Let’s talk savings. 💸
It’s a bit like flossing your teeth sometimes – you know you should be doing it, professionals tell us it’s a good idea, it’s not complicated to do and yet…sometimes we just don’t.
With that analogy fresh in our minds: how to make savings more like brushing your teeth? Automatic, regular and minty fresh (ok maybe not the last part).
The first items to keep into account are your financial goals and your own circumstances. Do you want to build up enough for an emergency fund? Are you thinking of buying a house? Are you planning to retire at 40?
The next step is to take a look at what you earn after tax and your spending: how much you have left after you’ve paid all of your outgoings, how much you can realistically afford to save and what you would do in a financial emergency.
There are some great tools out there to help you budget, such as YNAB, Wally or even the summary tab of your Monzo account (unfortunately it’s true, you really did spend that amount on Deliveroo last month 😬) to help you work out where you’re up to.
The 50/30/20 Rule
After you’ve reviewed your spending, one of the easiest ways to think about how much to save is the 50/30/20 rule. This splits your spending into needs, wants and then savings/debt repayments, with the relevant percentages as a rough guide to keep it manageable.
This is a rule of thumb, so remember that it may not work for everyone and it vastly depends on your own needs and circumstances. Here’s how the rule recommends splitting your spending:
- Needs – should make up no more than 50% of your earnings. This is the stuff you have to pay as not doing so will negatively impact on your life; like groceries, rent or a mortgage payment, utilities, car insurance etc.
- Wants – should make up no more than 30% of your earnings. These are the things you can forgo with minor inconvenience but are still either fun or pretty necessary (like Netflix and nights out, the minimum payments on your credit card)
- Savings/repayments – should make up at least 20% of your earnings. Repaying debts, saving money in your emergency fund, overpayments on your mortgage and pension savings should come under this category.
You + Savings Goals = Easier Saving
It’s easier to save money if you have a real reason to save. Your goals could be short term – like travel, home improvements, building up an emergency fund – or they could be long term – like saving to retire or buy a property. They could even be somewhere in the middle, such as paying off those pesky student loans.
Whatever your savings motivation is, your goals are only meaningful if you keep track of them and check in regularly. Be realistic and keep an eye on your progress but don’t beat yourself up if you don’t quite hit your target in the timeframe you had planned. Sometimes life happens, but that’s no excuse to hit the brakes completely – keep going until you reach that goal. 🎯
Where to keep your savings
There are lots of options available when it comes to savings. We definitely recommend keeping your cash safe, secure and protected in a financial organisation. The type of account you save it in also needs fits in with your savings goals (as well as your circumstances and attitudes to risk of course).
If you’re saving for an emergency fund, you want that money to be accessible in the event of an emergency. Locking it away in a fixed-rate bond for 10 years probably doesn’t make the most sense here – you’re not necessarily looking to earn lots of interest, you just want to be able to get your hands on some cash should you need it.
A regular saver account can be a good middle-ground for when you’re saving for a short to medium term. It gives you more interest than an accessible current account, but fewer penalties if you do want to withdraw and, as the name suggests, you can save regularly.
Saving for the longer term? You probably want to maximise the amount that’s in your account. Often, saving in a longer-term product or a product that has a higher risk (i.e. there’s a chance that you can lose money as well as gain) can offer higher returns.
Investing can be the way to grow your savings over time, and there are lots of different ways to do it. You can invest in gold, put your money into a tax-free Stocks and Shares ISA or look at setting up an investment portfolio of your own to name just a few options. If you’re looking to buy your first property, a Help to Buy ISA can be a great way of growing your savings thanks to the 25% government bonus up to the value of £3,000.
Some tips to save 20%
We’ve talked about saving the 50/30/20 rule of thumb and how your savings should be 20% of your income but… how? Here are three easy tips to help you hit those savings goals:
- Pay yourself first – before you pay for anything else, take 20% of your salary the minute it hits your account. Then send it directly to a separate account where you have your savings. Then you’re free to spend the rest of the money!
- Go back to the budget – remember that budget you made? Take another look and work out if there are any areas that you can cut just a little to help you reach your savings goals.
- Get the app – there are apps that round up your spending to the nearest £, and put the difference into a savings account. This means you get to save while you’re spending!
There isn’t a ‘perfect’ amount to be saving each month; there isn’t a one-size-fits-all solution and it will all depend on your unique lifestyle, needs and goals. A rule of thumb is a great starting point to start to build up your savings and look at ways to make your money work harder for you, whatever your goals are.
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