Between the 9th and 15th of September is UK Savings Week. In the current environment, it has become difficult for a lot of people to save as much as they would like, in fact, our research[1] of over 2,000 workers found that the biggest financial concerns for the year include not having enough savings for unexpected costs (40%) and not being able to save enough for the future (38%).
With this in mind, WEALTH at work, a leading financial wellbeing and retirement specialist, has prepared the following tips as the basis for strengthening your finances.
1.) Make a financial plan
Your individual circumstances will mean that you are likely to have different financial priorities depending on your life stage. For some the priority may be saving for a deposit for a first home, whilst for others it might be saving for retirement, or for some it may be paying off debt. Many people simply bury their head in the sand, but knowing what you are saving for and putting a plan in place on how to get there, is a simple but effective way to reach your goals.
Setting up an automated payment can be helpful, as if the money is automatically leaving your account each month to pay off debt, or to go into a savings account, it becomes part of your monthly outgoings.
2.) Start with the basics
Many people struggle to understand basic financial issues. A good starting point is to look at where your money goes, everything from utility bills and insurance to food shopping and going out. Really looking at what you spend can often highlight areas you could cut back on. A great example of this is insurance, as it is often the case that someone would get a better quote by shopping around and using tools like comparison sites, but many neglect to do this.
3.) Research your work benefits package
Many employers offer a range of employee benefits such as financial education, financial guidance, payroll savings, ISAs and share plans. Through auto-enrolment, many people pay 5% of their salary into their workplace pension, with an additional 3% employer contribution. However, they may not realise that some employers will also match any additional contributions (up to certain limits). Someone in their 20s can increase their pension pot by 25% by saving just 1% more if their employers were to match this. Find out what your employer offers, and which are right for you.
4.) Understand good debt vs bad debt
Another important principle is understanding the difference between good debt and bad debt. For example, a mortgage is a form of good debt – it makes sense to have a loan in order to own your home as it is a stable, easy to manage approach to long-term borrowing. However, it should still be reviewed occasionally to ensure you have a good deal. At the opposite end of the spectrum, debt with high interest payments such as payday loans and credit cards can get out of control if they are not repaid quickly. It should always be a priority to pay off bad debt. For example, a debt of £3,000 with a rate of 18% APR, could take 10 years and 10 months to pay off if paying £52 a month, with total interest of £3,836 paid. If that monthly payment was increased to £100 a month, the debt would be paid off in 3 years and 4 months, and interest paid would be only £1,011. If this was increased to £325 a month, the debt would be paid in 10 months, with total interest of £253 paid.
5.) Build up an emergency fund
A lack of savings can have a serious impact on financial resilience. Many people unfortunately realise too late the importance of having emergency savings. Ideally, you should have 3-6 months of savings that can be accessed at short notice should you or another member of your household lose your job, become ill, or for any unforeseen expense e.g. replacing the boiler or expensive car repairs.
Jonathan Watts-Lay, Director, WEALTH at work, comments;
“Many people don’t recognise the importance of financial resilience until something happens which highlights how vulnerable their finances are. Hopefully the five steps we have outlined will help those who want to take control of their finances and put themselves in a more secure position in the future.”
He continues, “Many employers now offer their staff financial education and guidance including workshops, digital tools and helplines. This can help them understand some of the key issues to help build their financial resilience in the future. Topics can cover a range of financial matters such as debt & money management, managing savings and retirement. Speak to your employer to find out what support is available.”
[1] https://www.wealthatwork.co.uk/corporate/2024/03/18/the-impact-of-money-worries/