Money Saving Tips and Strategies

Before you start saving, you need to know how much goes into your account each month. It is advisable to make a note of how much you expect to receive each month.

If your income changes each month, calculate the average and note it down. Otherwise, work from the lowest monthly income you expect to receive, so you’ll sometimes receive a little more which can be transferred into your savings.

Budgeting is essential for good money management. Examine how much you spend each month on essentials like housing, food, utilities, tax, transport, and bills.

It’s important to make sure these are covered before you think about saving. Make a list of your essential monthly outgoings, take the total away from your expenditure, and the amount left over can be spent on nonessentials.

Next, find how much you spend on nonessential costs like subscriptions, sweet treats, meals out, and entertainment. If you have anything left over, this is a good starting point for savings. If you’re left with nothing, you may want to start thinking about reducing some of your unessential expenses.

For the best tools, check out our collection of the best budgeting apps.

It’s sometimes surprising how much you can save if you shop around. Small changes like switching to a supermarket’s own branded product, or switching to a bank account that doesn’t charge fees can make all the difference.

Energy prices have also increased a lot over the last few years. One of our most frequently overlooked money-saving tips is to switch to more energy-efficient appliances, which could quickly reduce the hefty amount you’re likely to be spending on essentials and increase your financial freedom.

You might also want to consider more creative ways to save by reducing your expenditure without cutting down on leisure. For example, visiting your local library instead of buying your books could have a surprisingly large impact on your monthly budget.

Check out the best bank account switching offers for 2024.

Sometimes you lose track of how much you’re spending. If you’ve noticed you’ve got less in your bank account than you expected, it might be time to rein in some of your spending. Look for the things you may be buying in excess, like sweet treats, alcohol, or clothing you don’t need.

Try setting yourself a goal to hold off on buying one of your usual non-essentials for a week, and then swap to another the week after. Consider doing your grocery shopping online to reduce the risk of making impulse purchases as you go around the supermarket. You could be surprised by how much you’ve saved after a month.

The other way to save money is to monitor the amount of food you throw away during the week. If you find you’re doing this a lot, try meal planning to predict how much food you need for the week, buy a little less, and cut down on your food waste.

Subscriptions can soon build up and become expensive, and if you find yourself in need of some extra money, cancelling a subscription service you don’t need or use might be a good move to start.

Try making a list of the streaming services you subscribe to and cancelling the ones you don’t use as often. If you’re a member of a gym, you might want to suspend your membership and exercise outdoors or at home instead to save some money.

Some activities are notoriously expensive; things like eating out, day trips to activity centres or visits to National Trust locations. Try taking a packed lunch on some of your trips, or going to places that don’t charge- like museums or the local park.

If you tend to spend money on events, check online to see if you can find free events instead of paid ones. If you trade in one charged trip for a free one, you might be surprised how much money you can save.

Comparing yourself to people you know or see can seriously hurt your finances. It’s important not to get stuck in the circle of spending money on things you don’t need so you appear more wealthy than your friends, family, or colleagues. Focus on the things that are important to you and save money based on them.

The amount of money you should be putting away will also depend on your age and how much you have saved already. If you’re wondering how much people normally have in their savings account by the time they reach your age, you can check the average amount of savings in the UK for your age group in the table below.

Source: finder.com

A good rule of thumb is that around 20% of your income after tax should be put into your savings. The 50, 30, 20 rule is based on this concept, assuming that half of your monthly income will be spent on essentials.

This is of course not always the case. As the cost of living continues to rise, essential items like food and mortgage payments also become more expensive, and they will eat into more of your income. However, if you’re able to cover essentials with 50% of your income, the rule is broken down like this.

If your current circumstances mean more of your finances need to be spent on essentials, don’t worry. Your ideal split may be closer to 60, 30, 10, or 70, 25, 5.

Your current living standards are important, but it’s easy to forget about what your living standards will be like in the future. To live comfortably in retirement, single retirees will need to save approximately 15% of their annual income into a pension, with 8% being the minimum. So, it’s wise to start saving money for your pension as soon as possible.

The 52-week saving challenge is a great way to passively build up your savings. In the first week of the year, put £1 into your savings. In week two, put £2 into your savings. Keep increasing the amount by £1 every week until you reach week 52, when you’ll put away £52.

If you continue doing this successfully, by the end of the year you will have saved £1,378 plus the accumulated interest; a nice bit of extra cash to have stashed away for a rainy day.

52 Weeks Backwards

This is exactly the same as the 52-week saving challenge, but you start with the largest amount of £52. This makes the amount you’re saving more manageable as the year goes on, and you may even find yourself able to put more away in some of the later months.

If you prefer to save money once a fortnight to once a week, try splitting the 52-week saving challenge into a 26-week savings plan. Instead of saving an extra £1 every week, try saving an extra £4 every fortnight. By the last fortnight of the year, you’ll be saving £104, bringing your total up to £1,404, plus interest.

This is a great way to save a large amount of money. As the name suggests, with the 5p a day challenge, you save an extra 5p every day until the last day of the year. So on day one you’ll save 5p, on day two you’ll save 10p, and onwards.

Using this method, by day 365 you’ll only be saving £18.25, but you’ll have saved a whopping £3,339.75 by the end of the year.

