Last week the insurance company Aviva released their Family Finances Report, which showed that an alarming one third of families have no savings, and 40% save nothing each month. Even worse, 60% of single-parent households have no savings at all.
Saving money is one of those things that people always mean to do, but is usually forgotten when making ends meet in the first place is hard enough. Unfortunately this is a very dangerous way to live, as it means you have no cushion if things go wrong – even something as simple as having to replace your washing machine unexpectedly can push you over the edge into serious financial dire straits if you don’t have any extra cash on hand. Saving is also one of those things that you are better off starting right away – even if it means putting away just £50 each month – because of the wonder that is compound interest. That said, it can be difficult to get started, so here are some simple tips to get you going.
Set a goal How much do you want to save? Think about what would happen if you lost your job and were out of work for six months. Set a goal that you feel comfortable with, so that you could continue to cover your outgoings for a certain time without stress. It might seem like a seriously large amount of money, but don’t be overwhelmed, as soon as you start saving you will be amazed how much better you feel knowing there’s money in the bank if things go wrong.
ISA Probably the easiest way to start saving is to open an cash ISA (Individual savings account). These accounts are designed to make saving easier – you pay no tax on interest earned on the personal allowance (£5,100 each year in cash and another £5,100 in shares) each year. Open one and fill it up to your personal allowance each year for tax-free savings. They are a great way to get on the savings bandwagon!
Break it down Saving for the long term is different from saving short term for a particular item (such as a car or holiday), because it can be difficult to motivate yourself. But that doesn’t mean that setting a goal won’t help. Work out how much you want to save overall and break it down into smaller chunks and set these as little goals for you to reach within certain time frames. Write it in your calendar or on your diary and reward yourself when you tick off each mini-goal.
Pay yourself first Of all the good money habits to get into, saving can be the hardest. Often people think, ‘I will save whatever is left in my account at the end of the month,’ but this rarely works – when was the last time you had a sizeable chunk of cash sitting around at the end of the month?! The best thing to do is treat saving like any other regular monthly bill. Add it to your budget, and pay it into your savings account at the start of the month so you won’t be tempted to spend it on other things.
Out of sight, out of mind You probably have a savings account linked to your everyday current account, but don’t use that for long-term savings. You are better off saving for the long term in a non-linked account, so that you can’t see the balance every time you log-in into online banking. Which means you will be less tempted to spend or ‘borrow’ it. Keep your regular savings account for short-term savings.
Go high interest Putting your money into an account that rewards you with high interest is a no brainer. And as you are looking at long-term savings here, you might find that the best interest accounts are not ‘easy access’ accounts, meaning you don’t have easy access to your hard-saved cash. You can compare savings accounts at various money comparison sites, just Google ‘compare savings accounts’.