3 big benefits of saving for the future
Savings can easily fall to the bottom of our lists when we have bills, travel costs and other financial commitments to take care of. If building up your savings pot seems like a daunting task, breaking it down into short, medium and long term goals is a great way to plan. Saving money is easy to put off when you’ve got a life to live and the funds in which to do so, but it really is one of the most important things to do with your money for these three reasons.
1. Financial independence
Whether you’re still living on the bank of Mum & Dad or are a keen ‘borrower’ from friends and family, saving money will let you eventually be financially independent. You’ll be able to stand on your own two feet when it comes to spending and you’ll also be able to move out if you begin to save up a house deposit. This could be your short term goal and can be easily achieved by savvy saving. Check out our Saving Swaps to see where you could save up to £2,000 a year on your everyday spending.
If getting on the property ladder is on your to-do list then a Lifetime ISA could be the savings account for you if you’re between the ages of 18 and 39. With this Government-backed account you will receive a 25%* bonus on the amount that you save each tax year. This means that if you save the maximum amount of £4,000, you will receive a bonus of £1,000. You can only withdraw the money for buying your first home or alternatively, for retirement. If you try to withdraw for a reason that isn’t one of these or within the first 12 months, you will incur a 25% fee which means that you might get back less than you put into the account.
2. Safety in numbers
Once you’ve become financially independent it’s wise to build up a medium term goal of an emergency fund. Between 3-6 months of your salary should be enough to keep you going. Whether it’s redundancy, a sudden house move or even a broken boiler, not having an emergency fund can turn stressful situations into times that can be very difficult. If you have money to cover these changes and unexpected costs then at least paying for them won’t be another weight to add to your shoulders.
Once you’ve got a good emergency fund saved up that you can start to save for smaller pots like holidays, treats and Christmas. A good way of saving this money is by regularly putting a little away. Set yourself up with a regular savings account and then put away whatever you can comfortably afford on a weekly or monthly basis. If you set up a standing order on pay day you're less likely to miss the money. You can also benefit from compound interest as a perk of saving over a longer period of time. This means that the interest that you’ve built up on your savings will now also be making interest. Basically, interest on your interest and essentially more cash for your end savings goal.
3. Loving later life
Ready for that long term goal? Retirement and topping up your pension is the next big thing to save for. Remember, the earlier you start, the longer you have to save and therefore the less you have to save each month to reach your end goal. The Lifetime ISA, mentioned above, is also an option for extra retirement savings on top of your workplace pension.
Once you have your pension there are various options where you can top up your funds. Read our 6 ways to grow your retirement fund article for some inspiration.
*The 25% bonus is provided by the government. The Lifetime ISA can be opened by customers aged between 18 and 39 years of age that reside in the UK to either save for their first house purchase or their retirement. The product has a 25% charge associated with any withdrawals that are not an eligible life event (first house, aged over 60, terminal illness and deceased). Investors can pay in up to £4k per tax year into their Lifetime ISA and the government will pay a 25% bonus on a monthly basis from 6th April 2018. Customers cannot pay into their Lifetime ISA from the age of 50+ or earn the 25% bonus. If you save in a Lifetime ISA instead of enrolling or contributing to a pension scheme, you may lose valuable employer contributions. Entitlement to any means tested benefits may be affected. The 25% withdrawal charge is on everything (deposits made, bonus and interest). You may get back less than you paid in. For full terms and conditions please ask branch staff for our Keyfacts document and summary box.