How to save money
If you’re looking for inspiration on saving money, here you’ll find everything you need to know about how to save up. Whether you have a specific goal in mind or just want to save for a rainy day, learn how to save money in the UK with Claro.
Why you should save money
Saving money is important for two main things: achieving your short term goals, and protecting you in case of a financial emergency. The thing about emergencies (like broken boilers and sudden job losses) is that we can’t predict them, which is why it’s best to have a financial plan and safety net in place.
How to achieve your short term goals
Saving money is a great way to achieve your short-term goals. If you’re looking to make an expensive purchase within the next 3 years, a savings account with a decent interest rate could help you get there sooner.
If you’re wondering how much of an emergency fund you need, it’s recommended that you have at least 3 months’ worth of expenses saved somewhere you can easily access them. Find out more in our article on emergency funds.
The earlier you start saving, the more you stand to benefit from compound interest. This is when you earn interest on money that was previously earned as interest. It helps to grow your money exponentially over time thanks to its ‘snowball’ effect.
Use our compound interest calculator to see how much your money could be worth in the future.
Saving money vs investing
Saving and investing can both help to grow your money, but it’s important to know the differences and when you should save vs when you should invest your money.
What is saving?
Saving money is putting money aside, usually into cash products like a savings account or bank account.
When should you save?
If you haven’t already got one, start by saving for an emergency fund. This should be in an easy-access savings account, or somewhere you can get to it when you need it.
Saving is also best for short term goals, for example saving for a house deposit within the next 3 years.
If you invested this money, the stock market could fluctuate and your money might fall in value just when you need to access it.
When shouldn’t you save?
The only time you shouldn’t save is if you have something more urgent you need to do with your money, for example getting expensive debts under control.
Find out more in our article, ‘Should you save money or pay your debts?’
What is investing?
Investing is when you try to grow your money by buying things you hope will increase in value, like stocks or property. When you invest, you take a risk with your money in the hope that you will make higher returns.
When should you invest?
If you have your 3 months’ worth of emergency fund saved up, aren’t paying off any debts, and have some long-term goals in mind, it could be time to invest.
Investing is best for long-term goals of 3 years or more. This is because your investments have time to ride out any bumps in the stock market. Remember that the stock market tends to outperform cash in the longer term, and that inflation can eat away at the value of your cash savings over time.
When you’re thinking about investing, it’s a good idea to use your ISA allowance first before making other investments. A Stocks and Shares ISA is a tax-efficient way to invest as you won’t pay tax on any returns you make, and you can invest up to £20,000 (for the tax year 2020/21). Learn more about the difference between a savings account and an ISA.
How much should you save before investing?
It’s recommended that you save an emergency fund of at least 3 months’ worth of expenses before you start investing.
Setting savings goals
Learn everything you need to know about setting savings goals. Different goals will have different timelines, so for some you might want to save, whereas for others investing might be a better option. Before you get started, check out our list of habits you need to change to help you save better.
Setting SMART goals is key to making sure you stick to them. After all, there’s no point setting unrealistic goals that you won’t follow through with.
SMART goals are:
- Specific – It might help to consider the five ‘W’s (who, what, where, when, why) when defining the specifics of your goal.
- Measurable – Think about how you’ll measure whether you’ve met your goal.
- Achievable – Make sure you have the skills and tools needed to achieve the goal so you’re not setting yourself up for a loss.
- Relevant – Is the goal you’re setting relevant to your wider financial goals?
- Time-bound – Setting a timeline will help you track your progress against the goal – don’t forget to set milestones along the way.
Here’s an example of a SMART savings goal:
|Specific||I want to save £10,000 towards my house deposit.|
|Measurable||I will transfer money from my current account into a savings account that pays X% interest on payday every month, so I can track how close I am to my goal.|
|Achievable||I already have £2,000 in savings, and I’m planning to take on a side job and downsize my current property to help me save more.|
|Relevant||Saving this money towards my first home will stand me in better stead for retirement, by which time I hope to have paid off my mortgage.|
|Time-bound||I will aim to save this money by December 2022.|
Use our savings calculator to see how much you should be saving each month.
How much of your income should you save?
If you’re wondering how much of your income you should save each month, there are various approaches you could take and it will depend on how much you earn.
