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Money can be a source of stress in all of our lives, and no matter how much we have of it… it always feels as though we could use some more.
The ability to manage money through careful budgeting means you’re more likely to consistently save money over time. This is a crucial life skill that can help you make your money go further and reduce money stress 😌
But it’s understandable that when money is tight or we see a shiny new thing, our savings goals are sacrificed. Life happens and we prioritise our needs and short-term spending habits, it’s human nature.
So if you’re looking to learn some lessons on how to save money or you're wondering how much money you should have in savings by 21, you’ve come to the right place… our money saving masterclass will now begin 👨🏫
Why is it important to save money?
Saving is personal to each individual and everyone will naturally have their own savings priorities. But no matter where you are in your financial journey, saving can make you financially better off now and in the future, while reducing the stress which comes with money management.
Firstly, saving can allow you to clear any debt or overdraft you may have, so you can stop worrying about bank charges and overdraft interest.
After you’ve cleared any debt, saving will allow you to create a sufficient emergency fund to act as a financial safety net. This will help in case you ever fall into financial trouble.
Thirdly, saving will allow you to prepare for your life goals and long-term financial situation, such as for a house or retirement. This stage may also benefit from investing, to really maximise your savings.
Saving is also essential for affording some of life’s more exciting but expensive purchases, such as jetting off abroad. In short, saving and knowing how to save can make your life much easier and more enjoyable.
How much should I have in savings by 21?
There's no set amount you should have in savings by the age of 21. Saving is personal and how much savings you have will depend on your financial situation and current lifestyle. However, the good thing is that it's never too late to start saving, and you're at a good stage to start.
There’s no set amount that you should be saving each month or year. It will all depend on your own financial situation and savings goals.
One rule of thumb could be the 50/30/20 budgeting rule. According to this rule, you should spend 50% of your income on your needs, 30% on your wants, and save the remaining 20%.
Don’t worry if this 20% sounds like too much for you. This is just one rule of thumb, and there are many other budgeting and savings techniques to try. And hopefully after reading our guide, you’ll be well on your way to reaching this ratio.
Where should I save my money?
There are many different places to save your money, depending on your financial situation and goals:
Savings accounts are quite simply a safe place to store your savings while earning interest. They are offered by a variety of high street banks and building societies.
Savers can earn up to £1,000 of tax free interest on money in a savings account per tax year (£500 for higher rate taxpayers). It’s unlikely you’ll reach this allowance unless you’re saving very high amounts. But if that’s the case, it may be worth considering another savings method.
ISA stands for Individual Savings Account and its main feature is that interest earned on the money in your account is tax free. Eligible UK adults can deposit up to £20,000 per tax year, known as the personal allowance.
ISA interest rates are often higher than those for savings accounts, but may come with the trade-off of locking away your money for longer or sacrificing instant access.
There are several types of ISA available to suit different savings strategies. A Cash ISA is the most standard, a Stocks and Shares ISA will allow you to invest your savings, and a Lifetime ISA is specifically for your first home or retirement.
A more recent innovation is savings apps, which use technology to help you save money. A variety of apps and online banks exist, so you won’t be spoilt for choice.
These apps often offer better interest rates than high street banks, as well as a host of savings features. With the help of technology, you may find you can really maximise your savings in a way that wasn’t possible before.
A riskier but potentially more profitable way to store long-term savings could be to invest them. Returns from investments can be higher than keeping your money in a savings account or ISA, allowing you to beat inflation.
Do be aware that when investing your capital is at risk. The value of your investment could go up or down.
What are savings interest rates and how do they work?
Interest rates are effectively the bank’s way of rewarding you for keeping your money with them. Depending on the account, the bank will add a certain percentage to your savings each quarter or year. This has traditionally allowed savers to keep up with inflation.
You can compare different accounts based on their AER (Annual Equivalent Rate). It can be complicated to work out the exact interest you’ll gain just from the AER, but the higher the AER, the higher the interest you’ll receive.
Do be aware that higher interest rates often come at a cost. You may have to sacrifice quick and easy access to your money, though sometimes it can be useful to have a ring fenced savings pot in order to stop you dipping into it.
Why is it important to set savings goals?
It’s proven that having a goal will help you reach an achievement quicker and easier, and this is no different for savings. In fact, NS&I found that people who set a clear savings goal save on average £550 more per year than those who don’t.
Your savings goal will give you a tangible benefit to work towards and provide some valuable encouragement. It can also help you track your progress. If you’re on track, great 🥳If you’re a little bit behind, you can make some tweaks to improve the process 🔧
If you’re new to saving, you may find it easier to start saving for a smaller goal and increase it over time, or to use Plum Pro’s savings goal feature.
Why a budget is essential for saving
In its simplest form, a successful budget is a plan for how your money should be allocated.
