Money has a habit of slipping away when you least expect it. On top of that, you never really know when you’re going to need to fall back on your finances. Therefore, learning how to start saving money as soon as possible is crucial. But what are the best ways to start saving without you having to burn too much of a hole in your ‘spending’ pocket?
If you read Project Financially Free regularly you’ll know that I’m always sharing new and interesting ways for UK savers to make the most of their cash. However, to really get into the habit of saving, you’ll need more than a flashy app to start you off on the right foot. Keep reading and I’ll share with you five of my favourite tips to show you how to start saving money in 2021.
Pay Off Your Debt First
Rule number one – get clear of debt before you think about how to start saving. I don’t necessarily mean mortgages, car financing, student loans or anything else long-term.
What I do mean is consumer debt. This could be anything you owe on store cards, credit cards, personal loans, etc., etc. The fact is, with a clean slate, you’re going to feel better about saving, and you’re going to find it more comfortable to put money aside, and more likely to succeed with saving for the long term.
There are some circumstances where this might not always make much sense if you’re not accruing much interest on your debts. For example, you might be taking advantage of zero percent balance transfer cards. If you’re steadily accruing interest income on your savings and aren’t building up more debt on a zero balancer, it won’t always make financial sense to clear up your consumer debt rather than saving. However it’s worth considering the phycological impact of having debt hanging over you, even if it is currently sitting on a zero percent credit card. As at some point that credit is going to need to be serviced.
Personally, I’d really suggest trying to clear your consumer debt first before you start making a serious attempt at saving. Take a look at a few budget planners online and take full stock of the money you owe, to who, and how long it will feasibly take to pay everything off. If you have multiple debts I would recommend considering the debt snowball method, made popular by Dave Ramsey. His book, The Total Money Makeover, is also well worth a read to get into that debt payoff mindset. Once you’re clear of consumer debt, you can start to save money without any of that unnecessary guilt or pressure.
Make a Budget and Track Your Spending
Want to know how to start saving money? I can’t stress this enough – you MUST make a budget.
Some people are scared or apprehensive about budgets simply because it means crunching a few numbers. Others might be worried that they will see the full extent of their spending and feel extremely guilty! However, there really is no better way to start to get into the habit of saving.
You don’t necessarily need to track and trace where every single penny has gone. Instead, I’d advise you make a point of looking at your average spends over, say, the past six months. Barring any emergencies or circumstances where you had to spend more than usual, is there any leeway or wiggle room for you to save?
If not, this is where the budgeting exercise really takes off. It’s time to start looking at where your money is going, and if there are any ways you can cut down on the expense. Think about sorting your expenditure into two piles – one for essential expense, and another for non-essential.
For example, while you will likely need to keep your direct debits set up for energy and phone bills, you might be able to cut back on some of your TV packages or subscriptions. If you’re serious about saving, it really will pay to be ruthless. Save any money that you’d normally spend on frivolous expense and reap the rewards.
One of the biggest spends for a lot of people will be food. Is there any way in which you can cut down on your regular food shop?
It’s fairly straightforward to set up your own budgeting spreadsheet if you have a bit of know how with Excel or Google Sheets. However if you’re looking for a simple but effective budgeting spreadsheet and dont have the time or know how to set one up I would recommend checking out this one from Anna at Panda Boss.
‘Gamify’ Your Savings
Ever heard of gamification? It’s a clever way to make everyday activities more fun. Plenty of people gamify their daily chores or even work when they go into the office. There are also many different ways through which you can gamify saving money.
UK savers can find an element of saving gamification through apps like Plum. A money management app which has gained a lot of popularity based on its automated money-saving and investing features (please note: as with all investments, your capital is at risk). What’s really interesting about Plum and its raft of extra features through its Plum Pro (£2.99 a month after a free 30-day trial) service is the savings challenge features.
Specifically, Plum offers an automated 52-week challenge – where you’ll save a little bit more each week, automatically, from January through December (or whenever you’d like to start). This works incrementally, meaning that you will save £1 on week one, and £52 on week 52 – making up a total of £1,378 for the year without you having to think about it.
Saving automation and the challenge aspect is a great way to get into gamification regarding your money. You could set yourself challenges and games to see how much money you could put away for a given period. You can, of course, set yourself little rewards and pickups along the way, too, so that you keep on target.
If you’re the sort of person who likes chasing high scores or setting records, this could be a really interesting and fruitful way for you to save money in the long run. There’s some psychology at work here, too, as you may be the sort of person who is likely to stick to a plan or a target providing there is a reward or promise of a record at the end!
Set Yourself Savings Goals
Goals are so important if you are serious about learning how to start saving money. Goals aren’t anything to be fearful of. They exist to help inspire you do the best you possibly can. That’s why, whenever you do set yourself any savings goals or targets, you need to make sure that you are always being realistic regarding your income and your expenditure. You’re really going to need to get your budget in order if you have any hope to reach goals you set far in the future.
It’s not hard to do long term. However, the best thing to do is to set yourself smaller goals in the first instance. If you really rush into things and go too grand on the final total, you may end up disappointing yourself. Therefore, what you might want to do is set yourself that smaller goal and to double or triple it once you meet it. It’s all about keeping yourself going.
Momentum is key in all walks of life, but particularly when it comes to money. Saving, cutting back and even making money all require you to be consistent and to stick to your guns.
Earn Interest on Your Savings
Earning money from savings interest is never guaranteed thanks to the fact that these rates really can go up and down at any time. However, a great way to start learning how to save is to make the most of an account with a solid rate of interest. It’s a passive way of making money that’s well worth looking into.
Coming back to Plum Pro, the app and premium service will enable you to make as much money as possible with interest boosters on top. By taking part in the 52-week challenge via the app as explained above, you’ll be able to set up interest pockets for various savings pots and goals. Plum, at the time of writing, offers an impressive 0.55% AER interest rate for Plum Pro users. It’s worth mentioning that these interest accounts are provided by Investec bank, who do have the right to change the rate at any time.
Getting as much interest back off your savings just makes sense. We may be looking at a period of economic downturn and low rates. However, that really doesn’t mean you should hold off on making the most of interest.
Saving can seem difficult, but if you can make use of these tips and really put your mind to it you can do it. There are plenty of different options opening up for UK savers right now even in the midst of an uncertain economic climate. You just need to get started as soon as possible.