Make your lockdown saving habits last a lifetime
While the economic consequences of lockdown saw many households struggle, others have been able to save far more than usual.
Data suggests that UK households have been saving an average of around £171 per week during lockdown, with pubs, restaurants and high street shops closed. Countrywide, savers have stashed away a record £157 billion, as many day-to-day expenses, particularly travel expenses disappeared.
Now restrictions have eased – with restaurants, pubs and non-essential shops open again – most will see their outgoings creep back up.
Whilst, it’s important that we start getting this economy back on track, with supporting local businesses is a good place to start, as we start to spend again, it could be the ideal opportunity to lock in those spending habits and make them last for the long-run.
Below are some tips to which could improve your financial resilience and help to secure the future you want.
Draw up a monthly budget (and stick to it!)
Have a look at your pre-lockdown bank statement and find which expenditures were making the biggest dent. Some – like the cost of your commute – will be unavoidable, but others – such as your weekly lunch out on a Friday – could be reduced.
Many banks now offer budget tools through Smartphone banking apps. Growing in popularity, these features give customers insights into their spending habits with real-time data. They can help you get a better overview of your spending and are a great way to keep you on track with your savings goals!
Sort out your debts
At the moment, interest rates are so low that there is little point putting money into savings accounts if you have credit cards or loans to pay off.
Since the interest rate on your debts will be higher than that on your savings accounts, it makes sense to pay off as much of your debts as you can. Essentially the ‘cost’ of your debt will be rising much faster than the value of your savings, so it’s best to get rid of this first.
Build up an emergency fund
Building a financial safety net is a step that can ensure you’re able to maintain your lifestyle and provide protection if the unexpected happens.
As a rule, you should try to keep between three- and six-months’ worth of outgoings set aside for emergencies. These should be in easily accessible accounts that don’t penalise you for withdrawing.
Using high-interest debts to cover day-to-day outgoings can make it difficult to get back on your feet financially.
If you don’t have an emergency fund, gradually building one up should be a priority. You could work towards this figure by setting up a direct debit to transfer money into a savings account as near to pay day as possible.
Pause before you buy
All of us are prone to buying something we don’t really need from time to time. While there’s nothing wrong with these kinds of purchases sometimes, if they become too frequent, they can start to harm your bank balance.
An effective technique to cut down on unnecessary purchases is to wait 24 hours between finding something you want to buy and handing over cash.
Another way to save is to make it harder for yourself to spend your money. You could remove your automatically saved card details from your computer or unsubscribe from promotional emails, meaning you’ll be less tempted to make impulsive purchases.
Plan for the long-term with a pension
Auto-enrolment has made it easier for many workers to save into a pension, but this hasn’t yet been extended to cover for the self-employed.
As a result, many need to take responsibility for managing their own retirement finances. For most, paying into a pension is the most efficient way to save for retirement.
Pensions are typically invested. Over the long-term, this can help your savings to grow at a faster pace thanks to the effects of compounding. Even small, regular contributions to a pension can add up over your career. Taking charge of your pension whether that be beginning contributions or increasing the existing payments made can put you on the right path to secure the retirement you’ve been looking forward to.