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Working from home: A guide to investing

For just under half of UK adults, working from home has become the ‘new normal’. Lockdown restrictions put in place to slow the spread of Covid-19 have forced companies to rethink their working practices and whether or not they, ultimately, need to have all of their employees in one place, all of the time. 

So, for millions of people, the crowded train has been replaced by an extra hour in bed and the bullpen has given way to the home office or the kitchen table. The effects on employee happiness and productivity while working from home will need to be better researched, but one thing is for certain: we’re saving money doing it. 

Unexpected savings

Lockdown provided an opportunity to save for all sorts of reasons. From the inability to go on holiday to a near-full reduction in the amount all of us are spending on leisure or cultural activities, we are finding ourselves with disposable income that we’d have otherwise happily spent. 

For the purposes of this guide, however, we’re going to focus on how much the average worker is saving monthly by working from home. From the simple fact of not leaving the house to get your work done, a number of unexpected areas of saving arise. 

There are a lot of things to take into account. A few of the savings are more obvious – when you work from home, you no longer spend time and money commuting every day of the week. Equally, you can feed yourself with groceries for a fraction of the price of buying food on the go during the week. This is before we even get to the amount a lot of us spend buying takeaway coffees. 

These more obvious savings are supplemented by a whole load of unexpected cutbacks. Anyone who works in a formal environment will know how expensive it can be to buy and maintain appropriate clothing. Even in environments that allow employees to be casual, heading into work every day demands a bigger wardrobe than working from home. 

Time to start investing?

Like a lot of people, you might be trying to find ways to pull some positives from 2020. Though saving on leisure and travel isn’t, in itself, a positive (we’d all rather be enjoying ourselves), saving on the daily commute can be. If just under half of UK adults are no longer paying just to get to work, could that money be put to better use?

Incidentally, the age groups most likely to now be working from home are 25-34 and 35-49 (16-24 was, unsurprisingly, the least likely group). If you’re one of these younger people that now finds themselves working from home, it might be the right time to consider putting in a place a long-term, regular savings plan. 

Consider regular investing

According to research from the Office for National Statistics, the average person saves around £500 a month while working from home. This takes into account travel, food and clothing expenses. This is a large monthly sum, but we can comfortably assume that people are saving some money working from home, though of course to differing extents. 

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By making an investment, your capital is at risk.

For a lot of businesses and individuals, working from home during the periods of Covid-19 lockdown has been an eye-opening experience. For businesses, the overheads involved in having employees in a centralised office suddenly seem disproportionately expensive, particularly with productivity not seemingly damaged by remote working. For individuals, the extra time and money that comes with working remotely can be difficult to give up. 

So, if working from home does become more popular in the long term, it may be an opportunity for workers to save or invest their newfound disposable cash. Given that the savings are regular – money saved on a monthly travelcard is, by definition, monthly – then the investing should be regular too. 

We looked at three hypothetical portfolios with monthly contributions of £100, £300 and £500 respectively. Assuming these contributions are consistent and the returns come in at 5% per year, the overall 10-year figures are significant, as seen below. 

When we look at the results of regular, consistent investing, there are two key effects in play – pound cost averaging and compound interest

The former is the process of drip-feeding cash into an investment account. Pound cost averaging buying into the market regularly at a price that can fluctuate over time. Essentially, this means spreading out your risk – after all, no one wants to invest a lump sum near or at the top of a market high. Pound cost averaging is particularly effective for protecting against drops during uncertain economic conditions. If the value of the assets drops, you then buy in at that reduced rate, and if the value of the assets goes up, you buy in at that increased rate – the process spreads the risk out so that, overall, you are less likely to be stung. 

Compound interest, on the other hand, is the idea that any interest from investments begins to, in turn, generate its own interest. If you invest for the long term, any gains you make in the first few years will, if left invested, make gains of their own for the next few years, and so on (in theory). Compound interest essentially dictates that the sooner you can start investing, the better. Time is any investor’s greatest asset, so if working from home has provided you with cash to start investing, there’s no time like the present. 

If you need any more information on the basics of investing or want to brush up on your knowledge, our guide to investing gives a comprehensive overview.

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