If you’re managing to stay on top of your credit repayments and generally spend less than 10% of your monthly income on debts then congratuations!
The question is…
Are you ready to start saving?
(If you already are saving then bonus points to you – but how about stepping it up?)
When you first decide to start saving, you may have more questions than answers. For example, which savings account is best for your circumstances? Do you need instant access to your savings? Or should you try and invest your money in an attempt to get a better return when base rates are so low?
Credit unions often provide a profit share or dividend. This means that the equivalent interest earned on accounts can be high compared to high street banks.
Just as important, how much can you realistically manage to regularly put away to achieve your savings goals, whilst still living comfortably day to day?
To answer these questions, it’s time to take a closer look at your circumstances.
Before you start saving, set your goals and understand your motivations
Research has shown that setting an amount and purpose can help you save faster than if you’re saving generally for a rainy day.
The Money and Pensions Service recommend you set yourself a specific savings goal.
For example, you might be looking to save £2,500 towards a dream honeymoon to the Caribbean in the next 12 months. Maybe you want to save £10,000 for a deposit on a house in the next 5 years. Set your intentions from the start.
Furthermore, lots of online banks and credit unions have introduced savings pots or jam jar accounts. These can help you save for different purposes at the one time.
What’s your savings style?
There’s no right way or wrong way to save, as long as you’re consistent and committed.
Find the way that works best for you. Set yourself up for success. There are bold ways to start if you’re keen to build your savings, fast. Yet they’re not for everyone. For example, if you’ve got a big goal like a deposit for your first home, you could decide to sell your car and buy an older model to give your savings a large cash injection.
Most people set up Direct Debits to their savings on payday, a tried and tested method for regular saving. Many credit unions offer members salary deduction, meaning you can save direct from your wages right into your credit union savings account.
Additionally, lots of the newer digital banks offer accounts that round purchases up to the nearest pound, dropping the pennies into your online savings. These small amounts can really add up. Or you could set yourself a weekly allowance and transfer whatever funds you have left each week into your savings account manually.
Find out what works for you.
Maximise your income with a money makeover
Maybe you’re locked in a cycle of overspending and under-saving. if you’re on a tight budget, it’s difficult to see where you can spare the cash to put aside for the future. Yet there are lots of ways to reduce your monthly outgoings.
Take an afternoon once a year for a full money makeover to see where savings can be made. Sites like uSwitch or Billmonitor can help you save on everything from energy bills and insurances to mobiles and broadband. What’s more, they take the hard work out of switching providers too.
If you use credit cards or high interest debt, it could be worth porting balances to a 0% card. Additionally, take a look at the Money and Pensions Service advice for taking control of your debt.
No spending days are a great way to reduce your outgoings. Your local authority website will have lots of free days out that you can take advantage of.
Critically, a money makeover shouldn’t be a punishment. It’s about shaving off wasted pounds, not depriving yourself of the little things in life that make you smile. So your monthly makeup box or Netflix subscription doesn’t need to take the hit.
If you can’t afford to save
If you really can’t afford to save, try to keep a spending diary for a month. This may help you see if there’s anywhere you could possibly cut back.
There could be hidden costs that you’re incurring each month that can be reduced or deprioritised. Speak to HMRC to make sure you’re on the right tax code and make sure you’re getting all of the benefits you’re entitled to on the Government’s Benefit’s Calculator.