Usually, whenever we talk about saving, there’s an expectation that we are saving money for a purpose. It could be saving for a mortgage (or certainly a mortgage deposit). It could be saving for a car. Or perhaps it could be saving for your child’s future. Whatever the reason for putting some of your hard earned cash into a separate pile and labelling it “do not touch”, it’s a reason you understand and can stick to.
However, life isn’t about to let you get on with things so easily. Life is waiting to throw unexpected expense after unexpected expense at us, and for that, you need backup (for example, see this website for ISA options). Depending on the stage of life at which you find yourself, you might need financial backup to cope with college fees, engagements, new babies, wedding costs, home maintenance, car maintenance, travel, care home costs, funerals, veterinary bills, divorce, any necessary legal fees (e.g. litigation), and even just having the ability to take up a fun new hobby that may require considerable startup costs. Let’s look at how to save for whatever life throws your way.
Save 20% of your income
Saving 20% of your income is part of what has become known as the 50 / 30 / 20 rule. Now, before we get into it, the things to remember is that these figures aren’t exact, and many people may find that their income simply does not allow them to stick to the 50 / 30 / 20 rule. That’s fine. Perhaps with careful money planning, improved career opportunities, and time, you may be able to come close to – or even achieve – these figures. The way it works is simple. Spend 50% of your money on bills, 30% on necessities like food and fuel, and save the remaining 20%.
For those snoozing in the back row, let’s make quick sense of this ‘save 20%’ rule. It means that over five months, you will have saved a complete pay day. And within a year, you’ll have saved two complete paydays, with almost half of a third payday on top. Annually, that’s quite some savings.
If you can’t earn more, try to spend less
The world would be a much more agreeable place in which to live if everybody had access to untold fortunes. Alas, it’s a long way to the top, and not everybody starts out with the same opportunities to get there. So, the harsh reality is that if your earning potential is still finding its way towards maximum capacity, cutting costs can be just as important as increasing your income. This is a simple fix that shouldn’t take you too long. First, open your banking app or look at your last bank statement. Next circle everything that isn’t a bill.
What you’re left with are your personal expenses. This could be lunch every day from the deli by work. Streaming services and gym memberships. Takeaways. Clothes. Nights out. If you want to hit your savings goals, you need to start drawing a real world red line through some of these expenses.