4 A savings buffer for life’s uncertainties
The rising cost of living has put substantial pressure on household finances making it difficult to save money. But, if you possibly can, putting some money aside regularly will help you deal with life’s financial shocks.
Keep the money in an account where you have instant (or ‘easy’) access to the money when you need it. Avoid fixed-rate accounts as you may incur a charge if you withdraw funds to pay unexpected bills.
You should ideally aim to have tucked away the equivalent of at least three months of household spending. But if you have dependents and/or your work is less secure you may want more. Having this available means that there is no need to panic if events result in unexpected bills or if you are temporarily unemployed.
So check your position. How much cash do you have in a rainy-day fund? Is this above or below the three months’ target?
Try to get into the habit of putting money into your savings account as soon as you receive your monthly pay – even if it’s just £10 or £20 a month. If you wait until the end of the month, you risk finding that you have spent the money instead.
What should you do if you haven’t got a savings buffer and have no current scope to save? Perhaps your income is fully taken up covering living costs?
Some people in this situation can make small savings through minor changes – which can add up over time. For example, some people use mobile apps to round up debit card and digital purchases to the nearest pound, moving the extra pence to a savings account.
You might want to look at sites like MoneySavingExpert [Tip: hold Ctrl and click a link to open it in a new tab. (Hide tip)] for some tips and tricks.
Additionally you could look at how you could trim your spending to provide more scope to save more – both for your rainy-day fund and perhaps for your pension too. We’ll look at this next.