For example, use comparison websites, or phone the provider up and see if they can do a better deal
- Non-essential – consider whether you really need it, or whether you can find a cheaper alternative or negotiate with the supplier for a better deal
When considering your non-essentials, there are a few ways you can be creative to save money. For example, rather than paying for three streaming platforms every month, can you alternate between them? So perhaps paying for Apple for one month, Netflix the next and Disney the month after, then returning to Apple and starting the rotation again.
Often we find we don’t have time to watch all three platforms, and this way you can binge on your favourite shows and films on each platform while waiting for a bank of new content to upload to others.
If you have a package from Sky or Virgin, see if you can save money by splitting services. I used to pay £90 a month for Virgin, as well as streaming platforms. So I cancelled Virgin and doing a fibre network deal for £25 a month for WiFi. I found I didn’t even miss the TV packages as I had enough to watch with free channels and the streaming subscriptions I was already paying for.
Don’t worry if you’re just saving £10 here and £20 there – all these amounts add up, as you will see later!
Can you reduce your ad-hoc expenses and outgoings?
Again, ad hoc expenses can be split into, this time, two groups:
- Essentials – this will be things like food shopping, vehicle MOT/servicing etc
- Non-essentials – this might be Amazon purchases, clothes, takeaway coffees, meals or drinks with friends etc
For the essentials, look at any ways you can reduce them. For example, can you shop at budget supermarkets? Switch to own-brand products? Do a big shop once a week? Batch cook or research budget-friendly recipes?
For the non-essentials, can you cut down on your spending, or even eliminate some? Perhaps suggest your and your friends take it in turns to cook for each other rather than going out? Or choose cheaper bars and restaurants?
In the PensionBee podcast we talked about making saving more fun by ‘gamifying’ it. Here are some ideas:
- Give yourself a weekly budget for food shopping and find ways to live on it
- See if you can cook one meal a week solely from reduced foods
- Challenge yourself to live on a weekly budget for non-essential spending
- Try the ‘no-buy’ challenge and don’t buy any new clothes for a period of time
- Find free things to do at the weekend in your local area, and take a picnic
I spend many years when my children were young and Talented Ladies Club was in the early years with little money to live on, and tried many of these ideas. Even though I earn enough now, I still enjoy some of them. This is partly how I was able to build a large pension pot starting in my late 40s.
How much can you save a month?
So let’s look at how you can use the above strategies to save at least £100 a month:
- Switching to a better energy tariff or using less: £10
- Switching to a cheaper phone contract £5
- Switching to a cheaper gym: £5
- Cutting one streaming service: £10
- Cancelling TV/WiFi package: £20
- Saving on food shopping: £30
- Buying few clothes: £30
- Fewer takeaway coffees: £20
- One less meal a week out: £50
- Spending less on random Amazon purchases: £20
Total: £200
You see how quickly the savings add up? So even if not all of them will work for/apply to you, many people can find a way to shave £100 off their monthly outgoings with some creativity and effort.
Give yourself a monthly budget – and start saving into your pension
If you really want to make this work for you and ensure you can save money into your pension every month, use your money audit to give yourself a monthly budget to stick to, and commit to investing as much as you can into your pension.
Remember that every extra £1 you invest can grow significantly over time, thanks to the wonder of compound interest, and help get you closer to the retirement you want.
The money audit in a nutshell
To sum up the process, here is what we recommend doing to find £100 (or more) a month to invest in your pension – without earning any more money:
- Record everything you spend over three months
- Split into recurring and ad hoc payments
- Work out how much is left over from your income
- Look for ways to reduce your recurring payments
- Look for ways to reduce your ad hoc payments
- Set yourself a realistic monthly budget to live on
- Invest the money you save into your pension
Remember, the more you can save now, even if it means making some sacrifices, the more you could have to enjoy when you retire.
