We all know that we should be saving on a regular basis to build up an emergency fund, yet worryingly few people have that kind of financial buffer – and they could be putting themselves at financial risk as a result.
This is according to research from the Money Advice Service, which found that 40% of working-age adults surveyed lack a savings buffer, with less than £100 in savings available at any one time. As a result, they could be vulnerable to unexpected bills or unplanned expenses that could "have serious consequences on their financial stability", said the service. Considering how common such expenses are, many people could be impacted.
Indeed, 71% of respondents said they experience at least one unforeseen expense every year, so such costs are an unfortunate fact of life. This is why it's so vital to build up a buffer against such expenses, yet unfortunately, a lack of savings means many find themselves turning to credit or borrowing from friends or family to cover the costs.
Some people simply don't see saving as a priority, and have a "live for today" mindset rather than a dedicated approach to saving. But what if, at its most basic level, you can't afford to save? It's a particular challenge for low earners, because if household finances are already stretched, saving may simply not be an option.
Yet it is possible. The research shows that 23% of those on a household income of less than £13,500 have more than £1,000 in savings, and 40% are able to save most or every month. This is a particularly welcome finding, as those on the lowest incomes are the least likely to be able to cover an unexpected expense out of their salary, so having this kind of financial buffer becomes even more crucial.
The research also highlights the importance of saving regularly, even if those sums are modest, because as we all know, even small amounts can snowball once compound interest gets involved. Once you've started, you can be confident that you've at least got an emergency fund in place, and you'll be one step closer to achieving your financial goals.
Nick Hill, of the Money Advice Service, commented: "These figures show the millions put at risk by the saving gaps in the UK. Everyone's situations and abilities are different, so it's important to find an approach to saving that's right for them and their household.
"But for many, developing a savings habit is very achievable. Regular saving is key to building up that buffer against those life surprises. If you earn enough to set even a little aside each month that's great - a direct debit into a savings account might be an easy way to do this, even if you start small and increase the amount with time."
Regular saving can make all the difference, and you could help yourself get into the habit by opening a regular savings account. These accounts typically require you to deposit a minimum amount in each month, so there'll be no excuses!
If you don't feel you're ready to commit to that kind of arrangement just yet, an easy access account could be for you. This would allow you to add funds as and when you can, and it'll also let you withdraw the cash whenever you need it, making it particularly suitable for an emergency fund.
Why not boost your motivation even more by setting a savings goal? As Nick says, "if people set a manageable savings target, they're usually able to reach it", so a goal of £100 per month, for example – as was the case in Money Advice Service's study – could be the way to go.
It may seem an impossible task to begin with, but looking at ways to cut costs could soon make a difference. Start by seeing if you can cut back on takeaways or daily coffees, for example, and then take it one step further with our tips on how to boost your bank balance. Once you see your pot begin to grow, it could spur you on to make even bigger savings, and before you know it, you'll have a valuable financial buffer that can ensure you're prepared for any eventuality.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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