Saving for the future can seem like a daunting task if you’re on a fixed budget or low income, but there are a number of simple steps you can take to help
Work out how much you needThe first issue to consider is how much money you need in your rainy day fund. The general rule of thumb is that you should aim to have three months’ savings tucked away. That way, if you were to lose your job, or find yourself unable to work, you could comfortably cover your bills while you plan ahead.
If you have no savings at all that can seem like an enormous sum, but start setting a little aside regularly and you’ll soon start to build up a healthy savings pot. Just a few pounds a week will make a meaningful difference, and can eventually build into a nest egg worth thousands.
Period £20 a month £50 a month £100 a month 1 year £240 £600 £1,200 5 years £1,200 £3,000 £6,000 10 years £2,400 £6,000 £12,000 20 years £4,800 £12,000 £24,000
Track your spendingIf you don’t believe you have any money to spare for saving, try tracking all of your spending habits for a month. By writing everything down or logging things in an app on your phone, you may well identify areas where you are overspending, or things you can cut back on. The resulting money saved can go towards your nest egg.
Following a study into budgeting, Royal London’s former Director of Policy, Steve Webb, said:“What was interesting about our research project was the way in which the simple act of monitoring what you spend every day or week made some people more aware and put them more in control of their finances.”
Decide where to put your savingsOnce you’ve worked out how you’re going to set aside a little cash each month, the next step is deciding where to put it. The answer to this depends entirely on what the money is for. If you’re building up an emergency pot that you may need to access in a hurry, then an instant access savings account is likely to be your best option. Just make sure to hunt around for the best possible interest rate so your money’s growth is given a helping hand.
Alternatively, you might want to consider a regular savings account. These accounts pay a higher interest rate than normal savings accounts as long as you pay in a small amount every month. The structure can really help you get into a savings habit.
If you’re saving for a specific event that is more than five years away, such as a wedding or your child’s university fees, you may be better off saving with investments instead. While past performance is no guide to the future, historically stock market investments have outperformed cash over the long term. You don’t need a big lump sum to start investing in the stock market – many investment companies offer accounts that allow you to make small regular deposits.
Keep an eye on your moneyWherever you decide to build your nest egg, make sure you keep an eye on it and regularly assess how it’s growing. Ensuring that you’re constantly getting the best returns possible will help speed up your savings growth.
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