It is alarming that a shockingly huge percentage of people in the UK have no savings at all. According to a FCA survey, one in ten individuals have zero savings – and only a third have at least £600 saved up for a rainy day.
Saving up for a rainy day was crucial even before but now, in the wake of a global pandemic, uncertain economic situation, and rampant pay cuts and furloughs more people are realising that savings aren’t optional: these days, having a rainy day fund is a necessity.
It’s never too late to begin saving. In fact, now is the perfect time to save up for the costly winter season ahead. Besides, recent events have shown that the decision to save up, plan ahead, and smartly manage money can help people weather through financial hardships and tumultuous times.
So, if you are wondering how to save or how much to save this article is for you. Let’s begin with the basic questions
Why Do You Need Savings?
Unexpected events can happen any time and having a pool of savings can keep you from spending more money than you have and getting into debt. Saving up for a rainy day is a smart plan, especially if you factor in the uncertainty introduced into our lives by the pandemic.
Planning ahead and creating a rainy-day fund is one way to manage and minimise any future risk. Having a savings budder will protect you from high-interest, short term financial solutions like payday loans and costly APR in event of an emergency.
Having a savings pool can tide you over many major life events. These include:
- Breakdowns, Maintenance, and Repairs – Whether your car has broken down, the house needs pre-winter repair work, or a household appliance stopped working, you can dip into your savings pool to sort these every day (yet costly) issues out
- Illness – Unexpected illness can also financially drain you. You may need to take a few days off work to heal or may need an extended leave to care for a loved one who got sick. Having savings during this time can help you a lot.
- Pay cuts or Losing Your Job – The recent lockdown has proved that there is no such thing as job security. Losing your job or a portion of your pay can leave you in bad financial shape, especially if you have a household to sustain and bills to pay. Having a rainy-day fund can help you with such situations
- Death – Funeral debt is a real problem in the UK – and it has been rising steeply over the past years. A funeral service costs between £3000 – £4000, enough to leave almost 12 % of UK citizens in debt.
How Much Should You Save?
How much you save depends on many aspects of your personal situation like your earnings, household expense, and lifestyle.
According to some money experts, you should have at least enough savings to cover 3 to 6 months of your living expense – but this sounds vastly unrealistic, especially since most of us do not have enough money to spare.
The good news with savings is that there is no lower limit. Even if you save a little, it can protect you from getting into debt over something minor like car repairs after an accident. Once you embrace the habit of budgeting and saving up, you will be surprised by how quickly your savings pool can grow.
How to Save?
Planning on saving up for your rainy-day fund. Here are three simple tips to help you get started
- The Golden Budget Rule
The golden budget rule, also known as the 50-30-20 budget rule, offers a basic framework that can help you streamline your finances, create a savings pool, and cut down on unnecessary expenses.
To get started, calculate how much money you have after paying taxes each month. Then, split your money into the following three portions:
- Your Needs (50% of your income) – includes essential expenses and living costs like mortgages, school clothes for kids, utility bills, insurance, food, and other expenses related to your basic needs and daily survival
- Your Wants (30% of your income) – set aside 30% of your income to spend on yourself and your loved ones. Your leisure budget includes everything from the chocolates you love to the outings you plan with your kids or holidays with friends – and yes even that mid-day cup of espresso
- Your Savings (20% of your income) – save almost 20% of your income each month to add it to your rainy-day fund. This amount can vary for everyone – it can include your emergency fund, pensions pot, and even debt repayment.
- Set Savings Goals
You should set savings goals and review your progress routinely. However, you need to be realistic about your goals. If you have started to save only recently, an initial goal may be to have an emergency fund in place to cover minor expenses.
Over time your savings pool will grow big enough to cover a few months of missed salary. From this point onwards, you can be more ambitious with your goals. You can save up to buy your own home, plan a holiday, or retire a bit early. Keep on tracking your progress against the saving goals you have set.
- Use Tech to Your Benefit
Leverage the power of innovative technology and banking apps to save effectively. Some apps can help you automate your savings and move a fixed percentage of your income directly to your savings pot. Others can analayse your spending patterns and add any leftover money in your rainy-day fund. There are also free apps that can help you track your expenses and monitor progress on saving goals.
Get Debt Help
If saving up seems impossible right now and you are struggling to make ends meet on a day-to-day basis, it could be time to ask for help. Get in touch with our friendly and impartial specialists for resources and expert debt help. Give us a call on 0800 056 6820