Why you should save
Saving is often seen as a luxury. After all, don’t we have enough immediate demands on our cash without having to worry about putting some aside for the future? But saving should be a priority for two reasons. Firstly, you need emergency cash for those ‘what ifs’ – What if the washing machine explodes? What if you lose your job? Secondly, you need a nest egg for life’s big expenses such as house deposits or weddings. And once you get into the savings habit, it’s surprising how quickly your funds build up and how secure it makes you feel. As Woody Allen remarked: ‘Money is better than poverty, if only for financial reasons.’
If you are saving for something specific, work out how much you need to put away each month to be able to afford it. Then save a little extra on top. This will ensure you can cope with inflation – if the cost of the car, home or holiday rises in the meantime, you will still be able to afford it. Our inflation danger calculator can help you plan for price rises.
TIP: If you are saving for emergencies you should aim to have a minimum of three months’ net salary put aside. Six months would be better. If you can’t afford this much, then save as much as you can afford.
Take an honest look at your finances and make a list of your monthly fixed costs. It should include mortgage or rent, council tax, utility bills, telephone, travel costs including petrol, and any other bills that you have to pay regularly. Then take into account any bills you pay annually, such as TV licence, car insurance, home insurance and water rates. Divide the annual amount by 12 to get the monthly cost. Then work out your other living expenses. For example, how much do you spend on food each month? You should also come up with a realistic spend on clothes, entertainment and hobbies. Our household budget calculator lets you track exactly where the money goes every month.
When you’ve got your monthly spending total, compare it with your net monthly salary. Hopefully you will find you have some cash left over to save but if you are spending more than you can afford, you need to find ways to cut back.
TIP: Have a clear idea in your mind why you are saving. Set targets and deadlines on the way to your goals and then you will quickly feel like you are making real headway. It’s a good idea to set up an automatic payment from your current account into a savings account.