If you’ve built up some savings, you’re in a great position. The next step is to develop your savings habit and try to earn more from your money. From making it automatic to considering investing for those longer-term goals, here are some tips that could help you on your way.
Make it automatic
One of the hardest parts of saving is remembering to do it. If you take the need to remember out of the equation, you could reach your goals much quicker.
So whichever type of account you use to save your money, make it automatic. Set up a standing order or a Direct Debit and have it come out of your account on pay day. That way you can set it and forget it, knowing your saving habit will take care of itself.
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Keep your emergency savings separate
It can be disheartening trying to save for a longer-term goal if you keep having to raid your savings to pay for things like a car repair or a replacement washing machine.
As it’s hard to predict if and when you’ll need this money, emergencies should always be the first thing you save for. Make sure the money’s kept in an instant-access account so you can get your hands on it if ever you need to. And avoid the temptation to dip into it for non-emergencies – like a holiday, for example.
Explore more: Use our financial fitness score tool to see how resilient you are and see a projection of your current rate of savings.
Define when you want to access your money
Once you’ve got your emergency fund, take your savings habit to the next level by working out exactly what else you’re saving for.
You don’t have to choose between saving for short-term and long-term goals. Ideally, you’ll do both. But for each goal, you need to be mindful of when you think you’ll want to spend the money.
Why? Because being clear and considered about what you’re saving for and when you’ll need the money determines where you could put your cash.
For short-term goals, keep it within reach
For money you’ll want to spend within less than five years – say, for a new car or a house deposit – it makes sense to keep it in a savings account. Because if you were to invest, you could potentially suffer losses in the short-term and not have cash available when you need it.
But as you know, not all savings accounts are the same. With a fixed rate account or a regular savings account you may be able to earn a slightly higher interest rate in return for locking your money away for a fixed period of time.
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Factor in inflation
When saving for longer-term goals, there’s an added complexity you need to beware of: inflation.
Inflation is the rate at which the price of goods and services increase. As things generally become more expensive over time, inflation reduces the value of your money.
To bring home the impact of inflation on your future savings, it can help to look back at what £1 would have bought over the last few decades1:
1970: £1 = 10 loaves of bread
1980: £1 = 3 loaves of bread
1990: £1 = 2 loaves of bread
2000: £1 = 2 loaves of bread
2010: £1 = 1 loaf of bread
2020: £1 = 0.93 loaf of bread
What does this mean for your savings? For each year when the rate of inflation is higher than the rate you earn on your savings, your money is effectively shrinking in terms of what it can buy.
For long-term goals, consider investing
If you’ve got an adequate emergency fund in place, you might consider switching some of your monthly savings contributions into an investment fund. Because while savings accounts are considered safe, the interest rates they earn are often less than inflation – and some earn no interest at all.
Investing should always be seen as a long-term strategy of 5 years or more. Because the longer you invest for, the longer you’ll have to recover from any market falls. Over the long term, investing gives you the potential to earn better returns than saving. But there are no guarantees as your money can go down as well as up in value so you could get back less than you invest.
If you’ve never tried it before, we understand investing can appear intimidating. But you can invest in global funds that spread your money across different types of investments so you don’t have to choose your own stocks.
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Wondering if investing’s right for you?
HSBC My Investment is our low-cost online investment advice service. You just tell us a little about your finances and what you’re saving for. And it shows you whether you’re ready to invest, how much you can afford to invest and how much risk you’re comfortable with.
If investing’s right for you, we’ll recommend a globally-diversified fund. You only pay a fee if you choose to invest – and whether you take our recommendation is up to you. If you want to go ahead, you can start investing with as little as £50 per month.
Fancy trying your own hand at investing? We also offer a range of other ways for you to choose your own investments.
Whichever way you invest with us, eligibility criteria and some fees apply.
1Source: Office for National Statistics