Perhaps, like many of us, you have a vague feeling that you should be saving – but haven’t thought clearly about your objectives, or how much you can really afford to save. And even if you are managing to put some money aside, it’s important to think carefully about what you’re trying to achieve with your saving – and whether you’re saving enough.
Ask yourself a couple of questions…
Can you afford to save?
All of us need a 'rainy day' fund at the very least. But perhaps you have urgent demands on your cash, or have debts which you might be better paying off first.
Are you saving now - and if so, could you save more?
It could be that you started saving a few years ago, but haven’t reviewed the amount for a while. Maybe you could manage to increase it.
I just don't know where my money goes!
To answer these questions, you need to know where your money is going now, and whether you could rearrange your finances so you could start saving, or save more.
My budget planner could help here. It’s a simple online tool to help you find answers to the age-old question of where your money disappears to each month!
Identify where you can save
Once you’ve got a clearer idea of your regular expenses, it’s worth drawing up a list of ‘must haves’ and ‘nice to haves’ so you know where you might be able to do some economising.
|Must have||Amount per month|
|Gas & electric||£109|
|Transport to work||£194|
|Nice to have||Amount per month|
You might look at one of your ‘nice to have’ items such as your working day latte and think ‘OK, I could do without it... but would it really make much difference?’ In fact, it’s surprising how small savings can add up.
Here’s an example...
You drink one cup of latte every working day from your favourite coffee shop. Let’s say it costs £2.40
Instead, you brew yourself a cup of similar quality coffee at home or work. We’ll estimate that this saves you £37.50 a month, or £450 a year.
You put the savings into a deposit account with average earnings of 1.5% interest (and leave the interest in the account)
Over the next decade, the £37.50 saved each month would grow into £5,022.24. This could be a car. Or money towards a deposit on a house.
That one cup of coffee can really add up.
You can use our ‘cut back and save’ calculator to see for yourself how small economies can lead to big savings. Give it a try:
What are you saving for?
Splitting up your objectives into short term, medium to long term or planning for your retirement will help give you a clearer picture of what you’re trying to achieve – and help you decide on the kind of savings products you need.
Whatever your objectives, it’s important to get into the habit of saving. In the long run, the ‘little and often’ approach often works better than saving hard for a few months and then losing your focus.
Trips and holidays... a new washing machine or TV...
Medium to long term
A new kitchen or other big home improvements, a family wedding or a new car perhaps.
Planning for retirement to help you enjoy the lifestyle you’d want for yourself when you’ve finished working.
Keeping a ‘rainy day’ fund
Even if you don’t have any specific objectives for your savings, it’s important to have something put aside for that ‘rainy day’ we all talk about just in case the unexpected happens. It’s good to know that you’d be able to cope with issues such as a car or boiler breakdown, or being prevented from working for a while.
Saving for a specific reason?
If you’re saving for a specific reason, you might have a set amount in mind which you need to save. If so, set regular goals and review them often to see how you’re progressing towards your target. But do make sure you’re being realistic. Remember, you may find it worthwhile talking to a financial adviser for advice that’s based on your own circumstances.
Thinking about saving for your retirement? You could also consider starting a pension.
You’ll find more information here:
If you already have a pension and want to get an idea about much income you might have when you retire, take a look at My retirement planner
Saving... or investing?
An important decision: whether you save your money in an account where your capital is secure, or aim for greater growth by investing in assets which could rise or fall in value, meaning that your capital is at risk.
What you decide will depend on how comfortable you are with the idea of risk. Take a look at this section of our website for more information:
Investments: Lump sum or regular payment?
Depending on the type of investment product you choose, you may be able to choose either to:
- Pay in a lump sum, or
- Pay in a regular amount, say once a month.
Both have their merits, so your choice should depend on your own circumstances...
- Let’s say you’ve received a bonus and want to invest it. By contributing a lump sum you’ll be getting the benefits of any potential growth immediately. Remember the value can still go up or down and it may be worth less than has been invested.
- If you don’t have a lump sum, you may be able to make monthly contributions. This approach can be a good way to get into the habit of investing – and, over time, your regular contributions may grow.
- Of course, if you’re new to investment you might not feel comfortable investing a lump sum and might simply prefer to ‘drip feed’ your money on a regular basis.
Unsure what to do? You could always split some of your money between a lump sum investment and regular contributions. Again, you may like to speak to a financial adviser if you’re not sure how to approach this.
If you’re wondering about the different types of accounts you could pick, we can help: