How Do I Start Saving? – Where to Begin?
These days, you might find that the income you receive isn’t going as far as it used to. You might be just about keeping on top of your bills, never mind saving for a rainy day. However, having even a small amount of savings put away each week or month, can make your life easier. For example, when an emergency happens like an unexpected hospital trip or the boiler breaks, having some savings can relieve the potential stress.
Having savings doesn’t always have to be about long-term goals like saving for college or a mortgage. This is setting up a ‘sinking fund’. This would allow you to pay your car insurance off in one payment rather than paying instalments monthly with interest on top.
What is a sinking fund savings account?
A sinking fund is a popular budgeting approach. It helps you save for specific future expenses you know are coming. An example of this includes annual bills like car or home insurance. By setting up a sinking fund savings account, you can save for the expense gradually over time rather than using money from your emergency fund when you need to pay for that expense.
MABS a helping hand.
It can be hard to know where to start saving, especially if you’ve been living paycheck to paycheck. This is where MABS comes in. In this blog, we’ll cover how to get started with saving, when we should and could save, and why.
Why is saving important?
We know it might not be easy or possible to save at the moment. If you use a banking service offering a “spare change” or “round up” option, try doing this for a week or two and see if you can manage.
Having the ability to save can benefit you both financially and mentally. By creating a habit of saving -even a little bit – every week, fortnight or month, you’re building your financial future. Whether you have long-term goals to travel, go to college or pay off debts, it all starts with creating the savings habit. Having this put in place can reduce mental stress greatly. Some reasons why people save include:
- Bills – monthly, quarterly or annually. Being prepared and setting money aside for these means you’ll be ready when they come in. You won’t have to skip something or borrow money to pay.
- Unexpected events – the car breaks down, or the fridge gives up or a pipe bursts. To reduce a stressful situation, have money set aside in case these incidents happen. This will allow you to focus on dealing with the problem.
- The Big Events – Christmas, holidays, birthdays, weddings and communions or confirmations. These are all big expenses that either happen every year or you’ll know in advance that they are happening. So, this gives you time to plan and save.
- Peace of Mind – knowing you have money there if you or your partner loses their job. Or to deal with smaller things like bills and unexpected events. This can free your mind to focus on other things rather than where you’re going to find money to pay for them. It also brings a sense of control over your money and financial freedom, depending on the amount saved.
- Track Record – having a good savings record can be a big factor. It shows your affordability and consistency if you ever need to borrow money.
The first step to start saving is to find the money to save. So, really the first place to start is with your budget. If you don’t have a budget in place – check out our blog Why we Budget and How? If you already have a budget in place, have a look at what’s coming in and what’s going out. Is there money available at the end of the month? Is there anywhere you could cut back on or perhaps get a better deal on your utilities? Or do you have expenses you could claim back from Revenue?
Why do you want to save?
Set a savings goal. While you may have long-term saving goals, setting a goal is the best way to start. Start with something small, like a bill or an event you have coming up. It’s important to set realistic goals. For instance, if there is a wedding coming up next week and you don’t get paid before it – it’s not going to work. Likewise, if you have no savings at the moment, it wouldn’t make sense to set yourself a goal to save €5,000 in the next three months if you just about earn that within the three months. Saving and budgeting fatigue is a real thing. Try to start small and build up slowly. Factoring in some along the way especially when you are starting.
- Set up a standing order or direct debit to your savings account/vault/space on the day you get paid or through your payroll if that’s an option. If you don’t see it, you can’t or won’t be tempted to spend it.
- Don’t dip into your savings, for example, if you’re putting €100 away each month, but 2 weeks later, you take out €50.
If you can afford to put €50 rather than €100 away each month, you’re still creating a habit and not overstretching yourself.
Most people, when they think of savings, think of having an emergency fund, a ‘rainy day’ fund or a ‘buffer’.
An emergency fund or ‘buffer’ provides a financial safety net to reduce stress in an emergency and reduce the need to borrow money.
Not to confuse with a ‘sinking fund’. You can have an emergency fund which functions like a sinking fund. However, your emergency funds or ‘buffer’ should be set aside from other savings.
How much should I have in my emergency fund?
Rule of thumb that you should have at least 3 months of essential outgoings if you are in a permanent and steady paying job. Otherwise, the advice is to have a minimum of 6 months. When you’re starting though, aim to get a small emergency fund together, say €500. This is useful in case an essential household item, such as a washing machine, was to break. Having this emergency fund could help you cover the cost of a replacement.
Once you’ve built up your emergency fund, start your process again, look at your budget, set a goal and start working towards it. If you get a pay increase, why not put some of the increase (or all of it) into your savings if you’re living relatively comfortably?
‘Lifestyle creep’ is when we get an increase in income and we increase our spending to match the new income. However, some people are already saving money each week or month. Adding money comfortably to savings or to pay down debt. Likewise, if you pay off a debt like a car loan, put that monthly payment into your savings or roll it on to paying off another loan or debt you may have – learn more about approaches to Tackling Debt.
If you’d like to do some additional reading or learn more about budgeting, visit our page on Building Up Savings.
If you have a query on digital banks or a general money, budgeting or debt-related query, you can call the MABS National Helpline on 0818 07 2000 Monday to Friday, from 9am to 8pm, WhatsApp 086 035 3141 or find the contact details for your local office.
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Disclaimer: While every effort is made to make sure this information is accurate and correct; we strongly recommend that you do your own research and make your own informed decision.