Creating and following a budget will allow you to afford your needs and wants, but also ensure you put aside a set amount aside for the future. It will take into account your income and expenses to try and balance the books and help you understand your money and spending better.
And just like with your savings, there are a number of budgeting tips and tricks that can do great things for your savings and finances!
How to cut back your spending
If you’re struggling to save, it’s worth checking out whether you can cut your spending at all. We spend what we have available, so you may find it easier to cut these expenses than you initially think.
Firstly, cut the cost of your bills. It’s estimated that £4 billion is lost in the UK each year because we’re too loyal to our energy, phone, and internet providers! Plum will even do the comparison and switching for you.
Also cancel any subscriptions you don’t use or may have forgotten about (do you really need that gym membership or Netflix account?). It’s worth going through your bank statement and cancelling any expenses you don’t recognise or use anymore 🧐
Loyalty cards and cashback can be another great way to reduce your outgoings when you do spend. Supermarket loyalty cards in particular can save you hundreds on your essentials and favourite treats each year.
An interest free overdraft can be useful for helping out with essential payments, but try not to be tempted by what seems like extra money. You’ll have to pay it back eventually 🕰
What is automated saving and how do I automate my savings?
When we talk about automated saving, we mean any process in which a machine (normally a computer or money saving app) is used to save money, rather than this process being completed by humans.
Automated saving can help you overcome those aspects of human nature that make saving difficult, such as temptation or the need for immediate gratification. You can programme your technology to save money when you’re not thinking about it, and move the money out of sight so you’re less likely to spend it when you don’t need to.
Method 1) Let automation help you pay yourself first
Automating your savings could be as simple as setting up a standing order. Just like you might use a Direct Debit to automatically pay your electricity bills, a standing order can move money into your savings each month, before you have a chance to spend it.
But why set up a standing order when Plum can move your savings for you? Our Pay Days feature will automatically move your designated savings to your Plum Pocket when your paycheck hits your bank account.
Method 2) Use AI to put your savings on autopilot
Another problem with a standing order is that it’s always for a fixed amount… and while this can be great for making sure you save every month, you may sometimes have a little extra to spare. And since it’s in our nature to spend what we have available, this extra cash may not last long.
By harnessing the power of Artificial Intelligence (AI), Plum can put your savings on autopilot ✈️ Once enabled, our algorithm calculates small savings at regular intervals, and you should barely even realise the money’s left your account.
These amounts will be tailored to how much you have available in your bank account and your own spending habits. If we’re doing our job correctly, your Plum savings will grow without leaving you short for the things you love and need!
Method 3) Track your spending with Open banking
Understanding your spending can be a laborious process. But with the power of Open Banking, mobile apps like Plum can really simplify the process.
By letting you visualise transactions from all your bank accounts and credit cards in one place, Plum’s OneView can help you understand your spending habits and patterns, your upcoming payments, and how much money you have left to spend this month 📊
Method 4) Round up the pennies
In the days when it was still common to pay for things using cash, people would often save up their loose change in a jar as a way to save.
Nowadays, it’s a bit more sophisticated, but the principle remains the same. Some money saving apps (including Plum!) now offer a feature that rounds up purchases to the nearest whole £1, and automatically saves the change.
Method 5) Gamify your saving
Though budgeting has many benefits, we also know a strict savings plan has the potential to get very boring. This only makes it more likely we’ll give up on it eventually.
But as with many things in life, you’re more likely to stick at it if you can find a way to make saving fun. And Plum can gamify the savings experience for you. Rainy Days randomises your savings process by saving every time it rains, or you could really throw down the gauntlet with the 52-day challenge.
But whatever savings games, methods or techniques you try, remember that saving is a personal matter and you may have to do a bit of experimenting before you find the right approach for you.
And that brings us to the end of our savings masterclass. Class dismissed 🏫
If you'd like to learn more about Plum then you can check out our website.
If you’re looking for more ways to save money then cancelling any unwanted or forgotten subscription services is a great place to start! We have guides for cancelling: Audible, British Gas, BT, Equifax, Experian, G2A, GiffGaff, Grindr, HelloFresh, ID Mobile, Lycamobile, MBNA, Monzo, National Lottery, Octopus Energy, Only Fans, Prime Video, RAC, Scottish Power, Shell Energy, Sky Email, Sky Mobile, Tesco Mobile, Thames Water, Udemy, Utilita, Vimeo, Virgin Media, Voxi, Weight Watchers, YouTube Music.
If you are interested in Help to Buy ISA then we have earlier articles on: What is ISA help to buy, h2b ISA, deadline, government scheme, first time buyer, interest rates, end date, limit, open, rules, calculator, account.We even have specific advice for Barclays, Santander, Lloyds, HSBC, Nationwide, RBS, TSB, Bank of Scotland, Natwest, Halifax, Martin Lewis, Ulster Bank, Yorkshire Bank, First Direct, Skipton.
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