As a nation, saving isn’t our strong point. Around 1 in 2 working people have less than £100 in savings. It can be really difficult for people to save as they often have debts to pay off, or in some cases, are simply spending too much. Unexpected situations such as a broken boiler or losing a job can make things worse as we may be tempted to turn to credit cards and payday loans to cover the costs. Borrowing money and taking out loans often come with high interest rates and unmanageable plans. This means moving further away from long-term saving goals and sinking deeper into debt.
However, there are ways that you can turn this around and get yourself from debt to savings. This means managing your outgoings and getting into the habit of putting money aside, so you can focus on the things that matter the most.
There are 3 steps you can take which will help get you from debt to savings:
- Take control of your finances
To take control of your finances, the first thing to do is understand your overall financial situation. This means looking at how much you earn each month and how much you spend on your outgoings. Although it may seem obvious, making sure you earn more than you spend is essential, otherwise it’s almost impossible to save.
You can manage this by setting a budget. This should break down how much you plan to spend on outgoings such as food, bills, travel, going out and any other expenses. You can then review the areas where you’re spending the most and look at where you can cut costs.
You can do this by:
- Looking at any existing debts you have and making sure you’re paying off the loans with the highest interest
- Considering a debt consolidation loan if you have multiple debts
- Reviewing your household bills to make sure you’re on the most cost-effective plans
Doing your research and using comparison sites can also help you find the best possible deals, saving you money and helping you put more away.
- Pay yourself first
Having a savings buffer can help you prepare for any unexpected events that might crop up. These can happen at the most inconvenient times and if you don’t have the funds to cover the costs, you could find yourself in debt. The trick to building a savings buffer is getting into the habit of saving regularly. A good way of doing this is paying yourself first ahead of all your other outgoings. It doesn’t matter how small you start, as long as you can commit to a minimum amount each month.
For example, by saving £3 a day (around the price of a cup of coffee), you could save £1,095 a year or £5,475 after five years. This shows that saving on a regular basis can soon add up, and give you the financial cushion you need for those unexpected expenses.
- Save towards your financial goals
Most of the time we need to rely on savings to achieve what we want from life. It could be a deposit on a house, paying for your child’s education or investing in your retirement. To make sure you stay on track, you need to set up some goals. These should include how much money you want to save and a timeframe that you aim to do it in. Once you’ve worked out how much, you can open a separate savings account, set up a standing order and watch your savings grow.
If you find that you’re still struggling to save money at the end of the month then it’s worth going back to the beginning and looking at your budgets and targets. Understanding the entire journey is really important and it’s amazing what can happen when you make saving a priority. Through assessing your finances, making cuts, building a savings buffer and setting goals, you can move from debt to savings and focus on planning for your future.