50 30 20 rule
One of the most popular ways to work out how much of your income you should save each month is the 50/30/20 rule. According to this, 50% of your income should go towards essentials (like rent/mortgage and food), 30% of it towards other spending (like eating out and holidays) and 20% towards savings. Of course, if you have debt, you should prioritise paying this over saving.
Average monthly savings UK
The typical UK household saves £180 per month. This is the median amount, which means that half of households save less than this and half save more.
This isn’t necessarily something to aim for though, as everyone’s income and outgoings will be different. It’s important to work out what’s realistic for you.
How much savings should I have?
When it comes to savings, there’s no right or wrong amount of money to have saved up. It’s a personal thing, and how much savings you have will depend on everything from your income to your rent or mortgage costs and the interest rate on your bank account.
The typical UK household saves £2,160 per year. This is the median average, so it means half save more and half save less.
The typical amount of savings people have depends on age, as you can see in the table below.
|Average savings by age UK||Average net financial wealth||Median net financial wealth|
|16 to 24 years old||£7,600||£500 – £5,000|
|25 to 34 years old||£8,200||£500 – £5,000|
|35 to 44 years old||£35,300||£500 – £5,000|
|45 to 54 years old||£133,900||£5,000 – £12,500|
|55 to 64 years old||£94,000||£12,500 – £25,000|
|65+ years old||£103,100||£25,000 – £50,000|
FAQ: How much savings should I have at 25 UK?
The average savings for all 25-34 year olds is £8,200, but the typical amount is £500-£5000.
How much you save is personal to you and your situation. Ideally, everyone should have 3 months’ worth of expenses saved in their emergency fund.
FAQ: How much savings should I have at 40 UK?
The average savings for 35-44 year olds is £35,300, but the typical amount is £500-£5000.
How much you save is personal to you and your situation. Ideally, everyone should have 3 months’ worth of expenses saved in their emergency fund.
How much savings can I have on ESA?
You can apply for Employment and Support Allowance (ESA) if you have a disability or health condition that affects how much you can work, or if you’re self-isolating due to COVID-19. How much you get depends on what stage your application is at, as well as things like your age and whether you’re able to get back into work. After your claim has been assessed, you’ll get up to £74.70 a week if you’re able to go back to work, or up to £114.10 a week if you’re not.
The F.I.R.E movement
The F.I.R.E movement stands for Financial Independence, Retire Early. It’s becoming increasingly popular with millennials, and encourages you to save a large amount of your income each month so that you can one day rely on this ‘passive’ income without needing a job. Find out what you need to know about the F.I.R.E movement.
Creating a budget to help you save
If you’re struggling to save, creating a budget is a great way to commit to putting away a certain amount of your income each month and hold yourself accountable.
What is a budget?
A budget is essentially a spending plan, where you allocate chunks of your income to different categories (for example, rent, food, utility bills, transport, socialising). You can be as granular as you like – whatever works best for you.
Free budget planner template
Download Claro’s free budget planner template and create your personalised spending plan today.
Money saving tips
Saving money can be tough when there’s so much temptation to spend it. We’ve rounded up our top money saving tips to make it easier for you.
Ways to save money on a tight budget
Saving money on a tight budget isn’t always easy, but it’s not impossible. Keep reading for the best ways to save money fast on a low income, or have a read of our article on the best ways to save money when you’re low on funds.
Save money on household bills
Cutting down your household bills is a good place to start if you want to save more money. Find out how to save on electricity, how to save on energy and more. We’ve rounded up 5 ways to save on your household bills to help you get started.
Save on mortgage
If you’re paying a mortgage, there are a few ways you can reduce the cost of it, such as remortgaging or extending your repayment period. Here are 5 tips to save for your mortgage deposit if you need some inspiration.
Save on subscriptions
If you want to save on subscriptions, it’s a good idea to review your bank statement to see what you might be paying for that either you don’t need or have forgotten about altogether. Often, if you try to cancel, the provider will offer you a cheaper deal in order to prevent you from swapping to a competitor. Just be wary of early termination fees for some subscriptions, such as broadband.
Save on food
If you want to save on food, there are a number of simple ways to do this.
