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Are you sick of trying to make your salary stretch beyond its limits? Are your credit card bills getting on top of you? It might seem like you’re battling through a minefield of never-ending expenses alone, but so many people in the UK have the same problem.
A 2018 article in The Guardian shows that 70% of UK workers said they’re broke and live paycheck to paycheck. The Covid-19 pandemic has also significantly impacted the economy, with furloughs and redundancies causing many to be left without a stable monthly income.
While it’s increasingly difficult to live comfortably, the team here at UpSave have put together some tips so you can save money each month and budget.
Even if you have a small paycheck and need to pay off your debts, you can do some simple things to improve your finances. Let’s dive in.
How Much Of Your Monthly Income Should Go To Savings?
The most popular budgeting rule is the 50/30/20 formula, and most financial experts will advise clients to stick to this rule. It involves splitting your monthly income up into needs, wants and savings.
For example, if you earn £1600 after tax and national insurance, your monthly budget would look like this:
Needs – £800
Wants – £480
Needs count as your rent/mortgage and living expenses and wants count as things that aren’t really necessary, such as new clothes, going out and everything else.
The rule seems simple enough – so why do people continue to struggle? It can be due to many reasons, but debt is probably the most significant factor that impacts a person’s ability to save money.
If you’re reading this wondering how you can save each month, we have some great tips for you.
Create a Monthly Budget
The first step is to get an idea of where your money is going each month. Doing this enables you to work out how much you’re spending on your bills, other household expenses and most importantly – your debts.
All you need to do is go over your bank statements and create a detailed list of your monthly spending and how it compares to your income.
You can see where you’re spending the most money by doing this. For example, your food expenses may be high because you’re eating out a lot or paying for takeaways that will cut into your monthly budget.
Look at How You Can Save MoneyIf you can work out where your money is going, you can make changes to ensure you minimise your lifestyle expenses. Let’s take a look at some examples.
Utility BillsWe all need heat and electricity, but both are massive contributors to living expenses. An article from The Guardian shows that in 2020, 600,000 people were in arrears with their utility companies. While some of this is attributable to Covid-19, the rising cost of living doesn’t help matters. You can reduce your energy bills by finding a cheaper supplier or becoming more energy efficient. Something as simple as upgrading your boiler or insulating your home can result in saving hundreds of pounds each year.
Use Comparison SitesComparison websites are a fantastic place to find deals on everything from your insurance policies to cheaper phone, broadband and subscription services.
Get a Side HustleThe best thing about the internet is the many opportunities it offers people who want to make extra money. Something as simple as doing a few surveys in your spare time can result in spare cash, but freelancing is an excellent way to boost your income if you have a skill that you can offer people.
Dealing With Debt Head-On
Debt is perhaps one of the most challenging issues a person can face. It’s one of those things that most people will experience at some point, but many will still try to hide it from others out of embarrassment.
You should know that getting into debt is fixable, but you will need to make some sacrifices before you reach your financial goals.
Pay Off Your Credit CardsWhile saving money should be a priority, it won’t matter how much you save if you keep incurring interest on your debts. It’s always best to pay off your credit cards and other debts when you can; then, you’ll have more money in the future. Use the general budgeting rule but apply it to paying off your debts instead. For example, if you use the 50/30/20 split, at least 15% of the savings money will be used to repay your debts. You can also reduce your leisure allowance and set money aside to remove your debts, which might seem like a sacrifice, but it will be worth it in the future. Financial planning takes a lot of time and effort, but it’s a huge part of saving money.
Find a Card With a Lower Interest RateCredit cards aren’t all made equal, and many have excessive interest rates that are impossible for the average person to pay off. Luckily, there are plenty of balance transfer cards that will reduce your interest and let you pay off a significant amount of your credit card debt. While a lower interest credit card won’t solve all of your problems, and you’ll still need to pay the debt off, it can make life a bit easier for you.
