How to Start Saving
The idea of building up a nest egg has a certain comforting attraction, but in these days of general belt tightening, it might seem nothing more than a pipe dream to many of us. However, with a little bit of financial self-examination and by getting rid of bad habits and learning to adopt good ones, each and every one of us can make a start at saving.
Never has the saying ‘from little acorns, mighty oaks do grow’ been more relevant. Start now by saving a modest amount and providing you put your money in the right place such as tax free ISAs (read more), it will do the work for you.
Before you can seriously start saving you’ll probably want to clear the decks. And that means getting rid of your debts.
There’s no point putting money in a savings account when you owe money that you could pay back sooner rather than later. Interest rates on credit card debt are always going to outstrip those on savings accounts many times over.
This is where you need to sit down with a calculator and tot up how much you owe on all your credit cards. If you’re only meeting the minimum payments each month, it’s going to take you a very long time to repay the original debt, by which time you will have paid out a colossal sum in total.
Think about how you can pay more each month so you’re tackling the main debt, not just the interest. If it looks unlikely you’ll be able to pay this off in a realistic time frame, then you’re going to have to work out where you can economize in the short to medium term in order to free up more of your income to pay down your credit card debts.
A great start is to cut up your existing credit cards so you can’t add more debt to the amount you already owe. It’s tough, but it’s effective.
With certain financial arrangements such as hire purchase or loans, your time frame for repayment is probably fixed, so you can simply factor in the payment amount as part of your regular outgoings in the same way as you’d treat an electricity or phone bill.
You need to work out exactly how much you have to spend each month on bills, food, petrol, etc. Although this might seem a tough thing to do, working out exactly where your money’s been disappearing can throw up a number of ideas on how you can cut back and set budgets properly.
What’s left after your subtractions for essential spending is what you can spend on non-essentials like going out or new clothes. And also this is where you’ll find the money to start building your nest egg.
Make sure your money works as hard for you as possible. Shop around for the best interest rates and remember to take advantage of the tax-free savings offered by ISA’s or Individual Savings Accounts. Everyone can invest £5,340 a year in an ISA and unlike a regular savings account you’ll receive all the interest with nothing going to the Inland Revenue.
