4th June 2014
Our savings writer Kara Gammell looks at five ways to boost your savings.
It’s a fact – people who set savings goals save faster than those who don’t. What’s more, figures from NS&I show that people who have a have a financial focus save up to £550 a year more than people who don’t.
“Setting goals tends to help in most areas of our lives and certainly spurs on savings and investments,” says Jasmine Birtles, founder of MoneyMagpie.com.
“In fact, once you have specific goals, with specific time frames, you find you’re much more willing to sacrifice spending now in order to reach future goals.”
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If you have been meaning to save more, but just can’t seem to find the cash, here are five ways to set a financial goal and ensure that you achieve it.
1. GET YOUR HEAD IN THE GAME
Just like you wouldn’t go on a road trip without planning your journey, you need be focused when it comes to savings.
If you have more than one goal, determine which ones are most important and make those your first priority.
Be realistic about how much time and money it will take to accomplish each goal – an estimate that is too low will only frustrate you, while one that is too high may put you off. Keep in mind that setbacks can, and will, happen. If something throws you off of your target, don’t give up – just readjust your plan.
2. GIVE YOURSELF A DEADLINE
Once you have an idea of how much you want to save, keep yourself motivated by setting a timeline for your goal.
“Financial objectives are far easier to understand and reach if they are quantifiable,” says Patrick Connolly, a certified financial planner at Chase de Vere. “This means that people should understand how much money they are likely to need for each of their goals and when they are likely to need it.”
Some timelines are obvious – for instance, paying for your wedding next summer or a preparing for a new baby in just nine months time. But other goals, such as an emergency fund or your retirement can be a bit more difficult to visualize. Here it could help keep you on track if you set a benchmark amount that you want to hit by a certain date – say £20,000 for a house deposit by the time you are 30.
Mr Connolly points out that having this knowledge enables savers to understand not only how much they need to put away each month, but the rate of return they need to achieve.
3. GIVE YOURSELF A SAVINGS PAYDAY
The easiest way to build up a nest egg is to keep it simple and set up an automatic bank transfer on a monthly basis.
A lot of people say they can’t save because they do not have any money left at the end of the month but they’re approaching it from the wrong end, says Ms Birtles.
“The best way to build up any savings or investments quickly and efficiently is to pay some money into your savings accounts and investment products by standing order each month when you pay your bills,” she says.
“It means the money is out of your account before you’re aware of it and you have to live on what’s left over. After a while you hardly notice the difference as you’re so used to living on a lower amount.”
4. KEEP YOUR GOALS SEPERATE
If you’re like most people, you work toward several financial goals simultaneously, yet you keep all your money clumped into a single savings account – but this approach can have some drawbacks. When your money is lumped into a single account, it’s tough to know how much more you need to reach a particular goal.
You can open additional savings accounts to avoid this problem. As each account has a name and specific purpose, you will have an added incentive to pay into it.
If you are a property owner, another option is to have an offset mortgage where your savings is “offset’ against what you owe on your home loan, therefore reducing the overall amount of interest you pay.
“With this type of home loan, borrowers have different savings ‘pots’ so you can see the total amount of money in your savings and know that they are making your mortgage cheaper at the same time,” says Ms Birtles.
So, if you have a £100,000 mortgage and £20,000 in savings with the same institution, with an offset you woul only pay interest on the £80,000 difference, meaning you can shave off years of repayments at the same time.
Another big advantage of offsets is that you don’t have to lock up your savings for the duration of the mortgage term, as you can usually get access to your money whenever you need to.
If that seems too complicated, you can still keep track of your specific goals when all of your money is in one savings account and simply keep a ledger at home of what amount goes to which goal.
5. WATCH WHAT YOU ARE DOING
Keeping your ‘eye on the prize’ sweetens the pill of making cutbacks, so keep track of your savings goals with online tools or applications on your smartphone.
“Technology has evolved in such a way that it is easier than ever before to keep track of finances,” said Kevin Mountford, head of banking at Moneysupermarket.com.
“Websites and smartphone apps are available that allow people to view all their accounts in one place so that they can make better financial decisions and save money,” he said.
OnTrees (ontrees.com), for instance, allows you see all your financial accounts in one place. You can check your balances, track spending and set up budgets and alerts to manage your money more effectively.
Also worth a look is Your Wealth’s Money Hub (yourwealth.co.uk/money-hub) where you can set up a monthly budget as well as integrate your bank accounts, credit cards and investment accounts to automatically track where you are against your budget for
Available on desktop, tablet and mobile this tool enables you to set and track financial goals, project your net worth, and even estimate your income in retirement.
However, even if you are good at budgeting, other general outgoings often absorb the money you saved from making cutbacks and this can throw you off your financial goals. If this sounds like you, check out OrSaveIt (orsaveit.com). Available for iPhone and Android, this app allows users to specify particular savings goals and each time you choose to save rather than spend the money is added to a total, you are prompted to transfer this amount into your savings account at the end of each week.
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