- Batch cooking can help you cut costs thanks to economies of scale.
- Do a weekly shop, rather than nipping to the corner shop when you need something.
- Never shop hungry.
- Make the most of discounts and offers.
- Find out when your local supermarket does mass price reductions (aka yellow label hour).
- Swap to supermarket own brands on products where you can’t taste the difference.
- Freeze fresh foods like herbs, bread and vegetables to stop them from going off.
- Use a food rescue app like Too Good To Go or Olio to fight food waste and cut costs.
Save on insurance
Whether you want to save on travel insurance, car insurance or home insurance, there are ways to do this.
When it comes to car insurance, you won’t always be rewarded for loyalty, so it’s best to shop around instead of accepting your current provider’s renewal quote. Remember it’s usually cheaper to pay for insurance annually rather than monthly (only if you can afford the upfront payment).
For travel insurance, it could be cheaper to take out a family policy if you’re travelling as a group. Only pay for the cover you need – there’s no point coughing up extra for extreme watersports cover if you’re intending to have a relaxing beach holiday.
To save on your home insurance, you might want to consider combining your building and contents insurance under one policy as this is often cheaper. Make sure your estimations of the value of your belongings are correct, or you could end up overpaying. Preventing claims by installing a burglar alarm, swapping tarmac for a gravel driveway and fitting extra locks on doors can help you save money down the line.
Boost your income
If you’re looking for ways to boost your income, we’ve got plenty of tips for making some extra cash:
- Take on a side hustle (if you have the time).
- Switch to a bank account that offers a better interest rate – many banks offer a cash bonus for leaving your current bank.
- Sell things you no longer need on eBay, depop or an online car boot sale app like Shpock.
- Get a cashback credit card to be rewarded for your spending.
- Get cash for recycling your old clothes at shops like H&M.
- Rent out your clothes for cash on By Rotation.
- If you have a spare room, consider taking on a lodger or foreign exchange student.
- Rent out or sell your parking space if you don’t use it.
- Make sure you’re not overpaying on tax.
- Do an annual review of your finances to make sure you’re getting the best deals.
- Check you’re not paying for subscriptions you don’t use.
- If you’ve been at your job for a while, consider asking for a pay rise.
Help to Save scheme
If you’re on a low income, you could get help with your savings with the government’s Help to Save scheme. If you qualify, you’ll be entitled to Working Tax Credit or Universal Credit to get a bonus of 50p for every £1 you save over 4 years. Find out more about how to get a Help to Save account.
Frugal living is a great way to cut costs in everyday life. Check out our 7 tips for frugal living that will save you money, from creating a meal plan to reducing the amount of water you use.
30 day rule
Following the 30 day rule can help you develop a money saving mindset for life.
What is the 30 day rule?
Next time you want to buy something, leave it for 30 days and if you still want it after this time, you can go back and buy it. Often, you’ll find you’ve gone off the item or realised it’s not essential after all. Over time you might be surprised at how much money you save.
Control emotional spending
If you’re prone to being guided by your emotions when it comes to spending, you might find yourself overspending and wasting money. Read our article on how to get your emotional spending under control to take back control next time you’re out shopping.
There are countless savings challenges out there to help you put more money aside, so you can find one that works for you.
52 week saving challenge
The 52 week savings challenge works by gradually increasing the amount you save each week. You’ll start by saving £1 in the first, then £2 in the second week and so on. By the end of the year, you’ll be saving £52 a week. While it might not seem like a lot, your savings will benefit from the snowball effect of compound interest, where you earn interest on money that was previously earned as interest.
1p saving challenge
The idea behind the 1p savings challenge is similar to the 52 week savings challenge. On day 1, you’ll save 1p. On day 2, you’ll save 2p, and so on. By the end of the year, you could save £667.95!
Where to put your savings
If you’re wondering where to put your savings, there are a number of options. You could choose to put your money in a savings account, like a fixed rate savings or regular saver account. Here, we’ll help you find the best savings account to grow your money.
Best easy-access accounts
An easy-access savings account usually gives you a higher interest rate than a standard current account, as well as the flexibility to withdraw your money whenever you like.
Compare the best easy-access savings accounts based on interest rate, notice and account type.
