The current climate means that while many people have been able to save more money than normal because they’ve not been out as much this year, however many others have lost their jobs or seen big cuts to their income because of the coronavirus outbreak.
According to the Office for National statistics (ONS) deposits into accounts by households increased by £25.bn in May, a rise from £16.7bn in April and £14.2bn in March. Yet this won’t be the case for every household.
Here we look at how to follow a specific strategy to separate your savings targets from other financial responsibilities so you can focus on reaching your savings goal.
Saving money from your regular income, as part of your normal earnings and outgoings, is very difficult for most people because there always seems to be another unavoidable financial pressure to fulfil.
The key to becoming a successful saver is to organise your finances and separate your money.
You need to separate finances physically, but also, importantly, in your own mind, by playing a mental trick on yourself.
You do this by putting money aside almost before you get it and by putting it in a different place from where you normally access your money – a place that as far as you’re concerned doesn’t exist or is impossible to access. You automate this procedure to ‘sweep’ funds elsewhere as soon as you receive them.
That way, in your own mind, the money doesn’t really exist and when the call comes from other sources of financial pressure to tap into these funds, mentally, they’re separate and not available to access.
If you have a smaller secondary income, it can be a good idea to automatically sweep all of that money into a savings account. This could be from any source, a second job, a hobby or other income. You can just switch this income automatically to a savings stash and manage all your other bills from your main source of income.
The starting point for any budget is to accurately list all your ingoing and outgoing monies. Once you have your outgoings organised, go through them and decide if there are any that you can do without.
Subtract your total outgoings from income. If there is nothing left or even worse, your outgoings are higher than your income and you are financing your lifestyle with an overdraft or credit card, then you need to take action – especially if you’re paying interest or fees on the borrowing.
Once you’ve sorted your debts, work out which outgoings you can cut back on. The severity of your own spending cuts depends on what your savings goal is.
If you need to save £5,000 for a new car in 12 months, you need to save over £400 a month. If you need to save £2,500 for a family holiday in a year’s time, you need to save over £200 a month.
Forensically analyse your spending. Do this by getting receipts and noting down all spending over one month and then categorising where you spend your money. You may discover some surprises on what you actually spend money on, which can make it easier to decide how and where to cut back.
First of all, if you haven’t switched utility suppliers, shop around to find a better deal and avoid a standard variable rate tariff for your gas and electricity if you are on one. This can save up to £300 a year.
The same applies to broadband and mobile contracts. Phone your supplier and ask for a better deal – and if they don’t play ball when your contract is up, switch to a new supplier and take advantage of new customer deals and savings.
You can even switch bank accounts and receive up to £125 as a switching incentive that can be put straight towards your savings goal.
Focus on what you spend at the supermarket. Identify savings, ways to cut back, changing stores to discount retailers and taking advantage of discount coupons and special offers. If your family weekly shop costs £120, challenge yourself to reduce it to £100 and put the difference in your savings account. You can save more on your grocery shopping by creating a weekly meal planner that also produces a shopping list – which you should stick to when you go shopping. Also, it almost goes without saying, but you should avoid going shopping when you’re hungry!
Your spending analysis will identify any other expenses you are not using such as gym membership, magazine or other subscriptions that you can cancel to save more money.
Other savings you can make could include walking to work, making your own packed lunch and taking your own coffee on your morning commute rather than buying one. Spending £2 per day on coffee really adds up: it’s over £600 per year!
One final way to save is by having a spring clean, and then sell unwanted items at a car boot sale or online via Gumtree, eBay, or Facebook.
These aren’t just theoretical tips for saving money: I followed this exact strategy last year! I had to save £5,000 for a family holiday and I had 12 months to do it, so I had to somehow try and find £400 a month in savings. I didn’t quite manage it, but came close: I ended up having to borrow about £1,000. My analysis of my own spending found plenty of areas in which I could save, which surprised me: as a financial journalist I thought I was quite savvy with my money!
As a family we looked at all the areas we might be able to save money and over the year this is what we achieved:
Newspapers: I cancelled my daily newspaper and just got one on Sunday instead, saving £25 a month. Annual saving: £300.
Birthday and Christmas money: I put away the money I got as soon as I got it. Annual saving: £200.
Switching utility suppliers: This is something I regularly do but prices have fallen so I managed to save some more. Annual saving: £100.
Grocery shopping: By writing a list, planning meals and looking even harder for special offers and bargains we saved on average £16 each week. Annual saving: £832.
Switching bank accounts: Both myself and my partner switched bank accounts and got £150 each that we put straight into the holiday kitty. Annual saving: £300.
Packed lunches: Our two children had to take the sacrifice on this one! We managed to reduce their lunches from £20 per week to £14 – for 39 weeks. Annual saving: £234.
Cancel unused direct debits: We both found areas we were paying for but not using, magazine subscriptions for me and Netflix and Spotify for my partner. Annual saving: £320.
Sell unwanted items: Our loft and garage were both creaking with unwanted clothes, toys, bikes, books, CDs, baby items and more. We decided to sell some items on local selling pages and do a car boot sale once every two months and managed to get rid of a lot of items for cash. The added bonus is that we can get in the loft and garage now without risking injury from tripping over things! Annual saving: £1350.
Total added to my savings: £3,632
To be successful in attaining your savings goal, you need to be organised and try to make it easy for yourself by sweeping savings to your secret, forgotten savings location easily, ideally straight away and automatically, so that you don’t notice it and don’t have time to spend it.
To increase your resolve, try and visualise what you’re aiming to achieve, whether that’s lying on a beach or polishing a new car.
To maintain your strategy, it’s good to give yourself an occasional reward along the way. Not enough to affect your savings success, but something to ease the difficulty of the sacrifices you are making along the way to get there, like a monthly family takeaway.