The Importance of Having Separate Money Pots
When it comes to the future it’s impossible to predict what’s going to happen. Nothing is for certain. However, something you can do to make yourself feel better about all of that unknown is saving your money carefully and wisely.
Now is the time to get real about your finances. This can be tough, and you may need to overcome feelings of stress, anxiety and shame, but the outcome will be so worth it.
Start by asking yourself if you’re saving enough money and tracking your spending habits. Do you spend more money than you make, and do you avoid thinking about money? Do you really know how much goes in and comes out of your bank every month? Face up to these questions to make way for a healthier relationship with your finances.
It’s important that you save in a variety of ways, so your future finances aren’t reliant on one source. And if you’re struggling to get in the mindset of saving money, make sure you’re saving with a purpose and visualising your financial goals. Whether it’s for a new car, a house deposit, the holiday of your dreams or your retirement, do your research to work out how much you’ll realistically need to meet your target, and break your saving schedule into manageable chunks. A good rule of thumb is to contribute 10-15% of your income to a savings account.
So why should you start thinking about where to put your savings?
Become Financially Independent
The measuring stick for being rich is different depending on who you talk to. However, the one thing that the notion of “being rich or wealthy” means to most people is having financial independence and savings to depend on. Calling your own shots, financially speaking, means having the freedom to make choices in your life separate from earning a pay cheque.
Retirement
You’ll work hard for so much of your life. When you get to your retirement you want to ensure you’ve got stable funds for yourself to live off, rather than having to worry about going back to work. You can save up for your retirement in a number of ways. From investing money into your pension or different properties. Investing in a holiday home will always be a sound investment. It’s easy for you to rent it out seasonally, plus it saves you money whenever you fancy a getaway yourself.
Buying a Home
The bank won’t lend you money to buy a house unless you have a down payment, and you are not allowed to borrow a down payment. You must have this money saved up or have someone give it to you—and not lend it to you. Then, there are all sorts of other costs and fees that you need to pay when you buy a home, so you will need an additional 5% just for those costs. Savings is what will open the door to owing a home.
Buying a Car
When you want or need to buy a new car, you will need to have a down payment in order to get a car loan at a reasonable interest rate. You could of course “borrow” the money from your credit card, but at 20+%, how is that getting you ahead? Zero percent financing is reserved for great customers, so a car loan is bound to cost you something—and it could be a lot. The best thing you can do is save up as large a down payment as you can afford, and then consider your options. Maybe buying a quality used car rather than a new one will be what it takes to get you the vehicle you want.
Get Out of Debt
If you ever want to get out of debt, you have to save up money. Sounds ironic, doesn’t it? However, the credit cards are never going to get paid off if you have to keep using them for every “emergency” that comes along. Even if you are an awesome planner, stats show that half of us experience at least one totally unexpected expense each year (and half of those will be unexpected car trouble).
Unforeseen Circumstances
There is no limit to the number of savings accounts you can open. You can create one for each saving goal you have – such as buying property or various insurance needs. An important category should be unforeseen circumstances. It is advised you should have enough to last 3 – 6 months for emergency living expenses. If something does happen, finances won’t be one of your main worries and you know you’re able to look after yourself and loved ones.
Holidays
Rest assured not all of your savings have to be for your hypothetical future. It’s a good idea to save up for something fun, such as a holiday. You’re allowed to use one of your savings accounts as money you can reward yourself with. It’s much easier to save up for something you know you’ll enjoy. Plus, if you have a specific goal in mind, you’ll be much more focused on your funding’s. Be realistic with your holiday budget.
Consider Investing Too
Investing might seem intimidating, but it’s worth considering as a potential way to supercharge your savings. A common misconception is that you need a big chunk of money to get started, but there are various apps that let you begin with just £1, like Plum.
Save Your Money
So, you understand the importance of saving money, but how do you actually do it? There are so many resources online to help you with this. Money apps can help you keep track of what you’re spending your cash on, and it makes it easier for you to figure out where you can make changes. Most apps can give you a hand with planning your budget, too. You can start by making small changes with your spending habits and work from there – for instance you could order food less.
As soon as you make that decision to start saving money for your future, you can rest assured you’re building a stable foundation for yourself. Remember even a little progress is still progress. What’s the number one reason you try to save money?