“He who will not economise will have to agonise” - Confucius
What was true in the 5th Century BC is still true today. From putting food on the table, to getting to work, almost every part of our lives is dependent on our financial stability. Money gives us freedom to live life on our terms, but why should you worry about putting cash aside when you are able to cover your monthly expenses comfortably? On the flip side, how can you think about diverting funds to a savings account when you are struggling to keep up with your priority bills?
There are different motivations behind saving money, but at the core they all stem from our need for security. What people knew even 2500 years ago is that, more often than not, we are just one money shortfall away from financial anguish.
The bottom line is that saving money is extremely important for your peace of mind and quality of life.
Everyone’s financial priorities will be different based on their unique circumstances; however, it is wise to shelter yourself against life’s common hurdles.
One of your first financial aims should be to build up an emergency fund. The purpose of the crisis fund is to relieve you from financial pressure in case an unexpected situation arises which requires you to spend more than your monthly income can cover. You can dip into the emergency fund in the case of losing your job or the washing machine breaking. Typically, you should aim to save at least 3 months’ worth of income. This savings pot should be easily accessible as you may need to withdraw the funds quickly.
For most people buying a home is the largest investment they will ever make. It’s an excellent aspiration to work towards, however it requires a lot of planning ahead. The earlier you start saving towards a down payment or deposit for your home, the quicker you will build up the necessary capital. The minimum mortgage down payments are usually around 5% of the price of the property, however the larger the deposit, the lower your monthly repayments will be.
Having a sound retirement fund will give you the assurance to fully enjoy your newfound freedom. The key to accruing an abundant retirement fund is starting early! The good news is that under the Pensions Act 2008, every employer in the UK must enrol their employees in a pension scheme and where appropriate, pay contributions. This means that you can start saving towards retirement from your very first job. Increasing your contributions when circumstances allow it will help your fund grow quicker. It is important to note, that if you are self-employed you must make your own arrangements for a retirement plan.
Sometimes the hardest part of saving money is just starting. A cup of tea on a Sunday afternoon with a pen and paper at hand is all you need to come up with a savings schedule.
By creating a budget based on your current financial circumstances you will ensure that your essential living expenses are covered, and you can redirect your disposable income towards your savings pots with a peace of mind. Our step by step guide to Budgeting shows you how to create your very own financial plan.
If saving money does not come naturally to you, don’t sweat it, you are not alone. Most people aspire to put some cash aside, but without a financial plan or good habits it’s easy to stray off course.
Luckily, making simple changes can propel you from zero to hero when it comes to saving money. For instance, if you are struggling to remember to transfer the funds into your savings account, you may benefit from the modern technological feat of the automatic transfer. Set up an automatic transfer on your pay day and watch your savings grow with minimal effort.
If you know you lack financial discipline, putting money in the bank will simply not work. Psychologically, it’s much easier to give yourself permission to tap into your savings if they are not set aside for a distinct objective. Setting saving goals will help to curb your spending urges and will give you motivation to save towards exciting new ventures.
Most people give up their savings plan due to lack of inspiration but saving money doesn’t need to be boring. What are you most excited to start saving towards? Could this be the year that you and your friend finally go road tripping in America? Maybe you can save enough to buy mum those beautiful gold earrings for Christmas?
Start by making a list of all your short-term and long-term financial desires. The short-term goals are things you can usually accomplish within a year, for example saving for a holiday or a washing machine. The long-term goals will take longer than a year to accomplish, for example saving for a mortgage down payment or your retirement.
If you are working towards more than one desire, you should create a saving pot for each goal. This will make it easier to track your progress towards reaching the target.
Once you have set your financial goals, you can work out how much money to redirect from your disposable income to your savings pots. Depending on how much money you are setting aside and how quickly you wish to reach each goal, you may have to prioritise your goals in order of importance.
Opening a savings account keeps your money safe and helps you grow your capital. There are many different types of accounts to suit your saving goals. Some savings accounts are more fitting for short-term savings, whereas others are more useful if you are looking for long-term savings. Choosing the right type of account will help you make the most of your money.
These types of accounts are appropriate to use for your emergency fund. They typically have a higher rate of interest than a normal current account.
These types of accounts are useful for regular savings. You are required to commit to saving a certain amount of your income each month. In return, the financial institution often offers you a higher interest rate than a normal current account. You might want to use this account to set money aside for a long-haul holiday or redecorating the living room.
These savings accounts are designed for amassing money for a set length of time. The interest rates are fixed, and you can predict how much money you will be able to collect at the end of the agreed period. This type of account would be useful for saving for a large purchase in the future, for example a mortgage down payment or a wedding.
The idea behind these accounts is the same as the fixed-term deposit accounts, however, the interest rate is variable. This makes it harder to predict what the total amount of money saved will be at the end of the period, and therefore they may be more suited to accumulating a deposit for a smaller purchase such as a car.
These Individual Savings Accounts (ISAs) are essentially intended for gathering tax-free interest on your deposit. The amount you can save into these accounts is limited by an annual allowance; the limit for the financial year 2019/2020 is set to £20,000. There are different types of ISAs and they each have slightly different rules and applications.
The growth in the fintech industry has made countless products available at your fingertips and the reality is that reaching your financial goals has never been easier. Saving is all about taking baby steps to big achievements! So, don’t put it off any longer, start saving today for a brighter tomorrow.