Saving money may be tricky but there are so many benefits to saving your hard-earned money. If you can save, here are some of the benefits to think about when you’re planning your savings strategy.
Ready for emergencies
Emergencies by their nature are unexpected and will most likely cost you money. Maybe your car breaks down and needs fixing or your home boiler needs a new part. There is an unexpected cost that needs to be paid.
Creating your emergency fund of savings will allow you to have money reserved for such unexpected expenses.
With no emergency fund, you may find yourself without the money to pay these surprising bills. You may in turn need to rely on credit to see you through the emergency, leaving you with additional debt.
Ideally three to six months of expenses in your emergency fund gives you peace of mind and flexibility in dealing with financial emergencies, like an unexpected illness or job loss. However, we know this isn’t achievable for most of us these days. Even smaller amounts such as £100 can help towards those little surprises and give you some more security.
Prepared for sickness or time off work
Many of us live month to month, paycheck to paycheck. This means any sudden loss of income with unexpected time off or extended sick pay will drastically lower our income and our ability to pay for our bills and food.
If you have savings when this happens, it takes the pressure off from worrying about a drop in income. You can concentrate on recovering from your illness or caring for your family.
Pay for a big life event without stacking up debt
If you have the means to save, a huge benefit is that it increases your ability to pay for those bigger things in life such as a wedding.
Wedding plans can quickly escalate and costs can add up. Weddings can be postponed by years due to the cost, but if you have savings already you can plan your special day without starting your marriage in debt.
Save for a house deposit
Regularly saving will help you build your funds slowly but surely. This can help you achieve milestones such as home ownership by saving up for a deposit on a house.
Mortgage deals vary (please check the small print of any deals you are interested in) but typically a 5% deposit or more on the house purchase price will be needed as a deposit. Sometimes, a 10% or 20% deposit is needed.
For example, in terms of figures for every £100,000 for the cost of the house you want, you would need a £5,000 to £20,000 deposit.
This may seem like a lot and may seem unattainable, but the most important message is to make a start. Begin saving regularly and it will add up over time. The more you can put towards the closer your dream of home ownership will be.
Make your money work harder for you
Interest rates these days may be pretty low, but any interest on your savings is better than nothing. Check the latest deals on savings accounts to see which one will work the hardest for your money.
You won’t see as much growth as you will from investing, but interest on your savings is still extra cash in the pot for you.
Use sinking funds for additional spending
A sinking fund is a pot of money set aside for a specific thing, such as birthday presents, a car MOT and service or Christmas. Sinking funds are usually added to regularly to help you spread the cost of those additional items in your budget.
For example, if you estimate that Christmas costs you £1,000 and you are paid weekly, divide £1,000 by 52 to get £19.23. You would then save £19.23 every week into your Christmas sinking fund.
When Christmas comes around, you don’t have to suddenly find an extra £1,000 – you already have it in your sinking fund.
Sinking funds can be used for all sorts of things from Christmas to holidays to home repairs to car insurance and many more.
Many banks now let you set up saving pots in your bank account. You can name each pot to help you focus on your savings goal. Then on payday, you put money into the pots.
Alternatively, some people also like to use cash envelopes and add to them every week or month. When certain goals are reached this is then added to a bank account.
Pay less on your bills
Did you know that if you pay some bills upfront you can save money?
For example, if you can pay your car insurance upfront for the year you will pay less than paying monthly.
This can also apply to other bills, like your mobile phone. It can be cheaper to buy your phone outright and have a SIM-only contract than to get stuck in a contract that includes paying for the handset every month.
Have any of these benefits of saving money surprised you? Are you planning to build your savings?