Saving money has always been a shrewd part of household financial planning, and often requires active work to do well. In the current economic climate, saving has simultaneously become harder and more important than ever. For those who struggle with saving at the best of times, what are some key tips for achieving that savings goal?
Simplify and Specify
Saving becomes a much more difficult endeavor than it needs to be when your savings goals are ill-defined or nebulous. To say ‘I want to save more is reductive, and does not properly reckon with your immediate and future financial situation. Meanwhile, to the harbor, multiple disparate goals, including car and home ownership, is to spread yourself too thinly and complicate your efforts.
First, start with the purpose of your saving efforts. Are you saving for retirement, for property, or for emergencies? Next, turn your savings goals into succinct, single, and specific sentences. Do you want to buy your home outright, or do you want to save a set amount for a mortgage? Are you aiming to save a set amount before retirement? If you have more than one ambition, pick one to prioritize.
Create a Dedicated Account
Knowing which savings goal is your biggest priority, you can take steps to make that goal more of a reality. Rather than relying on your existing financial implements to achieve your savings, you should utilize new products and services that are separate from your main, day-to-day finances and expenses.
If you are saving towards a large purchase or investment in the medium term, you can place your money in a limited-access savings account to benefit from a higher rate of interest; this way, your money accrues its own value more meaningfully. If your money is specifically for a home, a Lifetime ISA would be a better fit owing to the government subsidy it provides.
Long-term and retirement savings, meanwhile, can benefit from being placed in pension pots; maximizing your pension contributions as opposed to sequestering the money yourself can increase your post-retirement spending power more.
When it comes to the active saving of cash from your income, it is important to understand the impact debt has on personal finances. Attempting to save while holding debt is counterintuitive, as the interest rates of even high-yield savings accounts will never outstrip the interest rates on credit cards or bank loans. The sooner you pay off debt, the sooner you can save more meaningfully.
Track Your Finances
Lastly, in order to maximize your savings potential you need the full picture of your monthly finances. Building a spreadsheet for your income and outgoings can help you track every cost and expense, and form more of an understanding of your household spending habits. Through this, you can identify where is best and safest to cut back.