Saving money isn’t hard. After all, most of you learned how to do it when you were a child. So what happened? Why isn’t your bank account overflowing with cash? Did the cost of the rockstar lifestyle get so expensive that your savings couldn’t keep up? Or are your lack of savings a symptom of something a little more simple?
If you want to know how to get better at saving money you need to take a good look at yourself.
You need to understand what you can afford and set some expectations.
How old are you? How much money do you want to save? Is your aim to retire in relative comfort or are you aiming for something a little more brassy (a Ferrari on the drive when you hit 65?).
Regardless of what your plans are you need to some work. Even if you’re in your 40’s or 50’s you already know that the pension plans aren’t looking too healthy. You need to start saving money, pronto!
How Are People Saving Money In This Economy?
The economy is still a little shaky. In fact, if you ask anyone that’s been made unemployed they’ll probably tell you it’s been like that for a long time. With all the doom and gloom it’s easy to ask how people are saving money in this economy. Here’s the harsh reality:
I don’t mean cutting a goats throat and serving it up as an offering to the Gods. Instead, they’re cutting back on the things that used to be considered ‘necessities’.
Expensive holidays, new cars, a move of home, etc, etc. They’re all feeling the pinch.
If you want to get your savings in order you may well have to take a good hard look at your finances. In particular, start to root out all those luxuries that you really don’t need.
Yes, it may seem drastic but you did ask. The economy will keep on rolling regardless of how much you have in your savings. Are you going to roll with it or fall by the wayside?
Money saving table! Add in your outgoings, prioritise them then decide if you really need them or not. Add your savings at the end then total them up to see how much money you can save.
|e.g. Sky subscription||No||Yes||£25 per month|
How Much Money Should I Be Saving?
It all depends on what’s important to you. Ideally, you should have given you finances a good auditing and decided where you can save money. If you haven’t done this, go back to step one and use the table to start prioritising.
I’ve done quite a bit of research on the question of how much money you should be saving. It’s hard to get an exact figure. The average recommended amounts are laid out below. The table shows a some target figures, amount per month saving and time taken to get to those figures. It’s not a perfect number but it does go to show that you’ll need to save hard to ensure you have a decent level of savings for a rainy day or your retirement.
|Amount saved per month.||Time to save: £100,000||Time to save: £200,000||Time to save: £500,000|
|£100||21 years||33 years||51 years|
|£250||13 years||21 years||37 years|
|£500||7 years||13 years||24 years|
* The table above uses 4% as the rate at which your money will earn interest. This figure may vary, up or down, and you’ll need to take this into consideration.
How Much Money Should I Have In Savings?
It’s a similar question to how much money should I be saving. How do you see your life now and in the future? Are you thinking about the day you retire or the here and now?
If you’re aim is a comfortable retirement then the sky is the limit. Seriously, the more money you can stash away in your bank account the more you’ll have for the future.
If your savings are designed to be an emergency fund you need to think along the lines of how it costs to live now and in the near future. Ideally, you should have enough money in your savings account to cover 6 – 9 months of living expenses. This should give you plenty of time to get back on your feet in the event of an a disaster.
How To Teach Kids About Saving Money
To be honest, the best way to teach kids about saving money is exactly the same way as you learned.
Remember how, hopefully, your parents drummed the importance of saving money into your head?
Can you remember a time when you had:
1) A piggy bank
2) A savings account
3) Spare cash to spend on things that you wanted
Children mimic what they see and hear. They’re easily influenced. Now is the time to make them understand the inner workings of money and how it can benefit them. I’m not saying you need to enroll them on an accountancy course (although that might help you cough cut back on you payments to the HMRC) but give them enough knowledge to run with it.
I’m assuming that you know how things like compound interest and tax computations work. If not, maybe you need to brush up. In fact, work with your children as a joint learning exercise. Any kind of headstart you can give your children will be a bonus.
If you’re a new or soon to be parent you might want to check our money saving tips for new parents guide.
That’s all for today. I sincerely hope that any of you having difficulties saving money will read this and start to take action. After all, most of you will have a long life ahead of you and you don’t want to be living in poverty in the future.
Image courtesy of o5com