Many of us have been in situations where we have no savings, and at least for me it can be unsettling, this situation can easily go from bad to worse if we have unexpected expenses or a financial emergency. The question then is what do we do if we have no savings?
The fact is, there are many people in this situation, look at the stats by money.co.uk from the UK.
This report inspired this blog post and got me thinking, what would I do if I have no savings?
Many people in the UK and around the world find it hard to save money, especially now, because of the high cost of living, especially in major cities like london where the housing costs can be ridiculously high, then combine that with low wages, debt with high interest rates, bad credit scores, and it’s easy to see why most people don’t have any savings.
The good news is you can change this financial situation no matter what life stage you’re in, you don’t have to be stuck in this situation.
Building a savings pot is possible even on a low income.
Will it be easy? No, You are going to make some sacrifices but it’s going to be worth it every time so instead of thinking it’s So, instead of thinking it’s impossible. Ask yourself
Whether you are 40 or 20 if you are in a situation where you don’t have any savings or nest egg, the primary reason has nothing to do with your income or expenses but with daily or monthly habits.
Think of other habits in your life and how you just do them automatically
The problem is there are no financial habits set up for success but let’s change that.
What is a habit? A habit is a regular practice or routine that is not only small but easy and part of a system.
To build a habit of saving, you must do the following
Focus on who you wish to become, not what you want to achieve. A saver saves monthly, irrespective of the current goal they might be working towards. You can reinforce this thought with positive affirmations. For example, I am a saver and investor.
Start small and automate the process. With this, you are making the practice of savings easy.
Build on the last. Continue savings and investing and increase the amount as often as possible
To learn more about habit formation, read Atomic Habits by James Clear.
This is the first place to start if you are in paid employment because you already have a pension plan or workplace retirement plan with free money if you get an employer match, usually up to a certain percentage.
In the UK, your pension is going to be either a defined benefit or a defined contribution pension scheme.
Most pension schemes through our work allow us to have access to a financial advisor or financial planner for free so it’s wise to seek their advice as it can help you create a personalized retirement plan and also make better and more informed investment decisions.
UK Pensions Explained: Everything You Need to Know
This is a very important step because a budget outlines your monthly expenses and income giving you a clear picture of where your money is going and where you can make adjustments to save more.
The advantage of budgeting with a savings mindset is that you begin to watch your savings rate and prioritize it’s growth. Maybe your savings rate started at 2 or 3% of your income, over time with a savings mindset and implementing other strategies mentioned here you can watch that grow to 50, 60, 70, or 80% of your income.
You only get this visibility and can track your savings progress with a budget.
How to Budget in 6 Simple Steps
Debt payments make it hard to save regularly. It’s like trying to drive with the hand brakes on; if you’ve done that, you know how inefficient and hard it is on the car.
The same applies to you trying to save while trying to pay credit cards, student loans, car payment, personal loans, etc.
Whatever percentage of your income you use to service debt today can be transferred to savings and investment if only you don’t have that debt.
If you have debt, the best ways to pay that off is the debt snowball method or debt avalanche method.
The debt snowball starts by sending all extra money to the smallest debt while paying the minimum on the rest to build that snowball effect, while the debt avalanche sends all extra money to the debt with the highest interest rate while paying the minimum on the rest.
This is an easy way and one of the most effective ways to save is to reduce your expenses. Doing this with the information from your budget might mean cutting back on non-essential items like cable television, eating out, or upgrading to a less expensive car.
Every small amount you can cut goes straight to savings, like your emergency savings or savings goals, which will build up with time.
Earning extra income can also be a good way to boost your savings because you redirect that extra income to your savings.
You can explore opportunities for gig work or side hustles or even consider asking for a raise or promotion at your current job. Every little bit helps.
Remember, the key to building long-term savings is consistency and discipline. Start by building up an emergency fund that covers at least three to six months’ worth of your monthly expenses. Even if you can only save a small amount each month, it’s a good start, and with time, your savings will grow.
If you are less than 30 years old, retirement can seem far away, but it’s never too early or too late to start planning for your golden years.
The rule of thumb to save for retirement is to invest at least 10 – 15% of your income in mutual funds or/and index funds. I would say get that to over 20% if you can.
Your retirement accounts could be through your pension retirement account or could be through an individual retirement account or both.
In conclusion, irrespective of where you are on this journey whether it’s creating a budget for the first time, reducing expenses, earning extra income, seeking free help or advice from financial advisers, or planning for retirement, every small step counts.
At the end of the day, your financial situation is unique, and there’s no one-size-fits-all solution. However, by taking control of your finances and making smart financial decisions, you can build enough money in your savings pot.
So, take the first step today, and remember that every small amount saved can make a big difference in the long run.
