ISAs, savings, and current accounts are just a few of the places you can keep any
spare money you have at the end of the month. If you are already doing so, that is
great as it means that you’ve already started saving.
A key consideration to ensure you are maximising the growth of your saved money is
to have a balanced savings plan. Having one will enable you to enjoy life in the
present while preparing for life in the future.
Why Should You Save?
At times when money is tight, this can seem like an excellent question. However,
money is a crucial factor in how you live your life and how you will live in your
retirement. Putting a little bit of money away will help when it comes to you covering
significant events, small luxuries, or unexpected emergencies. Ultimately, savings
will provide you with a greater degree of financial freedom.
Recommended Way To Save Money
Saving can be challenging, especially since spending money is more fun than putting
it aside. However, if you follow a few basic recommendations, it will make your
savings endeavours easier and turn it into a habit.
- Set Realistic Goals. Everyone has varying lifestyles, incomes, and spending
habits. When you are setting a savings goal, you should base the amount you set on
your situation rather than some arbitrary figure. Setting an unrealistic goal means
that you could be setting yourself up to fail, which could cause you to give up.
- Save Little and Often. Rather than setting a large, potentially unachievable
savings goal, decide to save a small amount but on a regular basis. Saving little and
often will take the pressure off your saving endeavours and make it more likely that
- Become a Little Bit Tighter. There are few limitations on the opportunities to be
parted with your money. Bills, entertaining, food, travel; the list goes on. One of the
most significant benefits of the Internet for consumers is the ease with which it allows
you to compare prices. Start doing so for everything you are spending, and you’ll find
that you have more cash available to save.
- Create Different Money Pots. Having different money pots for the various things
you spend your money on will help you manage your finances and savings better.
For instance, you could have one pot for your daily expenses. Another pot could be
for storing some cash for an emergency fund. Or, one might be where you put your
monthly savings. There’ll be a bit more on money pots later on.
- Adopt the Payday Principle For Your Savings. This principle means that you
put some money into your savings pot as soon as your wages go into your bank
account. Doing so will mean that you won’t have an opportunity to spend the money
before saving it. Doing this for all your pots will help you understand how much
money you have left for the remainder of the month.
More on Money Pots
We briefly mentioned the benefits of having money pots earlier. Here are a few
different money pots to consider setting up:
Everyday Expenses Pot
This money pot should contain sufficient funds to cover your daily living expenses
such as food, bills, commuting costs, etc. You will need immediate access to this
money, so it should be kept in a current account. If you can find a current account
that offers some interest, any money you have remaining at the end of the month
has a chance to grow.
You might want to consider sub-dividing this money pot into several smaller pots.
Subdividing in this way is an excellent aid for staying within your budget. Where you
can, set up automated payments or direct debits for bills and other regular payments,
as these typically qualify for discounts.
Short-Term Savings Pot
In this pot, you can keep money that you’re saving for more significant financial
outlays such as large electrical appliances, holidays, or special events. A savings
account is an excellent choice of where to keep this money. As you may not need
access to the funds immediately, you should consider any restrictions on taking your
Emergency Funds Pot
As the name suggests, you will not know when you’ll need this money. However,
when you need it, you’ll need it immediately, so the best place for it is a savings
account that grants immediate access. Doing so will mean that you’ll get some
interest accruing on your money if you don’t use it.
The size of your emergency fund will depend on your lifestyle. However, in general, it
should be sufficient to cover your bills and living expenses for three to six months.
Don’t let this figure disturb you, as you should aim to build it up over time.
Retirement or Pension Pot
Your pension pot is a crucial part of your balanced savings plan. It is likely that
You’ve already made a start to saving for your retirement. Recent changes to auto-
enrolment into workplace pensions mean that you are building up your pension as
If you are employed, more than 22-years-old, and earn over £10,000 per year, your
employer is obliged to enroll you into a workplace pension. Having a workplace
pension means that 5% of your gross salary goes into your pension pot. However,
this is tax-free, so one-fifth of this amount is money that would have normally gone to
the government. Your employer also contributes an additional 3% of your gross
salary amount to your pension pot. Both you and your employer can contribute more
than these minimum figures if you wish.
It is now more crucial than ever to have a personal pension because of the decline of
final-salary pension schemes. These schemes guaranteed to pay you a set amount
in your retirement, which made them incredibly valuable. However, their value also
made them costly for companies to maintain. As a result, they are now rare.
There are various types of private pensions to which you can contribute. However,
some will perform differently to others, and the charges can vary significantly
between pensions. Whichever pension you take out, you should conduct regular
checks to ensure it performs as planned and that the charges are not rising
The State Pension
Depending on how many years’ worth of National Insurance contributions you’ve
made over your working life, you will be entitled to a certain level of State Pension.
Currently, the full State Pension is £179.58 per week, which equates to an annual
income of just over £9,000.
You should carefully consider if this will be sufficient to sustain the lifestyle you want
in your retirement. If it is not, you should consider setting up some other income
sources for when you retire.