What’s the best way to start saving? By setting a start date and a savings target, of course. But hold on – there are a few other things to consider before you start.
Saving is all well and good: it’s definitely a step in the right direction. But what is the best way to save? First and foremost, you need to set a start date. When are you going to set that first sum aside? It’s entirely up to you, after all. You can decide to do it today, next week, or even next month. Just ask yourself how urgently you need to save. But once you’ve set a date, don’t put it off or talk yourself out of it.
And remember you might need to prepare in advance to make sure you’ve got money to save. If not, you risk throwing all your good intentions out of the window… So it doesn’t come as a shock to the system, your first step should be a cash review.
Look at your monthly outgoings and the amount you want to save
Take a few minutes to go through your monthly fixed costs and other outgoings. This is what we call a cash review. Just saying “I want to save 100 euros from next month” isn’t going to cut it. That might not even be the right amount for you.
Fixed costs include your rent, utility bills, food, mobile contracts, broadband, loans, etc. In other words, all the essential outgoings that leave your account every month. Other expenditure might include the amount you spend on clothes, going out, holidays, travel, etc. These items will not necessarily go out of your account every month.
Write it all down. You can do this on an app or you can do it by hand, whichever suits you best. If you have an account with us, it’s simplicity itself to check your budget to identify your fixed costs and variable outgoings. The budget lists all your outgoings and should give you a more accurate picture.
But why am I doing this?
When you have a clear idea about your outgoings, then you can start to think about setting a target. It’s really important to know what you want to do with your money. Just saying you want to have more dosh left over at the end of the month definitely isn’t the whole story.
Sit yourself down and work out what you really want to achieve: is it just about balancing the books? Is it about setting aside a rainy day fund? Or is it about saving up for something specific? It might even be all three.
And then it’s time for some fine-tuning.
Three questions that might help you set your targets:
Why is it so important that I balance my books at this point in time? What will I have to change to achieve this?
What do I want a rainy day fund for? What difference will it make to me? How would it feel if I had this kind of money set to one side?
What am I saving up for? And why? Why do I need to do this and why is this my number one goal at this moment?
It makes a lot of sense to spend a little time answering these questions. If you have a clear target in mind, it will make you even more motivated and committed to making it work.
Final step: set your target amount
Finally, you can assess how much you want to save. In other words, how much do I need to balance my accounts? How much do I need to set up a rainy day fund? Or then again, how much do I need to save up for this specific item? Once you’ve decided on an amount, you need to decide by when you want to reach this figure, then divide the amount by the number of months until your target date. And hey presto, you’ve worked out how much you need to save each month!
So, for example, say you want to save 5,000 euros by the end of the next 12 months, you just divide 5,000 by 12. This would mean setting aside 416 euros a month to reach your target within the year.
If the sum you need to save each month is too high, you’ll have to reassess your targets. It’s easy to set ambitious targets, but it’s vital to be realistic. The best way of doing this is by prioritising your aims. First things first. Balancing the books comes before your rainy day fund, and that comes before investments or other dream savings goals. If the amount is still too high, extend the period over which you’re going to save. It’s not important how quickly you get there, but that you reach your target in the long run.
So, when are you going to start?