The 2018 Financial Capability Survey shows that on average 10.7 million UK adults rarely or never save, and around 11.5 million have less than £100 in savings. However, whilst better savings habits should be encouraged, having money or accumulating more wealth should not be an aim in itself. You should aim to have enough to do the things that make you happy. To achieve this, you will need to develop a savings strategy.
The first thing you should do is decide what the money is for, and how much it’ll cost. It’s all well and good having a savings pot sat there or putting money aside each month, but to get the most out of your money, you need to start by setting short-term and long-term goals.
So, if you’re looking to save or have savings already, here is the ultimate savings strategy to help you achieve your goals.
Setting short-term goals
Preparing for emergencies
What if you get hit with unplanned expenses? Well, this is why you should have an emergency fund so that you have a cash buffer to protect your other savings.
Make sure you have a sum set aside in an accessible savings account. Ideally, you should have 6-months’ expenditure earmarked for your emergency fund. Then, if something unexpected should happen, your savings plan won’t be derailed.
Dealing with any debts
Interest rates are currently very low, and borrowing has become relatively accessible for most. So it’s easy to see how you can fall into the borrowing trap.
Dealing with debts can be overwhelming and stressful, but as soon as you have a plan in place to start repaying your debts, the weight lifted will be a huge payoff.
If you’ve got savings, you should look at the option of clearing any debts, starting with those that are the highest interest first.
Plan for the next 5 years
Are you planning a holiday, house move or retirement soon? Do you need savings to help you achieve them?
Once you have a clear idea of your 5-year plan and how much it will cost, you can make sure you have the savings to do it, otherwise, you run the risk of never doing it.
Setting long-term goals
After you’ve built up an emergency fund, taken control of your debts and planned for your short term expenses, you should start thinking about the future. What do you want to achieve in the long-term?
‘Long-term’ saving is considered as saving for 5-years or more.
Set your savings target
Goal-setting is the key to helping you get to where you want to be, as well as keeping you motivated and focused along the way.
Your goals should be SMART – Specific, Measurable, Attainable, Relevant and Time-based. So, instead of saying ‘I’d like to move to a house with a bigger garden’, you should say ‘I want to save X amount to buy a house worth X, within the next 6 years’.
It might be worth setting up a savings account for your specific goals so you can easily visualise your progress. For instance, if you are saving up for a new house, name the account ‘house fund’. That way you’ll be consistently reminded of your goal so you’ll never lose sight of it.
Investing for the long-term
While bank accounts and traditional savings accounts are safer, the returns can be low. This is why investing may be appropriate when looking at achieving your longer-term goals.
When it comes to deciding if an investment is appropriate for you, getting advice from a qualified financial adviser is important; there are lots of things to consider when creating an investment plan.
Don’t just forget about it
Review, review, review! You should regularly check your financial position to make sure you’re on track for reaching your goals. For example, if you’re income changes, your savings plan will need to be changed accordingly. Your longer-term goals are more likely to change over the years and the path you take to get there also might.
Whether they are shorter, or longer-term goals, you need to make sure you can afford to do them and if not, make a budget for the extra savings.
Have a look at what your outgoings are compared to your incomings each month. If you can afford to make these savings with your current spending habits, then great. But if not, it’s time to see if there’s anywhere you can make changes. If you’re not sure where to look to make spending cuts, check out this list of 50 ways to save money.
Here is a useful, free budget planner that will allow you to monitor your household spending and help you take control of your money. The calculator will give you a detailed breakdown of your finances, after which, you can decide how much you can realistically put aside each month in savings.
If you want to gauge just how much you’re spending on non-essentials, try MoneySavingExpert’s demotivator tool. We bet that it’s a whole lot more than you would expect.
Also, don’t forget to check that you’re not overspending on the essentials. If you’ve been with the same utility providers for a long time, then you might not be getting the best value for money. Use a price comparison site to see if you could get a better deal.
Lastly, if you would like to discuss any aspect of this article or want to discuss your financial plan, then please get in touch with us and speak to one of our financial planners.