Some current accounts provide a round-up service, allowing you to save money automatically alongside your everyday spending. Round-ups round any debit or credit card transactions you make to the nearest £1, sending the excess to a nominated savings account.

Most UK banks won't count round-ups as part of your monthly or annual deposit limit into your savings account, so these are a good way of maximising the worth of high-interest, low-deposit limit savings accounts.

Moreover, some banks will let you double up your round-ups, meaning instead of saving 31p when she buys her pint of milk, Rose would save 62p, with £1.31 being removed from her current account.

Think about your pension contributions. If you have a bit more money left over at the end of the month than you expected, it might be an idea to increase your pension contributions a little. Increasing your pension contributions by 1% can add hundreds of pounds to your pension value.

Remember, pension contributions are calculated on your pre-tax wages. A 1% contribution increase on a salary of £30,000 works out at just £25 (£300/12) more a month, pre-tax.

A good way to keep your pension funded is to always contribute the same percentage of your salary as your pay increases.

Due to their independence from the stock market and FSCS protection, saving money in a savings account guarantees the total you deposit will be returned to you in full, and with added interest, which will increase in value over time.

However, accounts like this are not always the best option for long-term savings, as you may find that interest rates don’t keep pace with inflation. This means the spending power of your money will decrease over time, so you might find savings accounts better suited for short-term savings goals.

If you’re looking to save for the long term, investments might be more beneficial to you. Designed for higher returns that do keep pace with inflation, investments involve the purchasing of assets and shares in the hope that they increase in value.

All investments come with an element of risk, as the price of your assets rises and falls with the market, so there is always the chance that you may end up with less than your original stake. However, the stock market traditionally outperforms interest rates for long-term returns.

Find the best UK investment platforms

One of the most tax-efficient ways of saving money for your retirement is through a personal or workplace pension. With tax relief on all contributions and a locked-in maturity date preventing you from accessing your fund early, pensions are most commonly used to provide your income when you retire.

It’s important to think about how you’ll fund your retirement even when you’re just starting your first job; the earlier you start to build up your pension, the easier it will be to create a steady income for yourself in later years.

If you’re self-employed, you may want to set up a personal pension to ensure you don’t miss out on the benefits of an auto-enrolment workplace pension. You won’t receive employer contributions, but you’ll still get tax relief on any deposits you make.

Saving accounts can be used as a safe place to store and earn interest on your emergency funds. It’s important to make sure you have access to these funds when you need them, so an easy or instant access account is vital if you’re not going to keep an emergency fund as a financial cushion in your current account.

A good baseline is to keep at least three month’s worth of living expenses in an emergency fund, ideally nearer six months. This will shield you from unexpected costs like house repairs, car breakdowns, or temporary lack of employment.

Short-term saving goals like a family holiday are good at encouraging you to save. The predictable interest rates offered by easy access and notice accounts could be useful when it comes to saving for a holiday, as you’ll be able to calculate how much money you should have by the time you book.

Under normal circumstances, it’s advisable to spend no more than 1-2% of your annual gross salary on a holiday, but if you’re saving with a holiday in mind, you may spend more.

If you’re saving for retirement, a pension is usually the way to go, but there are other options like the Lifetime ISA.

There are a few different recommendations for how much you should be saving for your pension. Some advisers recommend that you save ten times your average working-life salary by the time you retire; however, this can be difficult to monitor in practice. Another tip is to save 12.5% of your monthly salary into your retirement savings.

If you’re looking to set up a Lifetime ISA, we’ve listed the best Lifetime ISA providers for 2023.

A house is often the largest purchase you may make in your lifetime, so it’s quite likely that you need to pool a lot of your savings together just to make the deposit on a property. However, home ownership is often seen as the key milestone on the journey to adulthood, so it’s a key motivator for putting a few pounds away when you can.

A deposit on your first home is one of only two occasions at which you can close a Lifetime ISA. With the 25% government bonus paid on any deposits you make, this could be the most cost-efficient way of saving for your first home.

If you’re looking to buy your first home, read our first-time buyer’s guide.

Saving for your children is very important when it comes to their financial discipline in later life. You can keep back some savings for your children, either for birthdays or gifts through easy access accounts like a Children’s saver, or long term for adulthood through a Junior ISA.

The tax benefits available when saving are hard to ignore, and you can take advantage of these through pensions or Individual Saving Accounts (ISAs). With a cash ISA, you can deposit up to £20,000 each year, and you won’t have to pay tax on any of the interest you receive.

Likewise, any payments made into a pension are tax-free; either by being paid straight from your gross income, or through tax relief paid on any individual personal contributions you make into your pension scheme.

Regularly saving a small amount every month can quickly increase your finances if you get a good interest rate. Regular savers offer some of the highest interest rates on the market, so they may be a good place to start building up your pot.

When saving regularly, following the 50, 30, 20 rule is the best bet.

Larger purchases like a car, a house, or a holiday can be effectively saved in a number of ways. A high-interest account like a regular saver could give you the funds you need for this kind of purchase, but you may be better off with a fixed-term account or bond if you know you won’t be using the money until you make the purchase.

Remember, when buying something expensive for long-term use like a car, you should avoid spending more than 10% of your gross annual income on the purchase price. This is because, particularly when it comes to vehicles, this isn’t going to be the only new thing you have to pay for. You have to consider car insurance, road tax, fuel costs, and other maintenance fees during its lifetime.