Finance

THE IMPORTANCE OF SAVINGS

Saving is good

For me saving is a good habit, a virtue and everyone should try and save as much as possible where possible.

  • as much as possible
  • where possible.

It may not always be possible to save – for instance, if you are unemployed, sick or retired.

A definition of savings is:

‘INCOME WHICH IS NOT NEEDED FOR CURRENT EXPENDITURE AND IS PUT ASIDE, POSSIBLY IN AN INTEREST-BEARING ACCOUNT’.

For some people there is little assessment and control of expenditure and more often than not there is no excess income to save each month.


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It is amazing how little savings some people have

In 2016 an ING Bank survey found 28% of people had no savings at all.

In February 2017 the Guardian reported than one in four families had less than £95 in savings. AS A COUNTRY WE ARE REALLY POOR SAVERS.

The Office for National Statistics (ONS) reported that households saved just 1.7% of their income in the second quarter of 2017 – a fall on the previous quarter and the lowest figure on record to that point. 1.7% compares dismally to a near 10% annual average over the last 50 years.

Falling savings rates can only mean bad news for us as a nation. The fact that individuals and families are saving less is a clear early warning sign that personal and family budgets are being squeezed and people are finding it harder to cope financially. It may also be a sign of the next recession. If you cannot think of a reason to maximise your savings, make that be one.

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Money Saving Expert has suggested that a good level of savings is 6 months’ worth of bills, with 3 months’ worth not being ‘too bad’. For many people even 3 months’ worth would run into thousands of pounds.

That however is the extent of the challenge, not a reason to throw your hands up in the air and shriek ‘impossible’. It most certainly is not – and perhaps the hardest thing is taking up the challenge.


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I am not spotless on this one. For many years I was like the majority, spending freely as the money rolled in from my successful self-employment. That is the trouble when things are going well – you never give any thought to the possibility of things going wrong. But of course you should; you should assume that they will go wrong at some point – they almost always do. That is what happened to me.

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The 2007 credit crunch

The inevitable economic downturn occurred in the run up to the 2007 credit crunch. Mortgage rates shot up and credit, which was being freely handed out like candy before, became as hard to get hold of as alcohol during Prohibition. I had some reserves but not 6 months’ worth – and since I was looking not only at domestic expenses but also business overheads from not one but three businesses, it is true to say that it was almost RIP to my successful career as an entrepreneur.

WHAT SAVED ME WAS NOT SOME SUPER SMART BUSINESS MANOEUVRE OR STRATEGY ON MY PART.

What came to my rescue was the interest rate cuts which began in December 2007 after the collapse of Northern Rock in September 2007.

And of course it wasn’t just me – pretty much the whole country, especially the self-employed, were in the same leaking boat.

Low interest rates and the Government pumping money into the economy through ‘quantitative easing’ saved the day; but next time we may not be so lucky.

The experience made me realise that 6 months’ worth of expenses, personal and business, should be the minimum everyone should aspire to.

I set my target as 12 months and I got to that point mainly by focusing on my spending. That is my advice to everyone. Concentrate on outgoings. Especially with a business, it is often easier to reduce expenditure than to increase income.

The starting point is to accurately set out your monthly budget – your income and expenditure – both personal and business (if you are running a business). CUT YOUR SPENDING TO THE ABSOLUTE BONE – IT WILL BE HARD AND PAINFUL AT FIRST, BUT WITH TIME IT WILL BECOME EASIER AND YOU MAY EVEN FEEL A QUIET SENSE OF SATISFACTION AS YOUR DISPOSABLE INCOME GROWS.

QUICK HOUSE DEPOSIT:
50 Ways To Put Together A Deposit in 6 Months

Budgeting

Use your smart phone to access and try out a wide range of free budgeting apps available from the App Store and Google Play. If you have an iPhone, the Numbers app includes various budget templates which you can adapt for your own use. I have done that and then transferred my budgets to the task mastering app Trello, which is like my one-stop management platform for housing my budgets and a range of other useful systems, strategies and resources – all aimed at upping my game across a wide range of categories including: time management, personal development, income growth, investments and of course savings.

Be ruthless with items of spending; if an item is not absolutely necessary, cull it. I found that I could make reductions by changing my utility suppliers and monitoring and lowering my consumption of their services. I was able to make significant savings by cutting back on some insurance as well as finding cheaper providers. Discretionary spending such as holidays and entertainment was cut to the bone.

Interestingly, my Arsenal season ticket was not under threat, as it was not possible to think of that as discretionary spending!

In the case of business spending, several smaller debts were replaced by a large loan, which was cheaper to service on account of sourcing a low interest rate. My business overdraft was converted into a much cheaper loan. I used loads of other ways to reduce overheads and spending.

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Saving not the luxury option

Saving should not be considered the luxury option – let it be a necessity. Find the best interest bearing account for your spare money. Saving is not simply important, it is essential for long-term financial survival.

Life is full of unexpected expenses: your expensive uninsured smart phone will get lost or break; your washing machine will pack up when you least expect; your boiler can’t last forever. When the inevitable occurs, will you have the savings to step up and pay for the necessary replacement or repair?

 Perhaps you intend to rely on your credit card to bail you out; you may have to do so, but seriously, given a choice, you don’t want to go there.

But that is a story for another day…


Dalton Barrett
Rebel Property Coach

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  My website is: www.rebelpropertycoach.com

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