Best regular saver accounts
With a regular saver account, you pay money into the account each month and earn regular interest on it. These payments will end when the account’s term ends, so it can be a great way to save for something specific (like a wedding).
Find the best interest rate available for regular saver accounts.
ISA stands for Individual Savings Account. There are a number of different types designed to help you save for different things, such as a Help to Buy ISA which can help you save to buy your first home. With an ISA, you can save money without paying tax on it. The ISA allowance for the tax year 2020/2021 is £20,000.
Check out these ISA saving strategies to grow your savings pot.
Ethical saving accounts
With an ethical savings account, the bank or building society will use the money you deposit to support ethical businesses, like clean energy companies. To start saving ethically, research the banks, companies or investment funds you’re thinking about to see what ethical principles (if any) they put in place and whether these align with your principles.
These are the top ethical savings accounts for 2021, according to Good With Money.
A savings bond is a fixed-term loan from you to the provider (e.g. the bank or building society) in return for a higher interest rate than you might get from a standard savings account.
Find out what the best fixed-rate bonds are, with rates updated daily.
National Savings & Investments (NS&I) offer savings and investment products backed by HM treasury. Whereas most banks only guarantee your savings up to £85k, with NS&I 100% of your savings are protected.
For more ways to save with NS&I, check out their available products.
What you need to know about inflation
Find out everything you need to know about inflation, including how to protect your savings from falling in value.
What is inflation?
Inflation is the general increase in prices over time. It affects everything from food to fuel and house prices. Inflation results in the decline of purchasing power, meaning your money will be worth less in a few years time than it is today.
What causes inflation?
Inflation is caused by an increase in the supply of money. There are three main ways this can happen: demand-pull inflation, cost-push inflation, and built-in inflation.
Demand-pull inflation happens when an increased supply of money creates surplus demand for products, leading to people spending more and prices rising.
The cost-push effect is a result of the increase in prices working through the production process inputs. These higher costs for finished products are passed onto customers in the form of higher prices.
Built-in inflation is the idea that people expect the current rate of inflation to continue into the future. As prices rise, people come to expect that they will continue to increase at a similar rate and demand higher wages to maintain their standard of living.
Is inflation good or bad?
Inflation is a double-edged sword, as it can be both good and bad for your money. Ultimately, it will always reduce the value of money, unless interest rates are higher than inflation.
When inflation is low, it means prices aren’t rising as quickly as they could be, which is great for the end customer. For example, falling oil prices could save you money on running your car and utility bills.
But inflation can be beneficial if you’ve borrowed money, as it has the effect of eroding debt. Rising places also makes it easier for companies to increase wages.
How you can beat inflation
Whether you choose to try and beat inflation will depend on your goals. If your goals are short-term (like buying a car or saving to go on holiday), it’s safer to keep your money in a savings account – you don’t really need to worry about inflation. If your goals are longer term (such as buying a house or saving for retirement) you’ll want to pay more attention to inflation if you’re investing.
This is why it’s often better to invest for the long-term rather than put your money in a savings account. The interest is almost always lower than inflation, so you’ll be constantly losing money.
Generally, if you want to make higher returns, you’ll need to take more risk. Whereas if you’re not comfortable taking risk, bear in mind that you might make lower returns.
How to save money fast
Everyone wants to get rich quick. But what’s the best way to save money fast? Find out here.
How to save £10k
Saving £10k in a year isn’t easy, but it’s possible. Start by figuring out how much you’d need to save each month to reach your goal at the end of the year. Then, create a budget to allocate part of your income to savings (or if you already have one, adjust it accordingly). Try to cut costs in other areas of your budget so you can put more of your hard-earned cash aside. You could try downloading a savings app to automate the amount you put away each month, as well as reviewing your expenses to swap to better deals and finding cheaper ways to socialise.
Best apps to help you save
Automatic savings apps have been popping up like mushrooms recently, so there are plenty to choose from. From helping you round up your spare change to calculating how much you can afford to save each month without noticing, find an app that works for you.
Money saving apps
- Claro is geared towards helping you plan your finances and putting the control back in your hands. You can choose from a range of savings products and take advantage of our 1, 2, 3% savings bonus scheme which offers the market’s leading interest rate.
