Look after the pennies...

...and the pounds will look after themselves.  A reasonably well known proverb that simply means if you focus on saving many small amounts of money you'll soon amass a large amount.  It’s also a proverb that in the circle of people I associate with both at work and in my personal life seems to not get a lot of attention.  I’m a little different and so it’s a proverb I’ve lived throughout my journey to financial independence and one I continue focusing on even as I sit here typing this post with over £1 million of wealth to my name.  Let me give a couple of examples of it in action over the past few weeks.

The financial services industry is a voracious beast that is continually trying to devour as much of its host as possible without its host noticing (all in my honest opinion of course).  I showed this previously by referencing a Grant Thornton study that concluded that someone entrusting £100,000 for 10 years to a UK financial adviser or investment manager would pay an average 2.56% annually for financial planning services and financial product expenses. 

In contrast to this my work defined contribution scheme extracts 0.6% in annual expenses from me.  Sounds like a great deal in contrast but in relation to what I know is possible I know it’s still expensive.  I choose to be a part of the scheme because it allows me to receive free money in the form of an employers match to my contributions up to a contribution limit.  Additionally by salary sacrificing I save on employees National Insurance and my employer saves on employers National Insurance for which they also pay some of the savings they make into my pension (I actually think it’s derogatory that they don’t pay all of the savings but that’s for another day).  Amazingly some people in my company don’t seem to be contributing to the scheme at all which is just turning down free money but the remainder I’ve spoken to seem to be happy just leaving their pension investments in that scheme which means they are losing 0.6% of their wealth every year.

Of course I’m not average in this regard so what I do is take the free money and let it slowly build up in my work pension.  However I don’t stop there.  Instead when Hargreaves Lansdown, who is one of my SIPP providers, has a cash back offer for transfers I then do a partial transfer to my SIPP.  They have an offer on now and so I made an electronic partial transfer request for £10,000 and the money was transferred into my SIPP within 3 days.  I then proceed to buy Vanguard ETF’s with average annual expenses of 0.15%.  On top of that you would then normally pay SIPP annual charges however I’ve carefully selected Hargeaves Lansdown for my SIPP (use the excellent Monevator comparisontable if you want to find a provider who is right for your circumstances) because if you only buy Shares, investment trusts, ETFs, gilts & bonds expenses become capped when you have wealth of £44,445 in the SIPP.  I’m above that level and so my SIPP annual expenses on the transfer will be 0%.

So what does that means in pennies terms?  For an investment of less time than it’s taken to write this blog post so far I’ve saved £10,000x(0.6%-0.15%)=£45 annually plus I received £20 cash back from Hargreaves Lansdown.  Additionally, as the expenses are a percentage of the portfolio value this annual saving should grow with time as the portfolio (hopefully) grows from both dividend reinvestment and capital gains.

It is also my experience that loyalty is now very rarely rewarded by companies.  In fact it’s quite the opposite in many cases.  Banks and the savings accounts they offer are one of those cases.  So again it’s time to look after the pennies.  I have a number of savings accounts that are holding money ready for an eventual home purchase.  One of the providers of one of these accounts has been treating me like a boiling frog and slowly reducing the interest paid 0.1% at a time.  It stood at 0.5% so it was time to take action.  I’ve opened a new savings account with a new provider who is prepared to pay me interest of 1.25% on my savings of £68,000.

So what does that means in pennies terms?  Over the course of a few of weeks this did take me about an hour of effort to complete.  In exchange for that time I’ll gain £68,000x(1.25%-0.5%)=£510 annually.

In summary I spent less than 2 hours of my time looking after the pennies and it’s given me back £555 annually plus a one of £20.  To me that seems a worthwhile endeavour.

Are you doing similar?  Please do share your tips for others below.

As always DYOR.