Regularly saving money can be advantageous in many ways. The most important factor is that you can put by some funds for a rainy day. In emergency situations, you have that money to fall back on instead of applying for costly short-term consumer loans.
Saving money is also beneficial for your long-term saving goals. Whether you’re saving for a new car or for a wedding, saving works out much cheaper than personal loans. Although the online loans UK market is huge, it is a long-term financial commitment which can affect your budgeting for years.
So, how can you get into the habit of saving money?
Set your goal
Research has shown that people are more likely to save when they have a goal. This could be short term (saving for a fortnight in the sun), long term (putting cash by for the deposit on a home) or could be both. You’re less likely to ‘cheat’ through impulse spending if that goal is set firmly in your sights.
You should also set a specific date so you can plan your budget accordingly.
How much to save?
How much you save depends on your spending habits and the goal/time frame you have set for yourself.
The decision to save is a golden opportunity to re-examine or create a budget. You should go through all your expenditure to see how you can reduce the amounts you pay in all sectors. Although it is much easier to find ways to cut down on your discretionary spending, you can still economise on priority bills (like electricity) if you’re prepared to make some lifestyle changes.
Some financial consultants swear by the 50-30-20 rule. This is a strict allocation of your income: necessities (50%), non-essentials (30%) and saving (20%). You might find that you can only afford to save 5% but you could always slowly build up this amount as saving becomes a habit.
Once you start saving, this should be treated as a priority. You should arrange for the money to be transferred to your savings account as soon as you are paid. If left to the end of the month, you might find that the money has been spent.
The best savings account
The type of savings account that you open depends on your reason for saving. Saving for an emergency fund requires you to have instant access to your cash. If your saving goal is long term, it might be better to have a fixed-rate savings account where your money is tied up for a set period. Accessing it might involve paying a withdrawal fee.
Many financial institutions offer promotional offers for new savers. You could take advantage of their bonus scheme for the introductory period. However, you should remember to change banks when the scheme comes to an end.
Apart from looking at the tempting goodies on offer, always compare the gross rate and the AER (Annual Equivalent Rate) when looking at the interest rate.
Depending on your financial/personal circumstances, you might be eligible for one of the government’s saving schemes like ISA. This contribution can help you achieve your saving goals much faster.
The rules for consumer borrowing are becoming more stringent with an effect on the UK acceptance rate. Instead of depending on loans, it makes better financial sense to save.