Get Help If You’re Struggling to ManageIn most cases, some simple lifestyle changes can make a big difference to your debt levels, but if you’re in severe financial trouble, it might be time to get some help. People spend so much time worrying about how to get out of debt, and in most cases, there’s help available. A DRO (debt relief order) or IVA (individual voluntary arrangement) are two financial relief solutions that allow you to pay back your outstanding debts while still having enough for your essential expenses.
How to Start Saving Money Today
Saving money doesn’t have to be difficult, and putting spare cash aside is essential if you want to have a comfortable retirement and enjoy life. Managing your monthly expenses is excellent, but what if your car breaks down, or you need to buy a new boiler?
When you have a savings account, these issues don’t seem so big, but you’ll incur more debt without a dedicated emergency fund.
Here are some excellent ways to save money from your salary and put it away for the future.
Choose High-Interest Savings AccountsWhile your bank account is a great place for daily transactions, it’s not ideal if you want to save money. There are plenty of savings accounts that give you a return on the money you put in, and if you’re willing to take some risks, you can try investing.
Everyone should take advantage of their ISA allowance, and if you haven’t already – it’s time. There are three different types of ISA solutions, and each has its benefits:
Lifetime ISA – Available to first time buyers, this ISA lets you save for your future home. Invest up to £4000 a year and receive a 25% top-up from the government.
Fixed-Rate ISA – Everyone is entitled to a fixed rate ISA, meaning you can save up to £20,000 each year and pay no tax.
Easy-Access ISA – An easy-access ISA has fewer restrictions, so you can take money out of the account as and when you need it.
Fixed-Rate Savings AccountWhy not lock it away in a secure savings account if you have extra cash lying around? If you choose this option, you’ll be able to receive more interest from everything you save and avoid the temptation of spending money because you won’t be able to access the funds until the fixed time runs out.
Use Traditional Banking ServicesIf you’ve already used your ISA allowance, saving in a regular bank account is fine. Some of the UK’s most prominent banking services provided higher interest last year than some ISA’s. Virgin Money, HSBC and Nationwide have some brilliant rates at the moment and offer incentives to customers that open accounts with them.
Set A Savings Goal
Putting money aside each month can be tricky, especially when there are so many temptations around. Still, if you think about the future, you’ll realise how important it is to reduce your impulse buying and focus on saving instead.
One of the biggest worries people have is what happens when they retire. Everyone in the UK is entitled to a state pension, but according to Unbiased, the average income for pensioners is £304 after housing and tax costs.
However, most of this is from private pension funds, which means that people need to make significant retirement contributions to live comfortably.
Whether you’re saving for your pension fund, a new home, or want to invest in a business, setting a savings goal is the best way to stay on track.
Look At How Much You NeedHow much do you need to achieve your savings goals? It might be £300 or £500 depending on what you’d like to do with the extra money. By knowing how much you need to put in each month, you can monitor your progress.
How Much Do You Have?As we discussed previously, subtracting your debt repayments and essential living expenses from your take-home pay will give you a good idea of how much real cash you have to spare each month. You might need to adjust your savings goal in some cases, but it’s still beneficial to put a small amount by each month.
How Do I Save If I Have No Money?Once you’ve worked out how much spare money you have a month, you can focus on repaying your debts while still putting a small amount away. It doesn’t matter if you can only put 5% of your take-home income into your savings account each month because it’s better than nothing. For example, if you have £1600 and put away £80 a month, you’ll save £960 in the space of a year! OK, it doesn’t seem like much, but it’s certainly better than nothing and a decent amount of money for your emergency fund.
How Can I Stay on Track?
If you’re worried about staying on track with your savings, a budgeting app can help you maintain your finances and move towards your savings goal. Depending on the app you choose, you’ll have access to a range of features, including education on how to save and make the most of your money.
With so many available, there’s an app for everyone. In fact, Forbes has a great list of budgeting apps, so you’re sure to find one that suits you.
Hopefully, this post gives you some great ideas about making the most of your monthly salary and getting proactive with your savings plan. It isn’t easy to make ends meet and take care of your future, but with some forward-thinking, anyone can reach their financial goals.
If you’d like some help, please feel free to contact the team here at UpSave.