Saving 101: Tips, Tricks & Where To Start

Ask yourself, ‘what number in my bank account would enable me to sleep well at night?’ This number should be enough to cover emergencies, too. Once you have that number in mind, write it down, put it on your vision board, stick it on the fridge – make sure it is visible – and then work backwards. For example, a £10,000 goal in two years would equate to a saving of £96 per week. The best way to save is to set up an automatic regular transfer. Plan a treat for when you’ve reached a certain milestone e.g. once you’ve saved 50% of your goal, you can buy some new bed linen or a new dressing gown.

Prioritise paying off high-interest debts first, while maintaining minimum payments on lower-interest debts. The best way to do this is to set up an automatic transfer as soon as you’ve been paid. Here are my three key tips…

1. Keep savings out of easy reach. Premium Bonds are an excellent example because they're less accessible for impulsive spending, requiring up to five days for withdrawal. I recommend my clients keep a comfortable cash pot (to cover emergencies and upcoming costs) in Premium Bonds and build it up through a monthly direct debit. Although Premium Bonds don’t earn interest, you will be entered into a fun monthly prize draw where you can win tax-free cash prizes ranging from £25 to £1 million.

2. Avoid lifestyle inflation. Keeping up with the Joneses often leads to financial strain and dissatisfaction. Focus instead on building your wealth by living within your means, saving and investing surplus income. Setting financial goals helps maintain this discipline, enhancing wellbeing and self-pride.

3. Pay yourself first. This means allocating funds to savings and investments before other expenditures. Setting up automatic transfers ensures consistent growth of your financial assets. Using budgeting tools like Revolut helps monitor and regulate spending, allowing you to adjust habits and cut back on non-essential expenses, thereby enhancing your financial discipline and contributing to a stable economic future.

The 50/30/20 rule is key. Allocate 50% of your income to necessities (rent, bills, mortgage), 30% to ‘wants’ (entertainment, dining out), and 20% to savings and investments. This can help maintain a balance between living comfortably and building savings.

Think about your biggest bills, rents and utilities. A good strategy for negotiating better deals is to say you are leaving. You will often get a better deal as a result. Remember to be kind to the person you are talking to – it goes a long way. 

Another big one: the average person in the UK spends around £430 per year on gifts. Focusing on thoughtful, cost-effective presents and group gifting-schemes like Secret Santa are excellent ways to manage and reduce spending. Perhaps consider collecting gifts throughout the year, too, so you’re not shouldering the burden all at once.

Once you’ve paid yourself first (saving and/or investing) and your other essential costs like bills and rent are covered, then transfer a fixed budget onto a card like Revolut which tracks your expenses. You can spend this guilt free knowing that you’ve already saved towards your future – I see saving/investing as another bill which has to be paid each month. Remember to spend this money only items or activities that enhance the quality of your life today or in the future; if it doesn’t, ask yourself why you are spending money on it.

Yes. You need to save more than you realise – a £1 million pension would produce a sustainable income of about £40,000 per annum. The power of being young and having a long-time horizon to invest over is known as ‘compound interest’ which Einstein called the eighth wonder of the world. A little can go a long way – for example, if you invested £100 per month into your pension over 30 years, it would likely be worth over £100,000 (assuming 6% investment return per annum). The more you can invest into your pension now, the longer it has to grow.

Once you have saved enough to cover emergencies and upcoming costs (e.g. house deposit, wedding etc) you can start to think about investing. Investing is how you build your wealth. The best place to start is by investing in a Stocks & Shares ISA, as your investments will grow tax-free. I only recommend my clients invest money they do not need to access for at least five years and it’s important to invest into a diversified portfolio suitable to your risk appetite and preferences. For example, I am passionate about helping my clients invest in sustainable companies which care about the environment, people and their communities.

A lot of my clients have side hustles and additional sources of income which can really help you save effectively. Remember, the first step of a financial plan is to pay off high-interest debt, and the next is to get your income higher than your expenses which can either mean earning more (e.g. a side hustle) and/or budgeting to reduce expenses. Once you have excess cash (income that exceeds expenses) you can then start to save towards emergencies and upcoming costs. Once you have sufficient savings for emergencies and upcoming costs, you can start investing tax-efficiently (e.g. in a Stocks & Shares ISA).

There is not one size fits all when it comes to financial planning. I always ask my clients, what their biggest financial concern is and the answer to this question determines their financial goal and subsequent plan I create for them. For example, if your answer is to pay off your mortgage then you need to focus on increasing your excess income (income higher than your expenses) to overpay your mortgage. If you want to retire comfortably, you need to focus on investing excess income and cash into your pension so you can retire early and on a desired level of income so you can enjoy yourself. My job as a financial adviser is to help my clients make smart decisions with their money so they can address their financial concerns and enjoy financial freedom.

Like I said, Premium Bonds are an excellent way to build up your savings. You can set up an automatic monthly transfer and they're less accessible for impulsive spending, requiring up to five days for withdrawal. It is free to hold Premium Bonds and although your cash won’t earn interest, you will be entered into a fun monthly prize draw where you can win tax-free cash prizes ranging from £25 to £1 million.

I could not recommend Female Invest more. There are also some great accounts on Instagram, YouTube and TikTok worth following including @Elent_Finance, @Accountant_She and @BudgetJonesDiary_. I also share a lot of financial education on Instagram and via regular webinars on EventBrite. 

Follow @Sophia_Financial_Planner on Instagram.