Given the economic uncertainty surrounding the UK going into 2017, many are questioning where their financial priorities should lie.
Should we be focused on saving our cash? Historically, this would be a simple question to answer. Of course you’d focus on saving money, savings rates were good and disposable income was healthy.
However, times have changed. Savings rates are now poultry and disposable income is at an all-time low. So, it is worth putting effort into saving money when you’re already struggling to make ends meet? Are there any better alternatives?
1 in 4 Brit’s savings shrunk in 2016
According to research by Munnypot, 25% of Brits found their savings pots shrank in 2016. In addition, only 33% of those polled said they’d been able to increase their savings.
Further data from StepChange found that 45% of people earning less than £20,000 we’re unable to put any money away of the last 12 months.
Interestingly, Munnypot also found that 24% of Brits completely dismissed the idea of saving, labelling it as ‘pointless’ in the current economic climate.
44 out of 669 savings accounts beat inflation
Those Brit’s who labelled savings as ‘pointless’ may have been onto something. Analysis from Moneyfacts revealed that only 44 out of 669 savings accounts were actually beating inflation.
Whilst startling, it is somewhat unsurprising. The Bank of England base rate fell to a record low of 0.25% in August last year whilst inflation jumped to 1.6% in December. For the majority, this essentially means that their savings are being eroded by inflation.
Many experts in the field are unconfident of a turn-around as inflation is expected to rise significantly over 2017. With this in mind, what is the point of having savings?
Savings are still the ultimate financial safety net
Despite the poultry savings rates, there is still several benefits to having money in savings. Perhaps we just need a change of mindset in order to see these benefits.
Savings still provide the ultimate financial safety net against emergencies and unexpected expenses. Say your car breaks down or your boiler goes wrong – what options do you have? You can either foot the bill out of last month’s wages or you can borrow using a loan or credit card.
The trouble is, both of these options have certain repercussions. Using last month’s wages puts you at risk of running out of money towards the end of the month and potentially missing important payments.
Borrowing involves paying back interest. How much interest you pay will be largely dependent on your credit history. Someone with good credit may be applicable for rates of around 5-10%. Whereas someone with a poor credit rating may find themselves being charged 30+ per cent APR.
Being able to pluck this cash from an emergency fund is not only convenient, but it’s cost effective vs. the alternatives.
Creating an emergency funds
If you haven’t got any money in savings then creating an emergency fund is a great financial goal for 2017.
To get started, all you need to do is set a realistic amount that you can save each month – this could be as little as £50. Once you’ve done that, open a savings account and setup a direct debit from your current account at the start of each month.
Once you learn to live without that amount, try increasing your monthly savings target by £50 – you’ll be surprised at how easy it can be.
Whilst the days of 5% savings rates may be gone, there is still merit to putting money away each month.
So whether it’s £50 or £150, have a go at putting some cash in a savings account and enjoy the peace of mind you’ll get from having the ultimate financial safety net.