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The cost-of-living crisis has touched millions of households in the last two years, with historically significant hikes to essential costs across the board. Energy, food, mortgage rates, and travel costs have all become more expensive, and some untenably so for certain unlucky households.
The extent of this crisis has brought into sharp relief the importance of good financial literacy – something which, unfortunately, is not well-taught from early on. If you are engaging with your own financial situation, you might be wondering just where to start. Here are some simple tips for the most basic of financial literacy undertakings: building up your savings.
In order to build your savings up effectively, there are a couple of preliminary things you should do in order to prepare. The first and, arguably, most important of these is to arrange your finances accordingly. Essentially, you will need some accounts specifically for your savings. Having more than one savings repository can be useful, too; some accounts benefit from tax exemption on interest, while others can offer you unique benefits in return for locking your money away.
Having these sorted out in advance of your savings efforts can ensure you hit the ground running when you start to enact your plan without risking losing progress to untrammelled spending right away. Speaking of which, a plan is precisely what you will need to maximise your efforts. What are you building towards, and what milestones would you like to achieve in saving? Make sure these goals are achievable, though, or you may get demoralised and lose your focus.
Before saving can properly begin, you need to ensure that you are debt-free. Owing money in the form of outstanding credit card balances, overdrafts, or bank loans is highly likely to be detrimental to your savings efforts, especially if you have more than one debt obligation. This is because interest on debt often outstrips interest on savings, meaning for each month you save while in debt, your net returns are diminished.
Simply put, the sooner your debts are paid, the sooner you can earn interest without penalty, and the better your savings journey will be. The only exemptions here relate to interest-free debts with long repayment terms, which can, in fact, be used to your advantage if you are particularly savvy.
Of course, the journey to saving money isn’t quite as simple as all that. In order to put the right amount of money away each month, you need to know exactly what your financial situation is – and hence, exactly how much you could put away each month.
You should start with a basic spreadsheet that calculates your expendable income by subtracting essential costs away from your monthly average income. This is the absolute maximum you could put away, provided you don’t eat, travel or have any fun, that is. From here, you can track your variable expenses and isolate areas where savings can be made. This data can become the basis for your long-term savings roadmap.
This is a collaborative post.
Welcome to Birds and Lilies! I'm Lou: mother, blogger and freelance writer. This is my lifestyle blog, where I talk about motherhood, infertility and IVF, beauty, my love for food and wine, as well as my thoughts about stuff, and our real-life and travel adventures.
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