2020 has provided challenges for many individuals, particularly those without emergency funds. Even if you have been fortunate not to be negatively impacted financially by the pandemic, worries about job security would certainly have been eased if an emergency fund was available to fall back on. At Wingate we typically recommend holding 6 – 9 months essential expenditure in cash to deal with any upcoming emergencies. This blog will provide some tips on how to make STRIDEs with your savings.
Start – The most difficult part of any journey is making the commitment to start. This will need to be more than putting some money aside every month. In terms of setting goals it is important to ensure they are clear, so take the time to understand the journey that you are about to undertake and where you see the benefits of saving helping you in the long run. You should also allow for presents, gifts, and time away, so this does not impact your saving patterns later down the line.
Time – Savings will take time to build up. Patience is an important ingredient when it comes to saving for your future. Understand that although you may start on £0 or even negative figures (as you are paying down debt), you will eventually reach the goal, it will however take time.
Risk – By saving up the emergency fund, you are lowering your overall financial risk. This will reduce the need to use short term credit or loans, which when required in an emergency, can incur higher rates of interest on the borrowing. Although holding a certain amount of cash reduces risk, holding too much cash (over our recommended 6-9 months) will expose you to unnecessary inflation risk, as the real value of your cash can erode over time by the rate of inflation. Investing surplus savings in vehicles with a higher level of risk in order to obtain a greater return on your money, can be beneficial in the long term, alongside the reassurance of having a fund for emergencies.
Income (vs Expenditure) – A simple way to determine how much you can save is by knowing exactly how much income you have every month (usually straight forward for those employed) and exactly how much expenditure (not usually as easy to analyse). It is important to understand your general spending habits and work out what your essential spend is – for example, food, housing, utilities, and childcare. Then work out how much your discretionary spend is – for example, nights out, entertainment, luxury items and holidays. Due to the pandemic, discretionary spending for most has reduced significantly, so if it means looking back to spending habits from February 2020, analyse a ‘normal’ month. If you have a skill or hobby that can be monetised, you could choose to only save this income. Alternatively, you could use this irregular income as your discretionary expenditure and save your regular income. The main point is that you need to know where every pound is spent to make an efficient savings plan.
Discipline – Decide on an amount you are going to save and stick to it. Be confident with your journey that you are undertaking with savings, knowing that by taking this course of action will help provide you with security in the future. Your discipline may be tested regularly; however, if you do come up against temptation to deviate from your plan, you could choose to tell yourself something like ‘I have paid my future self and I cannot get it back unfortunately.’ When you started this journey, you will have made provisions for gifting and one-off lump sums throughout the year so your savings pattern can remain consistent. Having good organisation and meeting friends all at one time in the month can be more cost effective – and enjoyable (of course not during the pandemic)
Execute – Once you know what you are going to save, execute the plan with pride.
If you want to discuss how to make positive strides with your savings and investments, please contact Wingate to discuss further.
