There are many ways for you to save your money. You could keep it all in a current account, savings account, pensions, ISAs, or other savings vehicles.
If you’ve already started saving using one or more of these methods, then you can pat yourself on the back. However, it is crucial to diversify your savings, so read on to discover the importance of having a balanced savings plan.
The Importance of Saving
At times of economic uncertainty, or even when you have other spending priorities, it is reasonable to question the utility of saving. You should understand that putting some money aside for the future will provide you with reassurance that you can deal with unexpected occurrences and more financial freedom.
Best Ways To Save Money
Saving money might seem like hard work. However, following some straightforward tips will help you save and achieve a balanced savings plan.
1. Make It Realistic
Everyone is different in terms of their income, aspirations, and lifestyle. Therefore, you should set a savings target that’s realistic to your situation. Trying to match the savings goals of friends or family members may not be practical. It could also lead to you suffering setbacks and losing your motivation for saving.
2. Save Small Amounts Often
Saving small amounts regularly, rather than a single more considerable sum infrequently, is the best savings habit to adopt. Doing so will lead to less pressure, so you are more likely to stick to your savings plan. Also, you will soon notice the small sums adding up to a significant amount, which will provide you with satisfaction and motivation to continue.
3. Embrace Your Inner Thrift
There has never been more pressure to spend money than today. We are constantly getting bombarded with advertisements and recommendations for various products. However, modern technology also allows us to shop around easily and quickly for the best deals. Therefore, use comparison sites to check out the best price and search for deals across the web before purchasing.
4. Harness the Power of Pots
Segregating your money into different pots is the best way to achieve a balanced savings plan. You can have a pot for short-term saving and one for the longer term. You’ll also benefit from having other money pots, such as those for day-to-day spending and emergency funds. More on this later.
5. Adopt the PayDay Rule for Your Savings
When you’ve got your money pots set up for your savings, you need to ensure that you have money available to go into them. It is easy to think that you’ll save whatever you have left at the end of the month. However, a better way to save is by adopting the PayDay Rule. As soon as your pay arrives in your bank, put some money into your savings accounts. Doing so will guarantee you prioritise saving over random spending.
How To Save Into Money Pots
We mentioned the power of money pots earlier, so here is more detail on this concept, including savings pots and spending pots.
It makes sense to separate the money you’ll need daily from that which you want to save. Therefore, create a money pot for your daily spending. You can use this for expenses such as food, transport, and regular bills. As you’ll need instant access to this money, it makes sense to keep it in a current account.
Depending on your level of spending, you might want to subdivide this money pot further. For instance, you could have separate pots for food, utilities, commuting, entertainment, and so on. It is easy to divide your money with online banking apps, and it allows you to stay in more control of your overall spending.
You may well have some short-term savings goals, such as a holiday, large appliances, new clothes, etc. For these expenses, you should aim to keep your money somewhere that will provide you with a bit of interest. A savings account is an ideal vehicle for this money pot. However, these sometimes come with restrictions, so check out the conditions before tying your money up too much.
Although you might consider bundling this pot together with your short-term savings pot, it may be a good idea to keep them separate. Hopefully, you will not need to use your emergency pot. However, if you do, you will likely need instant access to the funds to cover breakdowns or other emergencies.
Your retirement fund is crucial, and this pot is for the long-term. Therefore, you will benefit from a long-term investment such as a pension scheme. The good news is that you probably already have one, or more, on the go.
Personal and Workplace Pensions
If you are employed in a job paying over £10k a year, and you are aged twenty-two or over, you should be enrolled into a workplace pension. You may not be aware that you are in such a scheme, and that is because of a process called auto-enrolment.
This process means that your employer must place you within their workplace pension scheme automatically. Four percent of your gross salary goes into your pension pot, and this is added to by a further 1% in tax relief from the government. Your employer makes contributions equivalent to at least 3% of your salary. Therefore, an amount of around 8% of your gross salary goes into your retirement fund, which is a considerable amount of money over your career.
You might also have a personal pension, and the importance of these, alongside workplace pensions, is becoming more crucial with the demise of final-salary pension schemes. Pensions promise to pay you an income when you retire, so you should try to pay as much into these as possible to give you a comfortable retirement.
The State Pension
Of course, you will probably receive some level of State Pension. To receive the full amount of State Pension, currently £179.60 per week, you must have made thirty-five years of National Insurance contributions. Even if you do receive the full pension, it only provides an annual income of around £9,339. Therefore, if you want to have the retirement of your dreams, you will likely need other forms of retirement income.
If you already have a personal pension, you should understand that these schemes can vary greatly. Therefore, it makes sense to review your pension fund regularly. If you aren’t particularly confident in assessing the investment of your pension, you can seek the services of a regulated financial advisor to help you with this.
If you’ve already started to save, that is fantastic. Now might be the time to go to the next level and create a balanced savings plan that will look after your short-term needs, emergencies, and retirement provisions.