3. Saving

Why it’s so important to save small amounts regularly and how to start doing it

Saving can seem daunting and isn’t much fun, especially if it’s just for a rainy day. However it may also be the single most important step you can do for your and your family’s financial wellbeing. Take the Savings Challenge and see for yourself!

Unexpected events happen to all of us throughout our lives, without warning and often with a financial consequence, yet we systematically underestimate how likely these are to occur. Could you cope if your car broke down? How about if you or your partner fell ill and were unable to work? What would you do? If you’re not sure, you’re not alone – 41% of UK households have no significant savings, while 80% would be unable to cope with a major shock. Yet research suggests having even a small amount set aside in case of an emergency is one of the biggest barriers to people falling into financial difficulties and works out cheaper in the long run.

Starting to save is easier than most people think. Almost everybody can afford to save a small amount, even just a few pounds, and by doing so regularly and getting into a habit it can quickly add up.

Step 1: Create a budget and decide how much you can afford to save. 10% of your income can be a good rule of thumb, though any amount can make a difference, even just 1%. If you’ve got this far you’ve already created your budget, though you may decide to revisit it.

Step 2: Open a savings account. Here are some places you can go to do that online:

It can be useful to set up a different account for each goal – one towards a holiday, one towards Christmas costs, etc. Always have one saved in case of an emergency.

Step 3: Set up a standing order that comes out just after you’re paid. You can then forget about it and just focus on trying to keep to your budget. Or you can watch your savings grow knowing it’s there in case you need it.

The Savings Challenge

The Savings Challenge is simple: work out how much you can afford to save each month, write this down, and commit to putting that amount into a savings account for three months. After three months you can see whether you found it manageable and if it works for you. If not you can always return to your old budgeting habits, but if so then you’ve taken the first major step towards financial security.

Now move to the next section: Debt