You now grasp how much money comes in every month and how much goes out. Still not sure if you’re on track, why not follow the 50-30-20 rule?
It’s a simple plan that can help you budget your money more efficiently. Coined by Senator Elizabeth Warren, it then went mainstream after publishing her book ‘All your worth’. The rule is straightforward to follow. You should allocate 50% of your take home pay to needs, 30% to wants, and the remaining 20% to savings.
You can then break down your savings even further. It’s normally best to group the savings based on the time you think you’ll need them. For example, by creating three different pots, one for short-term, one for mid-term and one for your long-term goals.
The short-term pot should cover emergencies or one-off expenses like a summer holiday. Whilst the second pot can help you save up for a deposit for your next car or home. Expecting a baby? Or maybe you’re thinking of taking some time off from your career or to changing it altogether. This pot can also be used to create a safety net for those months off work.
Now it’s time to think about the future. Whether you’re trying to put some money aside to cover your kid’s school fees or your expenses during retirement, starting to save up early will help you down the line. This money can be kept in separate accounts and may include any funds tied up in investments. Just remember, this deep pocket can help you reach financial security and success for you and your family. Yay.
With this easy rule in mind, it can really pay-off to look at the interest your bank is currently paying you for your hard cash. A lot of savings accounts offer very poor interest rates. Worse still is that some providers take ages to update the rate of interest they are willing to pay you for your savings. Yawn. So just like your gas or electricity bill, it's good to do some shopping around.
Why don’t you check out a comparison website like MoneySavingsExpert? These are usually a good starting place to show you what the best rates in town are.
Another thing to look out for is high interest-paying current accounts. This savvy option will allow you to maximise the interest on money tucked away with your bank, especially that short-term pot we talked about earlier. Keep in mind that these accounts usually have a limit on the amount they pay interest on, so don’t put all your money into just this one account, as you may be getting very little interest on any money above that limit. Have more savings and not sure what to do with them? It could be good to use short fixed-term savings accounts as they tend to pay a little more interest. Again use a comparison website to find out the best rate out there.