Having savings gives you financial security, acting as safety net for unexpected emergencies. Whether these crop up in the form of a broken boiler, a mechanical issue with your car, or emergency new trainers for your child that lost theirs, having a pot of money you have saved up to meet these costs means you can breathe more easily.
Alternatively, savings can be used to achieve long-term goals such as going on a holiday, or buying a home. Slowly saving to work towards achieving those goals is the best way to ensure you can get what you want from life, without putting yourself into debt.
Savings should be thought of as “paying yourself first”. Setting up a standing order which sends money to a savings pot on the day you are paid by your employer will allow you to grow your financial security net, without you really noticing.
Firstly, you should aim to set up an Emergency Fund, which should be to the value of 1-3 months’ worth of necessities. Should the occasion arise where you are unable to work, for whatever reason, this will tide you over. It should cover your rent/mortgage, bills, groceries and other direct debits that you must continue to pay for a period of time. It should be easily accessible – like in an easy access savings account – and if you dip into it to cover something else, like a new appliance, it should be topped back up again. It is also important to note that you shouldn’t put more that six months’ worth of essentials into an account like this, as it probably won’t receive a very good interest rate, and over time will devalue with inflation.
Your next step is to set aside money for the short term – this is where you will have a savings pot for next year’s holiday, or an upcoming wedding, or even a Christmas fund that you add to over the course of the year to spread out the cost. If you use internet banking, it is likely these shorter-term savings pots can all be named for the reason you’re saving, so you can see how much you have in your ‘Holiday’ pot as summer gets closer.
Finally, you can start a long-term savings account, which we would recommend be invested. These funds are going to be set aside for 5 – 10 years, and over the longer term investments generally out-perform cash savings. These savings will generally be used later down the line, to make your retirement more enjoyable, fund an extension, or to help out your children with stepping onto the housing ladder.
Having any sort of savings will bring you peace of mind, knowing you have a net to catch you should you need it. Currently, 16% of adults in the UK have no savings at all, and a significant portion (39%) only have £1,000 or less.