- Monzo offers handy savings pots for you to save towards your goals, whether that’s buying a home or a holiday. When you spend more than £1, it’ll round up the spare change and add it to your savings pot.
- Tandem helps you save your money and the planet. Earn up to 0.5% interest with a fixed saver account or up to 0.4% with an instant access account.
Automatic saving apps
- Chip works out how much you can afford to save and puts it into a special savings account. Normally it doesn’t pay any interest, or very little, but its new Chip+1 account pays 1.25% annually if you’re new to Chip.
- Plum works similarly to Chip, plus you can choose to invest the amount you’ve saved and learn how to stop overpaying on your bills.
- Cleo helps you set savings goals for things you want most in life. Chat to its friendly bot to create a personalised budget, pay your bills and enjoy budgeting tips.
- Moneybox lets you save and invest your spare change. Earn interest on your savings, save up for your first home, combine your old pensions and more.
- Squirrel is an app-based account that organises your money by splitting your salary up into your bills, goals and a weekly allowance to spend on the fun stuff.
How to save money as a student
Saving money on a student budget isn’t easy, but there are ways to be savvy while still having a good time.
- Sign up to student discount websites like UNiDAYS, Student Beans and TOTUM.
- Find out when your local shop reduces their produce (it’s usually in the evenings).
- Negotiate on bills like gym memberships and broadband – you’d be surprised how easy it can be.
- Buy young people’s railcards and bus passes to save on travel.
- Get deals on cinema tickets to go out for less.
- Travel off-peak if you can – it’s usually cheaper.
- Kit out your student house for less using Gumtree, Freecycle and Facebook Marketplace.
- Only take cash on nights out to avoid the temptation to overspend.
- Stock up on books at the library rather than buying them on Amazon or bookshops.
- Visit the hairdresser on training days to get your hair cut for free.
- Grow your own herbs and vegetables to cut the cost of your food shop.
- Become vegetarian – vegetables and pulses are cheaper than most meats.
How to save for a house deposit
If you’re hoping to get on the property ladder, you’ll need to start by saving for a house deposit – don’t forget to factor in the other costs like stamp duty and surveying fees.
How much deposit do I need?
The deposit you need will depend on the property cost and the size of the mortgage you can get. When you’re looking at properties, remember lenders will usually let you borrow up to 4.5 times your salary. So if you earn £50,000, you could buy a property worth around £225,000.
You’ll usually be asked to provide a deposit worth between 10-20% of the purchase price, but it might be possible to get a 95% mortgage. The bigger the deposit you can put down, the better, as you’ll have to repay less and could get a better mortgage deal.
Try our affordability calculator to see how much you’ll need to start putting away.
How to save for a house deposit
There are lots of ways to save for a house. You could downsize while you’re saving to cut costs on rent, or move in with friends or family to avoid paying rent at all. You might be in the lucky position to borrow money off friends or family, but be careful if you decide to do this as you don’t want money-related arguments to sour your relationship.
Another way to save is to get help from the government. With the Help to Buy equity loan, the government will lend you up to 20% of the cost of a new-build home. This means you’ll only need a 5% deposit and the mortgage you’ll be paying will also be lower.
You could also consider a Shared Ownership scheme. This is where you buy a portion of a property and pay rent on the rest. You can buy between 25% to 75% of the property (or sometimes as little as 10%) and ‘staircase’ up the property ladder by gradually buying a bigger portion.
The government also offers a Lifetime ISA to help you save for a home. With this ISA, you can put in up to £4,000 each year until you’re 50. The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year. Remember you can only use the money you save to buy your first home or for retirement.
We’ve also rounded up the hidden costs of buying a home that you might not have considered, so don’t forget to factor these into your total savings.
Tips for saving for a house
Here are our top tips for saving up to buy a home:
- Start by setting a timeline so you can track progress towards your goal.
- Cut costs in other areas of your life, such as transport and socialising.
- Switch to a savings account with a better interest rate.
- If you’re not in a hurry to buy, you might want to consider investing your savings rather than keeping them in a savings account. This is because the stock market tends to outperform cash in the long run.
- Set up a regular payment to move cash from your bank account on payday so you don’t forget or have a chance to overspend.
- Consider buying a smaller property or buying in a less desirable location to bring down overall costs.
