Whether you love it or loathe it, there’s no escaping the fact that money controls many aspects of our daily lives.
Mastering personal finances is an essential life skill, yet strangely we’re never given any meaningful financial advice in school to help with this 🧑🏫 So if you’re looking for ways to save money then you came to the right place… our money saving masterclass is about to begin.
Why it's important to save money
There are few worse feelings than worries over money. It can affect our mental health, and leave us with the sense that we’re not fully in control of our own destiny. If you’re sick of being stressed about money, then a savings plan can help you achieve independence and work towards a more stable future.
Everyone will have their own priorities when it comes to saving money, but broadly speaking, saving allows you to:
- Clear your debt or overdraft to avoid a punishing interest rate
- Create an emergency fund to act as a financial safety net
- Work towards your life goals and plan for tomorrow
So that’s the theory 🤔 Now let’s look at how to build a savings plan. It’s not as hard as you might think… and it all starts with a budget!
Why a budget is essential for saving
In its simplest form, a budget will allow you to track your income and spending, understand your current financial situation, and create a plan for how your money should be allocated.
How to create a budget
Step.1 Get a read of your finances
Start by reviewing how much money you have coming in, and the essential expenditure that this needs to cover. You can do this for a single week or month, but you’ll also need to account for less regular annual expenses, like car insurance or maintenance, for maximum effect.
Step.2 Look for any immediate savings
Before you get into the business of creating a detailed budget, this is a great time to see if you can save money on any regular payments in the first place. That’s about as close to free money as you’re ever likely to get!
Start by cancelling any subscriptions that are no longer required (do you still need that gym membership or netflix account?), or which you might have forgotten about. After that, you can look into whether you can find a lower price for things like household utilities. Switching your gas / electricity, broadband or insurance providers is a simple way to be a savvy saver!
Step.3 Allocate money for your needs, wants, and savings
So far you’ve built an understanding of the money you have coming in and the regular expenses you need to pay (plus made sure you’re not overpaying for household bills). Next up, it’s time to assign your income to make sure you can pay for the essentials, save some of your income for the future, and also allow a little spending money for a few luxuries along the way 🥵
How much you apportion for each of those categories will be dependent on your own financial situation, but a common approach to consider as a starting point is the ‘50/30/20 Rule’.
It’s human nature to prioritise short term gratification over longer term priorities. That’s a well documented scientific fact 🤓 So why not also use science to give your willpower a helping hand in counteracting this.
Assigning a monetary target to your savings goals is a great way to help you achieve them quicker! So keep your savings on track by reminding yourself what you’re saving for, and the progress you’ve made towards your aim.
Tips for sticking to your budget
Setting a budget is a great start if you’re serious about saving money… but sticking to it can also be difficult, especially if money’s really tight.
Tip.1: Pay yourself first
No matter what specific challenges you face when it comes to saving money, one thing’s for certain… life will always have a habit of getting in the way.
That’s why it’s essential to make sure you tuck the amount you intend to save away when you first get paid. By immediately transferring the money out of your current account and into a separate savings account, it’s easier to see how much money you have to last until your next payday. You might also be less inclined to dip into it when the inevitable temptation comes along 😈
Tip.2: Control your spending
Nobody enjoys spending money on things like rent, but when it comes to our wants, these spending habits can be a little harder to manage. If you’re trying to stick to a budget then resisting impulse buys is a key part of the process. The convenience of online shopping means that those everyday Amazon or eBay purchases can soon add up to a lot of money!
One budgeting trick that can help is the ‘30 Day Rule’. The concept is that whenever you’re tempted to make an unplanned purchase, you simply walk away from the situation and make a note of the item along with the date you saw it. You can then revisit the decision in 30 days time, and hopefully avoid buying something that you might regret at a later point.
From time-to-time it’s inevitable that you’ll spend on the things that matter to you, and your budget should definitely allow some breathing room for a few treats. But when you do spend, why not pick up cashback from your favourite retailers (there are also cashback sites available online), or look for voucher codes and loyalty cards to get a discount.
Tip.3: Manage your money
Understanding your finances and creating a budget can be a laborious process. But thanks to Open Banking it’s now possible to harness the power of the latest technology in an app for your mobile phone. Such apps can go a long way towards simplifying the process for you.
For example, Plum is a money management app, regulated by the Financial Conduct Authority, which can help you budget by allowing you to visualise the transactions from all your bank accounts and credit cards in one view 📊 The app can also give you an adjusted balance which takes into account any regular payments due before your next payday.
In addition to this, there are diagnostic tools that can help you track and contextualise your spending, even anonymously benchmarking your budget against people with a similar financial profile in the area where you live.
How to automate your savings
When we talk about automated saving, we’re referring to any process in which you use a machine (normally a computer or money saving app) to do work that would have previously been done by humans.
Method.1: Create a bank transfer
Automating your savings could be as simple as setting up a standing order for a fixed amount into a separate account. Just like you might use a Direct Debit to automatically pay your bills on time and build up your credit score, you can also treat your savings in the same way.
The most important thing is to make sure that saving happens without you needing to think about the process. Arranging the balance transfer for the day after you first get paid is recommended (see ‘pay yourself first’ above).
Method.2: 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 the process is a little more sophisticated, but the principle is still the same. Some money saving apps and banks now offer a feature that rounds up purchases made on your debit card to the nearest whole £1, and automatically saves this additional amount to a separate account or pocket.
Method.3: Use AI to tailor your savings
When it comes to saving, automation can be a powerful force. Making sure that savings still happen, even when you’re not thinking about the process, means you might be able to put more money away over time.
But the problem with a regular standing order is that it has to be made out for a fixed amount… and while that’s great for ensuring that you save the bare minimum, there may be times when you have a little extra to spare. It’s in our nature to spend what we have available in our account, and this is where a more dynamic solution can offer additional benefits.
By harnessing the power of Artificial Intelligence (AI), a money saving app like Plum can effectively put your savings on autopilot. It works by tailoring small savings at regular intervals throughout the month, depending on how much you have available in your bank, without leaving you short.
How to make saving money fun
Although budgeting might be a crucial part of personal finance, sticking to a strict savings plan might not sound like the most exciting prospect.
As with many things in life, if you can find a way to make saving money more enjoyable, then you’re more likely to stick with the process for a prolonged period of time. So if you’re serious about saving, why not get social by setting up a challenge for you and you mates.
If that all sounds like a bit too much admin for you then there are also some neat money saving apps that can gamify the saving process, and might be able to help you save more money over time.
Make money saving a way of life
If you’ve decided on a fresh approach to personal finance then there are lots of helpful resources out there on the internet and on social media.
The Plum blog is a great place to find information across all areas of budgeting and saving, and we’ve also compiled a handy list of other sites that might help you on your own personal finance journey.
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’d like to clear your bank overdraft, whether that be an arranged or unarranged overdraft then you can check out our earlier article. We even have specific advice for Bank of Scotland, Barclays, Clydesdale, Coop Bank, Danske Bank, First Direct, Halifax, HSBC, Bank of Ireland, Lloyds, Metro Bank, Monese, Monzo, Nationwide, Natwest, RBS, Santander, Starling, Tesco Bank, Think Money, TSB, Ulster Bank, Yorkshire Bank customers, details of what happens if you can’t pay your overdraft or how to pay your overdraft in instalments, and we explain the potential disadvantages of an overdraft.Download Plum