How long could you stay financially secure if you experienced a sudden drop in income, or worse, lost your income altogether? Could you make your money last over a few weeks? Maybe a few months? Could you cope for a full year?
Generally speaking, majority of people wouldn’t manage more than one month if they experienced a drop in income. If they lost their income completely, there’s a good chance they wouldn’t survive more than a few weeks.
Nobody knows when life is going to throw a curve ball at their income, but there’s nothing stopping you from preparing for it. You can do this by having savings – or as most people know as an emergency fund or a safety net. There are thousands of people across the UK who don’t have savings, and if you’re one of those people, it’s about time you start protecting your income.
By saving, you can breathe easier knowing if you ever experience an income crisis, you will be financially prepared. You may wish to consider the following:
HOW MUCH DO YOU NEED TO STAY AFLOAT?
You might be wondering how much you need to put towards your savings, so we’re going to break it down.
But first, sit back, get comfy, as you’re going to be a little shocked.
If you want to keep a roof over your head, clothes on your back and food in your stomach, you’ll need to put away enough money that you can live off for a minimum of 6 months. This may seem a bit much. However, experts advise having 6 months worth of savings, as this gives you plenty of time to bring your income back up – whether it’s taking up a part time job or finding a new job altogether.
Read more here: “11 ways to earn some extra cash!”
HOW MUCH SHOULD YOU BE PUTTING AWAY?
Are you still with us?
Great! You’re definitely on your way to protecting your income!
Now, let’s get back to business.
If you want to work out how much to put into your savings, you need to create a budget. It doesn’t have to look glamorous or professional. Just write a quick list of expenses you pay for, such as:
- Mortgage/Rent payments.
- Car payments – if you don’t drive, do you use public transport?
- Other expenses – such as your gym membership or morning latte from Starbucks.
Once you’ve written down your expenses, add it up. This is how much you need every month to cover your expenses.
But hold on!
We’re not done yet.
Take that amount and multiply it by 6.
Generally speaking, this is how much you should be aiming to have in your savings. If you feel you won’t be able to save this much, aim to save at least half that.
Your budget can also help you to identify what areas you need to cut back on. For example:
- If you spend your lunch breaks at the cafe, prepare your lunches at home and take it into work with you.
- If you have a gym membership – that you barely ever use – get rid of it. You will be saving yourself hundreds a year.
- Bin the booze and ciggies. Not only will you be saving money, but you will be improving your health too!
HAVE A SAVINGS ACCOUNT
Savings accounts are now the most convenient way to save money, as you can automate your payments, earn interest and can build your savings without being charged high monthly fees.
By automating your savings, you will never miss a payment and the temptation to spend that money will weaken. You will be saving money without having to lift a finger.
When looking for the right savings account, you’ll want to look for the best interest rate. Your bank will pay you interest on the total amount of money you have saved and kept in your account. Keep in mind that the interest rate can change, so always keep an eye on your account. This will help your savings grow further.
Some banks may charge a monthly fee towards for having a savings account, which is why most people create an ‘online savings account’. This way, they can avoid any monthly fees and focus on building their savings.
DON’T NEGLECT YOUR SAVINGS ACCOUNT
It’s very common to set up a savings account and not use it. There are thousands of people who have a savings account and never put money into it.
If you don’t earn enough income to put towards your savings, you might want to consider looking for ways to make or save money.
You can do this by getting a side hustle. There are lots of things that you can do in your spare time for example:
- Dog walking.
- Car washing.
- Web designing.
The list is endless. The best part? You can earn money from these activities!
If you currently have a mortgage that has a variable rate, you may want to consider switching to a mortgage that has a fixed rate. By switching to a fixed rate, your monthly payments will remain the same over a set period of time.
Basik Money are now offering a 7-year fixed rate mortgage from 2.99% APR for which you only need a 10% deposit. This is definitely something you should take into consideration, given that the Bank of England are warning homeowners that mortgage rates will be rising soon. This will more likely push lenders to pull their cheapest rates, so it would be smart to take advantage of them while you can!
You can also save money by switching your gas and electric. You’d be shocked at how much you can save each year.
You might want to have a look at your spending too. If you’re known for ‘treating’ yourself on a daily basis, then this is a step you should consider taking. If you spend your mornings queuing up at Starbucks before work or you’re constantly having takeout for dinner, then stop right there! This is a huge money waster that is draining your bank balance.
Spend less, save more!
HANDS OFF THE SAVINGS!
Unless your car has broken down or your home is turning into the pacific ocean due to a burst pipe, then stay away from the money! If you’re looking to buy a new pair of Nike shoes or a new Mikael Kors bag, find another way to raise some money. Do not touch or look at your savings account unless it’s an emergency and you absolutely need it.
Share this with your friends and help them save today!