Saving Your Wages For A Rainy Day

Life is full of ups and downs. One day you might have more money than you know what to do with, and the next, you could be frantically searching down the back of the sofa for discarded change. If you are financially unprepared for a downturn in your personal fortunes, it can lead you into some fairly difficult situations, such as having to sell treasured possessions or take on debts that you cannot afford to pay off. The best way to cushion the impact of a financial blow is to prepare for it by building up your personal savings to a point where you are financially prepared for most eventualities.

As a rule of thumb, you should try to have at least three months income put away in the form of savings. This may seem like a huge amount, but if you were to lose your job, it might take you a couple of months to find a new one, and when you do, the chances are that you will have to wait a month or more until you receive your pay cheque. You should also factor in possible large expenses, such as having to pay for a new boiler if your old one packs in, or having to have your car repaired. Savings act as a kind of insurance policy against financial misfortune. You could of course take out income protection insurance, which may be cheaper in the short term, but the best thing about savings is that if you do not need to use them, they will continue to grow in value, acting as a secondary income stream.

While saving up three months wages may seem like an impossible task, it is surprisingly easy to accomplish as long as you start small, build slowly, and have a little self-discipline. The first thing you need to do is set out a budget, taking into account your monthly income and your average expenditure. You should aim to save at least five percent of your take home pay each month. Next, you should open up a high interest savings account. For example, Alliance & Leicester offer a number of savings accounts with an annual interest rate of 2.75% or more, which is well above the current rate of inflation. Then, you should set up a standing order from your current account into your savings account to transfer 5% or more of your pay cheque a couple of days after payday. As long as you don’t touch it, you should be able to build up the kind of financial cushion that you need within four or five years of slow and steady saving. Visit the Alliance & Leicester website to find out about savings.

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Tips for managing your finances

Many people have trouble managing their finances. As a general rule, it is a lot easier to spend money than it is to earn it, but if you are careful with your money, you can avoid getting into difficult situations. Here are some handy hints to help you manage your money more effectively.

Learn about personal finance. Knowing a little about how various financial products work can really help you to make the most of the money you do have. There is a wealth of information available about matters such as these on the internet and the money pages of weekend newspapers.

Clear your debts. If you have a lot of personal debt, the interest payments can take a substantial chunk out of your income. Aim to pay off the debts with the highest interest rates first, while making sure that you continue to pay the minimum on your other debts as well as essential bills such council tax and mortgage repayments. This way, you will pay off your debts quicker.

Avoid payment protection insurance. Often, you will be offered optional payment protection insurance when you take out a loan or a credit card. Although there are exceptions, you will usually be better off if you take out income protection insurance or build up a savings cushion to ensure that you will always be able to make the payments.

Avoid credit if you can afford to pay outright. Unless a credit deal really does work out cheaper than paying for goods outright – and it rarely does – you should always pay for things upfront if you can.

Beware of interest free deals on new products. While these deals may seem tempting in theory, they are only interest free if you pay them off before the deadline. If you fail to do this, you will probably end up paying a lot more for the product than you needed to.

Shop smarter. When you do your weekly shopping, you should try to find ways to save money, such as shopping at a less prestigious supermarket, buying cheaper brands, and looking out for money saving offers and loyalty schemes.

Keep an eye on your savings. While putting a certain amount of money away each month is generally a good idea, you should keep an eye on your statements, and offers that are available from other banks, to ensure that you are getting the best possible return on your investment. For example, if the interest rate on your savings account has slipped to between one and two percent, you might want to transfer your savings to a different account, such as the Direct ISA savings accounts from Alliance & Leicester, which at the time of writing offers an impressive annual rate of 2.75%.