One in three people have less than a month's income in savings
Ideally we should all have savings cushions equivalent to at least three months' salary.
Lloyds TSB has launched a new ‘savings index’ which paints a pretty gloomy picture of the UK’s current savings culture.
The most depressing figure in the survey is the revelation that 37% of the UK’s population have savings worth less than their monthly household income. That’s worrying because these people will probably find it hard to cope if they lose their job or find that they can’t work due to illness or an accident.
At Lovemoney, we’ve always said that it’s best to try and build a savings pot equivalent to three months’ income. Obviously that’s easier said than done, but I’m still saddened to see that, according to Lloyds, only a quarter of the population have a pot of that size.
The Lloyds survey also reveals that around 40% of people don’t have enough money at the end of the month to do any saving. And even among those who are able to save, 52% admit dipping into their savings more than once a year. 20% of savers say that they regularly dip into their savings to stop them from going overdrawn.
Outlook
And the outlook for savers isn’t great either. 30% of people told Lloyds that they expected either to stop saving completely this year or at least cut back on their monthly payments into savings accounts.
No doubt that’s partly because disposable income for many people is being increasingly squeezed, but the derisory rates offered by most savings accounts is probably also a factor. Indeed 40% of respondents agreed with the view that ‘it’s not worth saving due to low interest rates.’
I can understand that view given the pathetically low interest rates being paid by most savings accounts now. But I strongly believe that you shouldn’t give up on saving just because interest rates are low.
The primary reason for saving isn’t to earn interest. It’s to build up a savings pot that can support you in the future. Granted, interest payments are useful – they can ensure that the value of your savings aren’t eroded by inflation. But if interest rates are low, I believe that means you should just try to save more if that’s possible. Then you’ll still have a decent-sized savings pot regardless of what happens with interest rates.
It’s also worth remembering that you don’t have to put all your savings in a conventional savings account or Cash ISA. You might be able to get a higher return on your savings via a peer-to-peer lending site such as RateSetter or Zopa.
Or if you’re willing to take the risk of investing in the stock market, you could potentially do even better still. (However, you should only consider the stock market if you’re not going to need your money for at least five years.)
What to do
Don’t get me wrong. I know it can be really hard to find sufficient cash to save each month. But there are things you can do to make it more likely you’ll be able to find money to save.
Firstly, make sure that you always get the cheapest deal whenever you spend. That means it’s always worth using one of the top cashback websites such as Quidco and TopCashBack when you spend online.
And don’t forget to shop around every year to get the best deals on your utilities and insurance.
But most important of all is to budget effectively and consistently. Draw up a realistic budget and then stick to it. You’re more likely to stick to that budget if you make frequent checks to see how you’re doing.
Sign up for Lovemoney’s MoneyTrack tool and you can monitor all your spending in one place. Not only can you see all your bank accounts and credit cards in one place, your spending will also be automatically placed into categories for you. You can also load your budget goals into the tool and see if you’re hitting your targets.
More on savings and investment:
The top fixed rate savings bonds
The best instant access savings accounts
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