STARTING up a savings habit is a great way to take control of your finances, and will be a new year’s resolution for thousands of people.
But making common money saving mistakes can seriously set you back.
When it comes to setting money aside, slow and steady is often a better approach than trying to do too much at once.
If you suddenly cut back on all your spending and expect to triple your savings overnight, you’re likely to end up disappointed.
Making small changes and marking regular milestones will keep you encouraged and make it less likely that you’ll give up.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, says: “Change is hard, so if you try to dramatically transform everything about your finances overnight, you’re setting yourself up to fail.”
Other frequent mistakes include not putting your savings in a separate account, and not making (and sticking to) a budget.
Instead, here are the simple steps that can supercharge your savings.
Clear your debt
Before you start saving money, it’s best to get rid of any expensive debt.
The average credit card charges interest of around 30%, whereas you’re lucky to get more than 1% from a savings account at the moment.
The snowball method is a good strategy to use when clearing your debt – it’s where you focus on the loan or credit card with the highest interest rate first.
Other people prefer to clear the smallest balance first as it’s feels better psychologically.
Justin Modray of Candid Financial Advice, said: “Saving can be tricky, especially when you have little spare cash each month.
“If you’ve got expensive borrowings on credit or store cards, focus on paying down those first, because the interest will be way higher than you’ll earn on savings.”
Crucially, you should always try to at least make the minimum repayments each month to avoid any penalty charges, and switch to a 0% card if you can.
Sarah Pennells, finance specialist at Royal London, says: “Although these cards are interest free, you will normally be charged a balance transfer fee of between 1 and 3% of the amount you transfer.
“But because you won’t be charged interest on your balance, more of your money can go to repaying what you owe.
“But these cards aren’t right for everyone, and it’s important to make sure you can pay off your balance by the time the 0% interest deal runs out.”
Set a goal
It sounds obvious, but saving money is a lot easier when you know what you’re working towards.
Whether it’s a new laptop, a summer holiday or your retirement, it’s important to have a goal in mind.
Emma Watson, head of financial planning at Rathbone Investment Management, said: “Take some time to think about your goals, and what you want your money to do for you and your loved ones.”
You might also consider setting different goals.
Having a short-term aim, like saving up for a meal or day out at the end of the month, is a good idea because it will feel great when you hit the goal quickly and inspire you to do the same next month.
And a longer-term goal such as saving for a house deposit or new car can help keep your habit going.
Find the best savings account
Interest rates are very low, which makes it harder to grow your money – so you really need to find the best savings account you can.
According to MoneySavingExpert, the top easy-access account at the moment is with Investec and pays just 0.71% interest.
Notice accounts pay slightly more – you can get 1.1% from Secure Trust Bank, but you have to give 120 days notice if you want to withdraw your money.
Zopa bank pays 1.37% if you lock your money away for a year, and if you’re willing to tie your money up for five years, you can get 2.1% from Secure Trust Bank.
It’s worth checking out regular saving account offers too though. This is where you put away a set amount each month.
Nationwide pays interest of 2% and lets you save up to £200 a month, while you can get 3.04% at NatWest or RBS but only up to a maximum of £50 a month.
If you’re saving for a deposit for your first home, consider a Lifetime Isa. These give you a 25% bonus from the government when you come to buy.
Or you might want to get some Premium Bonds.
These are government-backed bonds, which put you into a prize draw each month with prizes ranging from £25 right up to £1million – the chances of winning the jackpot are very slim though.
Take on a savings challenge
A money savings challenge is a great way to really kickstart your habit.
Coles says one idea is to start your year with a “no-spend month” where you don’t spend any money except on absolute essentials for an entire month.
She says: “It can be a good way raise as much cash as possible as quickly as possible, but most people find it difficult to stick to.”
If that sounds a bit extreme, you could try one of our other savings challenges.
Money saving blogger Katie Saves suggests rounding down your accounts, by checking your bank balance each down and rounding the amount up or down.
For example, if you had £151.16 in your bank account, you could transfer that 16p into your savings account – or even the extra £1.16 if you want to save more.
The small amounts saved each day can really add up over time.
And Moneymum Gemma Bird suggests stashing away £2 every day for a year to cover the cost of Christmas.
Another idea is to have a “money buddy” who you chat to each week about your spending, what you’re finding hard to cut back on and what’s going well. Sharing the savings journey with someone else can make it easier.
It’s easy to forget to move your money to a savings account each month if you have to do it manually.
When it comes to setting money aside, automating the process makes it far more likely it’ll actually get done.
Set up a monthly direct debit from your bank account to your savings account, that way you don’t have to worry about or risk putting it off.
Round-ups are a good idea if you do lots of little transactions too.
Some banks and apps will automatically round-up your purchase to the nearest pound and transfer the difference to a savings accounts.
So if you spent £1.79, it would be rounded up to £2 and 21p would go into savings.
Meanwhile, cashback accounts earn you money back on your everyday spending – the top-paying one is currently from JPM Chase.
Our reporter saved £150 in a year without even noticing by using round-ups and cashback.
Stick to your budget
Tallying up your spending is a must for anyone looking to get into good money habits.
Add up what your monthly outgoings are on essentials, and then work out where you can cut back.
Pennells says: “It sounds obvious, but most of us don’t realise exactly how much we’re spending each month or what we’re spending it on.
“Keep a spending diary where you note everything you spend, and use an app to track it.”
Check your bank statements regularly as this will help you spot anything unnecessary – particularly subscriptions you don’t use and could cancel to save money.
Some banking apps will let you categories your spending so you can see a clear breakdown of where your money is going.
Another common strategy is to give up little luxuries like a morning coffee or a weekly takeaway, but Coles says if these things bring you joy it’s better to focus on the spending habits you don’t really value.
This could be the streaming subscription you never use, or the gym membership you’ve abandoned, for example, or even buying own-brand groceries instead of the fancier alternatives.
Invest if you can afford it
Once you’ve cleared your debt and built up a rainy day fund of savings you can access in case of emergency, you might want to consider investing as a way to grow your cash more quickly.
Investing isn’t just for the wealthy – we found that you could retire a millionaire by investing just £78 a month.
Investing apps like Nutmeg and Freetrade let you get started at the touch of the button, and some will let you set up an account with as little as £1.
You’ll have to find the service that best suits your needs – and your level of confidence.
Some will choose your investments for you based on your answers to some questions about risk, while others let you pick for yourself.
Watch out for charges as these will eat into your returns – and remember to only ever invest money you can afford to lose, as the value of your investments can go down as well as up.
Watson says: “As a general rule of thumb any money you invest should remain invested for a minimum of five years.”
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