| Tales of the Unexpected
Imagine not panicking if your car engine blows up. Picture yourself simply shrugging your shoulders in nonchalant fashion when the washing machine has its final hissy fit and dies a quiet death after a long and serviceable life. Ponder on the satisfying thought that if you found yourself working for a toxic boss you could afford to say farewell and live quite comfortably for a few months while looking for another job.
In an ideal world we'd all have enough money to face these mini-crises without encountering that familiar sinking feeling when something goes wrong. But all too often, even if we've sorted out our savings and investments for the long-term, we don't always think about what might happen tomorrow or next Christmas or even in a couple of years' time.
Whether you'd be happy with a small emergency fund to pay for a new tyre so your car can pass its MOT or whether you'd like to save up for a deposit on a house, the most important thing is that you get into the habit of saving. We all know that bad stuff happens and there's nothing like knowing that when it does, you have the means to coast for a while.
Stating the Obvious
You need to save up for foreseeable expenses. Holidays, new cars, weddings, university fees are mostly predictable. You've got two choices: 1) save up and earn interest, or 2) borrow the money and pay (at a much higher rate) interest. Seems like a no-brainer to us.
These are all occasions where you can plan ahead, work out how much you'll need and start saving for it within the relevant time span. How long you've got will have a bearing on where you save for these expenses. If it's very short term a simple high interest easy access account might be the best place. If it's over a year or two, you might want to look at notice accounts or fixed rate deposit accounts.
Pay yourself first
Another reason to save is that you should pay yourself first. Why on earth wouldn't you? Generally, you should put away as much as possible with the goal being to save 10% of your annual income (total, not take-home). Depending on your obligations, you may be able to save more or less. The more you save, the more wealth you create - but anything is better than nothing. Remember, even a few quid saved now will be worth more than lots of them that might be saved later. So take advantage of Standing Orders and Direct Debits and use them to automatically transfer your money to some sort of savings vehicle. You'll be surprised how easy it is to live on a little less each month. You probably won't even notice the difference.
Be flexible about it. If you find yourself eating beans and rice every night for a month (and you don't like beans and rice), then maybe you're paying yourself too much. Perhaps you're not in a position to start paying yourself at all. But as soon as it's feasible, jump in. |
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