Protecting your financial goals in a cost of living crisis
The current financial situation is hard on almost everyone in the UK. With inflation the highest it’s been for 40 years, food prices up by almost 17% and energy prices soaring, many people are struggling to keep up with their daily expenses.
For many, it might feel impossible to save for the future or even build an emergency fund.
But there is hope! There are a few simple ways you can save, even when times are hard, and there are tools to help protect your future goals.
Reasons to still be thinking of saving
When prices go up and your income stays the same, saving up for the future tends to be the first thing to fall by the wayside.
But, as the old adage goes, “a little over a long time adds up to a lot”, even if it’s only £1 at a time!
1. You can probably save more than you think
You don’t need a lot of disposable income to start saving, whatever your savings goals are.
Saving regularly in small amounts that you can afford might not look like much when you start out but can add up to a sizeable cushion within a few years.
2. You never know what could happen
Even if you don’t have a clear financial goal in mind right now, it’s always a good idea to build up an emergency fund.
If there’s anything the past few years have taught us, it’s that we never know what could happen!
Whether you’re worried about losing your job, having to move out on short notice or that your car might need some serious repairs, having a financial cushion to fall back on can go a long way towards easing your mind.
3. You can build up your savings while paying off debt
It can be easy to feel like we must pick between one or the other. Depending on the kind of debt you have, the interest rate on it and the amount of money you owe, it's possible that you can still build your savings while paying off debt.
Debt is a complicated subject, however, so it’s worth looking further into how you could better manage it.
It’s worth considering that, by having an emergency fund set aside, you’re also protecting yourself from incurring even more debt if something unexpected happens in the future.
How to build your savings when times are tough
We know it’s not always possible to cut costs, especially when most of your money is going towards necessities such as rent and bills.
While exploring cheaper options for your everyday expenses is something you should consider, it’s also a good idea to put together a strong plan to build your savings in a way that’s easy to manage.
If the above reasons have motivated you to start saving, these tips should help you get started.
1. Set clear savings goals and targets
What do you want to save for? Do you have a big future expense in mind, such as buying a car or a house, or are you just looking to build up an emergency fund?
Whatever you’re preparing for, you should make a clear decision on what you’re saving up for. This can not only help you decide what kind of account to use for your savings, but will also help you stay motivated and prevent you from dipping into your funds.
Once you’ve decided on your savings goals, you can work out how much you ideally want to save and by when.
As an example, you could aim to have £3,000 saved within a year, so that this time next year you’re confident that you have an emergency fund to help you cover rent and bills for a while in case you lose your main source of income.
2. Figure out how much you can realistically put away regularly
Working out your budget, both monthly and yearly, can really help put your financial situation into perspective.
Having a good view of your monthly expenses seems almost obvious, but it can be easy to assume that we’re fully aware of how much money is going out every month until we get hit by a yearly bill we didn’t plan for or a subscription we forgot to cancel.
- Take the time to go through your bills and bank statements in detail.Write down every regular payment that comes out of your account and how often they’re taken – it’s likely you’ll have mostly monthly bills, but you might have a larger charge that comes through every three months or once a year.
- As you do this, you might find some costs you can cut down on, such as subscription services you’re not actively using.
- Once you’ve worked out how much you have to spend, look at your more variable essential expenses, such as the weekly food shop or fuel for your car. These are the things you can’t cut out, but that you can probably find ways to reduce how much you spend.
Give yourself a target budget for these expenses that still gives you some wiggle room to work with.
- Whatever you’re left with will be money you can reasonably afford to spend. It might be more or less than what you originally thought, but most likely it will be enough to help you start building up your savings.
Set some of that money aside for both treats and emergencies, like a friend’s birthday dinner or needing to replace something if it breaks.
- You’ll be left with your magic number – how much you can reasonably put towards your financial goals every month!
3. Start saving regularly
Having your magic number means you know you can afford to put that amount away every month without stretching yourself too thin.
Setting up an account with a monthly direct debit is a great way to work towards your financial goals without having to think about it, especially if it’s an amount you’re comfortable with.
Most accounts will still allow you to make larger one-off payments, so you won’t be limiting your own savings potential, but you’ll be making sure that no matter how tough things get, you’re setting yourself up for success in the background.
Have you been affected by the cost of living crisis?
We understand the impact the cost-of-living crisis and the money worries that come with it can have. We've put together some useful links and resources that may be able to help you.
Getting your finances in order
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