- Consider buying with someone else, like a partner or friend, to cut the cost of your mortgage in half.
- Declutter your home and sell the things you don’t need – you’ll thank yourself for this when moving day rolls around!
How much do you need to save for retirement?
There’s no magic number when it comes to how much you need to save for retirement, but the earlier you start saving, the better.
How much should I save for my pension?
There are varying approaches to saving for your pension, and it depends on how comfortable you want to be in retirement. You might be happy living a simpler life, or you might prefer to have enough in savings to afford the luxuries.
Some people say you should aim to save 10 times your salary. So if you earn £40,000, you might want to save £400,000 for retirement. Another way to look at it is by saving 12.5% of your monthly salary. So if you take home £2,000 a month, you should look to save £250 of that.
Remember that while you’ll need to cover outgoings like food, transport and bills, hopefully you won’t be paying rent if you’ve bought a property and you might have paid off your mortgage by then.
You can find out your likely retirement income using the Money Advice Service’s pension calculator.
How do I find out how much is in my pension pot?
It’s important to know how much is in your pension pot so you can keep track of your progress and change your payments if necessary. Read our article to find out how much is in your pension pot.
Pension savings calculator
Find out how much you’d need to save each month to reach your pension savings goal with our pension savings calculator.
How to save for a baby
If you’re preparing to start a family, congratulations! It’s a big step so it’s important to be prepared. That starts with working out how much you need to save for a baby.
How much does it cost to have a baby in the UK?
The most recent Cost of a Child report claims that the cost of raising a child until the age of 18 (including rent and childcare) is £71,611 for a couple and £97,862 for a lone-parent family.
If you throw childcare into the mix, these costs rise to a whopping £152,747 and £185,413!
Of course, these figures will depend on a number of factors, including the area you live in, how much you spend on your child and where you shop.
Budgeting for a baby
If you’re budgeting for a baby, follow these simple steps to reach your savings goal sooner:
- Start by reviewing your financial situation. Calculate all of your outgoings and subtract them from your monthly income to see how much disposable income you’ll have during pregnancy.
- See if there are any ways to cut back (you might want to find out ‘what habits do I need to change to save better?’).
- Apply for any benefits you’re entitled to, such as the Sure Start Maternity Grant.
- Create a budget, factoring in any big costs before the baby is born (like a car seat, pushchair or bigger car if that’s needed).
- Make a budget for after the baby is born, factoring in lower salaries if you’re taking maternity or paternity leave.
- Don’t forget to consider childcare costs if you or your partner are planning to return to work after taking leave.
Save for a wedding
Saving for a wedding can be exciting and stressful in equal measure. Below are our top wedding money saving tips for the big day to make sure everything goes to plan.
- Start by working out the costs involved and set a budget to make sure you don’t end up overspending.
- Then, work backwards by using our savings calculator to find out how much you’d need to save each month to reach your goal.
- Start putting money aside each month (it’s best to move it out of your current account on payday so you’re not tempted to spend it).
- Look for ways you can cut back to help you save more, whether that’s by reducing your expenses or skipping a summer holiday this year.
- Shop around when it comes to buying bits for the wedding – as soon as you say the word ‘wedding’, suppliers will automatically put their prices up.
- If you’re struggling to save as much as you like, try reducing your wedding budget (for example, have a staycation instead of a foreign honeymoon or get married on a weekday instead of a weekend).
Save money for Christmas
The good news about saving for Christmas is that you can start at any time given it falls on the same day each year, and you know roughly what’s involved! Learn how to save money for Christmas, whatever your budget.
- Buy fewer presents – remember, it’s the thought, not the price, that counts.
- If you’re hosting Christmas, ask everyone to bring something to save you time and money.
- Swap fresh for frozen foods where possible, they’re usually much cheaper.
- If you’re catering for a lot of people, buying in bulk could save you money.
- If you’re travelling elsewhere for Christmas, buy your train or plane tickets in advance rather than on the day.
- Start buying gifts and non-perishables throughout the year, particularly during the sales.
- Raid the boxing day sales in time for next Christmas.
- Start saving early in the year to avoid borrowing at the last minute as Christmas approaches.
When investing, your capital is at risk.