It’s year 10. You’ve just left a Geography class on how waterfalls are formed and now you’re on your way to Chemistry to use a bunsen burner to look at alkali metal ions.
Clearly, you learn a lot of useful things at school. But what school sometimes doesn’t teach you are crucial life lessons on how to handle your finances. Like what an ISA even is, and how taxes actually work.
Financial self-education. pic.twitter.com/pFKsg5NSH9— tina. (@AltinaBerjani) April 24, 2019
We’re here to break down some of life’s most important money questions, the ones they didn’t teach you in school.
How to save money
Everyone tells us saving is a sensible thing to do. It helps you prepare for your future and buy stuff you want. And means if something goes wrong, you’re ready.
But it isn’t always easy. In fact, 32% of people have less than £500 in savings and 41% have less than £1,000. More than half of 22 to 29 year-olds say they have no savings at all!
Half of twenty-somethings have no savings https://t.co/Ed6fTnQI3z— Simon Gompertz (@gompertz) October 5, 2018
So, how do you actually save money? And where’s should you put your savings so you get the most out of them? Have you left it way too late to start saving from scratch?
Lesson 1: How to start saving
If you haven’t started saving, don’t panic! It’s never too late to start.
You’ll need to sit down and take a look at your spending, to work out how much you have to play with. It’s usually helpful to create a budget, that sets out how much you earn and spend on a regular basis. Once you know that, you can work out what’s left over and what you can cut out to put towards savings instead.
Then think about setting some (realistic!) goals for things you want to start saving for. It might be a holiday, a house deposit, or even getting ready for retirement.
We’ve put together a guide to saving from scratch here.
It pays to start saving ASAP
Interest is money you earn on your savings when you put them in the bank. We’ll talk more about this later, but one of the most important things to keep in mind when thinking about your savings is the concept of compound interest.
It means that when you’re saving, any interest you earn can then earn interest itself. (And when you’re borrowing, any interest you owe can rack up interest too).
Compound interest means your savings will grow over time, so it’s worth starting to save as soon as you can.
Lesson 2: How to actually save money
To have a chance at saving successfully, you need to use a method that suits you. Take account of your goals and your income, as well as what you’re like. Then test out a few different options to find one that works.
Here are some ideas you might want to try:
Pay yourself first
Paying yourself means as soon as you get paid, before you buy anything else, pay a portion of your salary into savings first.
First rule of money is to always pay yourself first.— Jasto (@Jasto__) May 14, 2019
You can remember do this manually. Or if you use Monzo, set up a regular payment on the day you get paid to automatically move money into a Pot.
Build saving into your budget
The 50-20-30 rule was coined by an American senator called Elizabeth Warren. The idea is to split your earnings so that 50% goes on things you need, 30% on things you want and 20% on saving for the future (or repaying any debts).
It’s a way to build saving into your budget and make it an integral part of how you use your income.
Save ‘little and often’
Little and often is one of the most realistic ways to save. If you build savings habits into your day-to-day, over time you should see the small amounts add up to something more significant.
set up a standing order so each month money’s going across into your savings regularly even if it’s a small amount, you’ll eventually see your savings grow. Set yourself a budget if you can x— jen ✨ (@jennn_xoxoxo) May 13, 2019
You can use Monzo to save small amounts of money regularly by rounding up your purchases to the nearest pound and put the spare change in a Pot.
Last week, I set a secret pot to round up transactions for my next trip to LA and I’ve just checked & it’s already half decent without trying!— Zoë with two dots (@ZoeYak) April 19, 2019
Best bit? I can’t even dip into until the day I fly as it’s locked until that date.
Bad With Money Babes ❤️ Monzo pic.twitter.com/h9tRETgq9g
Read our full guide to slow and steady saving with Monzo here.
Get your spending under control
If you need to get a handle on your spending, this is a good one for you. A ‘zero-sum’ budget means giving every pound you earn a purpose – whether that’s paying the bills, buying groceries or adding to your savings. The aim is to have no ‘extra’ money to fritter away on unnecessary stuff.
It can help you stop wasting money on unnecessary things, so you can put it towards savings instead. Find out exactly how it works here.
me: ugh i have no savings— xtina ⚡️ (@barryp0tter) May 7, 2019
also me: pic.twitter.com/RKiqx3MsFA
Make it a challenge
Turning saving into a challenge can help you stay motivated! And there are a few savings challenges that have gained cult followings.
From Kenya to America, people around the world are using the 52 Week Savings Challenge to build up their savings. Start by saving just £1 in the first week of the challenge. Then the next week, set aside £2. The week after, £3. And so on. By the end of the challenge, you’ll have saved £1,378!
The 1p Saving Challenge involves saving a little money every day, starting with 1p. The next day you save 2p, the day after 3p. After a year, you’ll be setting aside £3.65 on the final day and have a total of £667.95 in savings.
Skint Dad's 2018 1p Savings Challenge 😎— Skint Dad (@SkintDad) January 1, 2018
Not only is it an easy way to save; if you manage to complete to whole 365 days of savings, you'll have a tidy sum of £667.95 saved 😮
Get your free printables here >> https://t.co/onxOVNYSWQ
Happy savings & a very happy New Year! 😁 pic.twitter.com/r6LiAlIQNn
Use Monzo to help you save
We’re not just saying this! Using Monzo’s saving features are a great way to start saving.
Pots let you set money aside for different things. You can use them to work towards all your savings goals, big and small. And you can even lock them to avoid the temptation to dip in.
Open up a Monzo, you having a saving pot which you don’t have to open up until the day you put to open it.— Christina (@MulanDream) May 13, 2019
You can also earn interest on your savings through Monzo!
Read our full guide on all the ways you can use Monzo to save.
Lesson 3: Pick somewhere to put your savings
Once you’ve started saving, you should find a good place to put your money. That’s usually an account where your money will earn interest.
Earn interest on your savings
Interest is the cost of borrowing money. It makes lending worthwhile – after all, the lender can’t use their money while someone else is using it, and there may be a risk they won’t get it back.
When you put your money in a savings account, you’re effectively lending it to your bank. They’ll usually lend the money to other customers or invest it. That’s why they pay you interest on your savings.
Comparing different types of saving account
There are four main types of savings accounts: fixed rate bonds, regular savers, instant access savers and ISAs. Things like interest rates, how you can access your money, fees and risk can vary between the types. You can learn more about each type and how to pick between them here.
ISAs are particularly useful if you’re saving towards a goal like buying a house or retirement. We’ve broken them down for you over here. And you can also open an ISA through Monzo!
When you’re comparing different savings accounts, it’s worth checking something called the AER (Annual Equivalent Rate). This reflects when interest is paid and how it’ll compound, as well as any compulsory fees. It’s shown as an annual percentage of the amount you’ll hold in the account, and makes it easier to see how different accounts stack up against each other.
Did you find this useful? Let us know in the community! And if you’d like to read the next guide in our series, like our Facebook page Monzo Money Tips.
Download Monzo to try these techniques for saving today!