As a nation, we don’t save enough money. Recent figures showed that the UK’s savings ratio has fallen to 1.7 per cent – which is now the lowest figure since records began in 1960.
For context, the average over the past 30 years has been about 8 per cent. America, where savings rates are traditionally lower, has a 5 per cent savings ratio while in Germany the figure is 10 per cent of GDP.
The reasons for this drop are many. Interest rates are at an historic low – meaning that there’s little return to be had from savings accounts – and incomes have fallen or stalled in the aftermath of the banking crisis of 2008/9. On top of that the cost of living is creeping up – meaning that many families are searching for ways to maintain their standard of living.
But saving is still important and necessary. It’s all about recognising when the time is right – and the benefits to be had from outing funds to one side. But, when is the time right?
Make habit of it
Ok, the first thing to note is that you should actually look to make saving a regular habit. Aim to save at least something from every pay packet – maybe set up a standing order to an account to ensure you will do this. A small rainy day fund could be incredibly useful if your car breaks down or you get hit with a big bill out of the blue, for example. It’s worth noting that saving £3 a day will earn you more than £1,000 in a year.
While it would obviously be nice for this money to grow, the most important thing about a rainy day fund is that it’s a ring-fenced pot of money that you turn to in emergencies. Since you never know when an emergency might occur, you should start this as soon as possible – and look to replenish it whenever you need to dip into your fund.
When you’re confident about an investment
Your rainy day fund should be your base level of saving – and should happen as a matter of course as part of your regular monthly budget plan. However, it’s important to try to put some extra money away if you can. In order to do this you need to research all of the different products open to you – from stocks and shares ISAs to investments in the markets – and ensure you understand any risk they entail, the access you’ll have to your cash and the length of time you’ll hold the investment for. In an era of low interest rates it’s even more important than ever to look around for the best performing products – and you can even activate a trial account with some trading platforms if you’re nervous about putting your money on the line. If you’re clear about what you’re doing and you can afford to make an investment then the time is right to go ahead and make your money work harder for you.
When you’ve got a clear goal
Want to get married? Keen to jet off on a great holiday? Fancy a better car? Want to get on or up the housing ladder? All of these things in life are expensive and need to be carefully planned. Settle on a target and work out a plan to get there. Once you have a clear goal, settle on a plan and start putting money away to be able to afford it. As soon as you prepare for a big life event, it’s time to begin.
In essence then, setting money aside is about three things:
A regular monthly habit to establish a rainy day fund
Investing to help your money to grow
Gathering together the funds needed for a major life event
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