There are plenty of options available for putting money aside and saving some for the future. If you’re already in the saving habit, that’s great, as it means you’re making financial plans.
However, you may be able to improve the way you save by adopting a balanced savings plan.
Why You Should Save
You may have yet to start saving, or you might not think saving is a good idea. If either of these is the case, you should be aware of the importance of having some savings.
Firstly, money plays a massive part in everyone’s life. Having some savings put aside will enable you to deal with life’s unexpected incidents, such as car repairs or replacing a broken appliance. Secondly, saving money helps you to prepare for something that is far from unexpected; your retirement.
Best Methods For Saving Money
Saving can seem challenging, particularly when there are so many opportunities to become parted from your hard-earned cash. However, if you follow a few basic principles, you can develop a successful savings habit that will last.
1. Set Realistic Savings Goals
Everyone has different amounts of income and monthly expenses. As such, you will not be able to save as much as some people, but more so than others.
Therefore, it is pointless if you adopt someone else’s savings goals. Instead, you should set goals that are realistic to your financial circumstances. If you set unachievable goals, you may become disheartened with your savings and give up. So, set realistic savings goals that are specific to you.
2. Save Little and Often
Saving a little amount frequently will help get you into the savings habit. It also means that you will be under no pressure to find a large amount of money each month to put away. Saving little and often will soon grow your funds, and you’ll get a great sense of satisfaction in seeing your savings increase.
3. Be A Bit More Stingy
There is no shortage of opportunities for you to spend your hard-earned cash. But, frequently, you will pay higher prices without even being aware of it, as you face automatic hikes in service charges or subscriptions.
You should consider using comparison sites to get the best deals. Also, an online search for vouchers will get you discounts on everything from restaurant meals to everyday expenses. The less you pay for such things, the more money you can save.
4. Set Up Money Pots
Having all your money in a single current account isn’t the best way of organising your finances. Instead, consider setting up different ‘pots’ of money for savings, daily expenses, retirement, and emergency spending. Doing so will mean you automatically set some money aside each month towards your savings.
5. Adopt the PayDay Savings Rule
Setting up a savings pot is a great start. Next, you need to ensure that you make regular payments into your savings account. A prudent thing to do is ensure these payments are made as soon as your wages arrive at your bank. This way, you will not be tempted to spend your savings on anything else.
Types of Money Pots
You can set up as many money pots as you feel you need to manage your finances efficiently. However, here are a few that we believe are essential:
Monthly Expenses Pot
This money pot is to cover your living expenses, such as regular bills, food, commuting costs, and so on. As you’ll need access to this money quickly and regularly, it needs to be kept in an easy-access account such as a current account.
You might decide to subdivide this pot into individual accounts for food, bills, transport, etc. Online banking and digital payments make it straightforward to establish your money pots. Often, you can receive discounts for setting up automatic payments. These will also remove some stress of trying to remember payment deadlines.
Short-Term Savings Pot
You might want to put some money aside to buy yourself something special such as a new phone, designer clothing, or some concert tickets. Putting money for such purchases into a savings account will allow you to benefit from some interest, albeit a small amount.
However, ensure you check how quickly you can access your funds and how many withdrawals you can make per year. Remember, this pot is for short-term savings, so you’ll likely need access to your money in months rather than years.
This pot is a bit like a short-term savings pot. However, rather than it containing money for the special things you want, your emergency pot covers unexpected things you have to pay. For example, if you have an appliance or car breakdown, your emergency pot will cover you. Ideally, this pot will contain two to three months’ worth of living expenses. To that end, it might take you some time to accumulate this pot, so don’t become disappointed if you don’t have it immediately.
Saving for your retirement is one of the most crucial money pots you can establish. The good news is, it’s likely you’ve already got a retirement pot on the go. If you are employed, over twenty-two, and earning at least £10,000 per year, you should be enrolled in a workplace pension.
These pensions come with a couple of significant benefits. First, on top of 4% of your gross salary that goes into your pension pot, your employer contributes at least 3%. Also, your contributions are eligible for tax relief. Therefore, another 1% goes to your pot rather than to the government’s tax funds. Effectively, you are receiving double the amount you contribute, which is a significant boost to your retirement.
Of course, you can also factor the State Pension into your retirement pot. However, at £179.60 per week, the full State Pension is unlikely to give you the retirement lifestyle you desire. Therefore, you should consider taking out a personal pension to ensure you have a comfortable retirement.
Be sure to bear in mind that not all personal pensions are the same. Some modern pensions will come with reasonable charges and high performance. Others, generally older ones, can have high charges that eat into your pension’s profits. Also, higher charges don’t always mean better performance, so you should consider transferring poor-performing pensions to another scheme.
If you have started saving, that’s great, as it means you are planning for your future. However, having a balanced savings plan will allow you to get the most from your money. Hopefully, this article will put you on track to a better, balanced savings plan.