Having savings can make a huge difference to your financial wellbeing. It’s the difference between knowing you have a cushion and knowing you’d need to rely on credit if you suddenly needed to meet an unexpected cost.
Deciding to save is a common new year resolution and it’s one that many of us could stand to make.
Research from the website Finder shows that 15 per cent of British people have no savings at all, rising to more than half of 22- to 29-year-olds. And one in three people has less than £1,500 saved, a far cry from the three months’ income cushion that’s so often recommended.
It can be hard to start saving, particularly if money is tight generally. The good news is that there are ways to build a savings habit in 2020 without feeling the pinch. Here are a few ideas.
Get a decent savings rate
If saving money is hard, it’s even harder when you only earn a pittance on your cash. Few accounts are paying well just now, but some are far more competitive than others.
Research from Ford Money shows that one in four people have never switched savings provider and that more people plan to do Veganuary than change savings accounts. But it’s simple to do and means your money will work harder – providing a bit more motivation to save.
Round up your spending
There are so many apps now that either provide a bank account or work with your existing current account to help you save without even noticing it.
Several apps and fintech banks offer the chance to round up your spending and squirrel the rest into a savings account. Monzo and Starling bank both offer this – you can set it up so that if you spend £1.80 on a coffee, for example, then the app takes £2 and saves the change.
Get some AI on your side
Some fintech firms use algorithms to make smarter savings that you can afford, so placing yourself in the hands of artificial intelligence could make a real difference.
There are a few different start-up banks that offer this kind of tech. Providers like Chip and Tandem work out what you can afford to save each month and transfer it out of your current account when you can afford it, so you don’t even need to think about it.
Use a jar
This is like the opposite of technology-based saving. If it’s genuinely difficult to set money aside then get a good-sized jar and start putting your change into it each day. It soon adds up to a more substantial amount.
Find a way that works for you. For example, you might decide to save every £2 coin that you receive in your change or every 50p. Small, affordable savings.
Set a small weekly target
If it’s hard to save because there’s nothing left in your account by the end of each month then set a small savings goal – it builds the habit and it soon adds up.
Ten pounds a week is the cost of a takeaway but it would add up to £520 over one year. If that’s not possible then save whatever you can – it might feel like small potatoes but over time it will become a more significant sum.
Set a goal
Why are you saving? Everyone needs a savings buffer but if there’s another goal you are saving for too then focus on that.
Is it to pay for a holiday? To clear some debt? For Christmas? While you are building a savings habit, having a goal in mind that makes you feel joyful can make a big difference.
Know your budget
If you are going to have some money spare to save then you need to know where your money goes each month.
That’s where a budget becomes essential – if you know exactly what your income and outgoings are then you can factor in some savings and potentially move that cash into a separate account on payday.
If you don’t have a budget for weekly spending then it’s much easier for your money to simply get swallowed up on daily expenses.
Cancel unused subscriptions
It’s very easy to suggest people save money by cutting back expenses elsewhere – how often do you see articles claiming that if you forego a daily coffee you will solve all your financial troubles?
The fact is that when you make savings in one area they very often just get swallowed up elsewhere. But unused subscriptions are the perfect way to save.
Comb through your current account, identify the payments you don’t need to make, cancel them and then immediately set up a regular transfer into your savings account for the same amount. You won’t even notice.
Check for government help
If you’re saving for a first home (or your eventual retirement) and you’re under 40 then you could make use of a lifetime ISA.
These accounts pay a 25 per cent bonus each tax year on deposits of up to £4,000 – that’s £1,000 extra if you can save the full amount. The catch is that you can only use it for a deposit on your first home or for retirement after 60.
Withdraw it for anything else and you’ll pay a penalty that works out at more than the bonus.
If you’re saving for other reasons, you can use an alternative ISA account, that simply protects your interest earned from taxation.
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