British Households are Saving Less than Ever
Savings matter. Regardless of how much you earn and your net-worth, savings should be an integral part not only of your long-term financial plan, but also your day-to-day life. That’s why it’s so troubling to hear that just 1.7% of income was left unspent in the first quarter of 2017. According to the Office for National Statistics, the household savings ratio halved in the first quarter of 2017.
But why exactly does this matter, and why should you care?
Emergency savings are a must. A shocking number of people have no real idea of what they would do financially if a crisis situation were to arise. While we all hope that no such scenario ever take place, there’s no way we can 100% secure ourselves against adversity. That’s why saving for a rainy day fund is so important - should you lose your job, or fall unexpectedly ill, you’ll have a secure financial cushion in place to take care of all immediate needs and help you get back on our feet. It’s never a good idea to leave yourself vulnerable to unexpected circumstances, so have some money squirrelled away.
Maximising ROI is all well and good, but savings still matter. We’re totally on board with making a return on investment when it comes to making your money work hard, but if you’re still in the early days of saving, it’s best to focus on getting your savings rate up before you dive into the world of investments. Eric Ravenscraft writes that, “the difference between an 8% and a 10% ROI on a $2000 investment is about $40. Saving even an extra $5 a month will yield a higher return than that over the course of a year. So, if you're still in the early days of saving, focus more on getting that savings rate up before you stress over maximizing your returns.”
More savings = more options for your future. If you aim to build six-to-twelve months’ worth of salary as your savings safety nest, you’ll be in a good position to better your future. Why? Because, if you come across a course that looks like the perfect stepping stone for your career, or decide on an impromptu sabbatical in the Caribbean, you’ll have the financial freedom to pursue either (or both). Even if you’re not able to put a huge amount aside, having a safety net is a good idea both for your future and your peace of mind.
Even when times are tough, putting money aside is important. All this is well and good, you say, but when inflation bites and wages stagnate, savings are the last thing on one’s mind. We get it. According to the ONS, household income has been steadily falling, resulting in the UK’s dominant services sector expanding by the slowest quarterly pace in two years. But just because things have taken a turn for the worst doesn’t mean you should give up on your goals. If you feel particularly affected by the squeeze on your income, it might be a good idea to find new ways to budget to help keep your savings afloat. From cutting down on your bills to reducing your daily expenses, there’s plenty of creative ways to help reduce your expenses without resorting to dipping into your savings pot.
A changed mindset can go a great way. Often, our relationship with money is determined by a range of factors, from our upbringing to the culture we were raised in and personal political convictions. Same applies to our ability to save and plan for the future. If you stop thinking about savings as a chore, one that you may or may not dabble in, and see it as a non-negotiable necessity, you’ll feel more determined to grow them.
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