Saving for your future

Saving for the future can seem like a daunting task if you are on a fixed budget or low income, but there are a number of simple methods you can take to start building a healthy nest egg

A small savings pot can make a meaningful difference to your quality of life. Once you’ve got a financial safety net you can stop worrying about how you’ll pay for the shocks and emergencies life throws at you. But how do you get that financial cushion?

The first issue to consider is how much money you need in your rainy day fund. The general rule of thumb is that you should aim to have three months savings tucked away. That way if you were to lose your job, or find yourself unable to work, you could comfortably cover your bills while you plan ahead.

The average salary in the UK is around £26,000, which means the average rainy day fund needs to be roughly £6,500. If you have no savings at all that can seem like an enormous sum, but start setting a little aside regularly and you’ll soon start to build up a healthy savings pot – just a few pounds a week will make a meaningful difference. The table below illustrates how saving small amounts can eventually build into a nest egg worth thousands.

Period £20 a month £50 a month £100 a month
1 Year £240 £600 £1,200
5 Years £1,200 £3,000 £6,000
10 Years £2,400 £6,000 £12,000
20 Years £4,800 £12,000 £24,000


If you don’t believe you have any money to spare for saving, try tracking all of your spending habits for a month. By writing everything down you may well identify areas where you are overspending, or things you can cut back on. The resulting money saved can go towards your nest egg.

Following a recent study into budgeting, Royal London’s Director of Policy, Steve Webb, noted: “What was interesting about our research project was the way in which the simple act of monitoring what you spend every day or week made some people more aware and put them more in control of their finances.”

Once you’ve worked out how you are going to set aside a little cash each month, the next step is deciding where to put it. The answer to this depends entirely on what the money is for. If you are building up an emergency pot that you may need to access in a hurry then an instant access savings account is likely to be your best option. Just make sure to hunt around for the best possible interest rate so your money’s growth is given a helping hand.

Alternatively, you might want to consider a regular savings account. These accounts pay a higher interest rate than normal savings accounts as long as you pay in a small amount every month. The structure can really help you get into a savings habit.

If you are saving for a specific event that is more than five years away, such as a wedding or your child’s university fees, you may be better off saving with investments instead. While past performance is no guide to the future, historically stock market investments have outperformed cash over the long-term. You don’t need a big lump sum to start investing in the stock market – many investment companies offer accounts that allow you to make small regular deposits from as little as £50 a month.

Wherever you decide to build your nest egg, make sure you keep an eye on it and regularly assess how it is growing. Ensuring that you are constantly getting the best returns possible will help speed up your savings growth.

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