Introduction to Saving
You may be asking yourself this question at the moment, in particular because savings rates are so low. In some cases, it can actually be more beneficial to spend your money rather than save it, as the interest you could be earning is not currently keeping up with inflation. This means that your money is devaluing the longer you put it away for. For instance, £1 could buy you a lot more 10 years ago than it can today. In fact, £1 in 2003 was worth around £1.34 in today’s money. Even since 2010, three years ago, the pound has devalued by 9p.
What’s the point of saving?
So, what’s the point in saving if you’ll end up with less money (value-wise) when you want to withdraw it? Well, there are plenty of reasons why you may want to have some money put away. Living from wage payment to wage payment is all very well, but what if you suddenly need to get your hands on a larger amount of money, say for a car repair or a holiday deposit? How would you cope in a situation like this?
Emergency funds
Having an emergency fund is one of the most important things you need to set up with regards to your finances, as surprise bills and difficult financial situations can crop up at any time, often without warning and often all at once! Being able to dip into some savings in situations like these can take a lot of stress out of the situation and help you avoid expensive forms of credit. In cases like this, having a month’s worth of expenses put away in an easy access account is the minimum you should be looking to save. An easy access ISA may be your best bet if you don’t already have one for another savings goal, as the interest rates on these are often slightly higher than other easy access savings accounts.
Long term goals
If you’re not saving for any long-term goals or retirement, then you may need to think about setting up an account for this. Think about your goals in life –where do you want to be in 3 years, 5 years, 10years? Where would you like to travel? What kind of car would you like to own? Do you want to start saving for a property? There are hundreds of things that you may want to buy in the future, and expecting to achieve these goals without saving may not get you very far. Do you really want to be paying off your large purchases for years and years after you’ve bought them?
Saving for retirement
Saving for retirement is a different matter altogether and should be something to seriously consider, no matter what age you are. If you want to maintain the same quality of lifestyle that you have currently when you stop working, then you’ll need to start putting some money away. You can usually do this through your employer (they may be signed up to a pension scheme where they’ll match whatever you pay in, meaning that your contributions effectively double) or you could set up a pension fund and pay into it by yourself. Either way, you’ll be glad that you did once you finish working – having a little more income could mean the difference between being able to stay in your current home or having to downsize.