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One in three use savings to cover monthly expenses

One in three use savings to cover monthly expenses

Category: Savings

Updated: 25/09/2014
First Published: 25/09/2014

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Cultivating the saving mentality can be tough, but it is an even harder task if disposable incomes are being squeezed. Sadly, this is something that seems to be affecting more and more of us, and it's having a negative effect on our saving pots.

According to the latest quarterly Disposable Income Index by Scottish Friendly, nearly one in three of us (31%) are dipping into our saving funds in order to keep on top of regular monthly expenditure. This is because the average disposable income of someone living in the UK is only 8% of their take-home salary. This is an increase of 5% from six months ago, but savings are still needed to plug the gap, with around £100 withdrawn from savings accounts per month.

Low disposable income

After bills and essentials, people in the UK have just £205 left over each month, although 38% of those surveyed said that they had even less at under £100. Those living in the South West and Wales enjoy the most disposable income (9.2%) while people in Northern Ireland struggle with the lowest, having a disposable income of only 6.5%.

Perhaps surprisingly, Londoners are also feeling the pinch with one of the lowest rates of disposable income. The index found that those living in the London region had spare income of just 6.9% - far lower than the 8% average.

Neil Lovatt, product director at Scottish Friendly, explains: "People in London are often envied for their larger than average salaries, but with rising property and rental prices in the capital and a high cost of living, those in London are, relatively speaking, often among the worse off in the country."

Trying to save

Although budgets are undeniably being pinched, the research found that we are still trying our best to build a nest egg. Around 60% of those surveyed pay into some kind of savings account - a figure that has stayed level - but the effects of having less spare income have reduced these payments to around £255 a month, a fall of 11%.

"The latest index indicates that while willingness to save is still present among the majority of people in the UK, the capacity to save is on the decline," comments Neil Lovatt. He adds: "As the monthly levels of disposable income have stayed relatively stable, this suggests that some people in the UK are getting squeezed elsewhere."

Under pressure

So, what is putting pressure on people's incomes? Well, housing is an undeniable factor. Rent or mortgage payments are one of the biggest expenses for households, so if payments rise, budgets get smaller. Due to recent increased demand for and reduced supply of housing, property prices have started to increase, squeezing budgets and leaving many digging into their savings.

The approaching winter is also likely to put tight household budgets under more strain. The ever-rising cost of fuel, and the festive season, could present problems to those struggling to make ends meet. According to the survey, one in four people (26%) worry that their financial situation will deteriorate over the next three months.

Balancing the budget

If your budget is feeling the strain of increased costs, there are some things you can do to start balancing the books and boost that savings pot. The first thing to do is to find a good place to store any spare cash that you have. An instant access account is the best one to go for if you need to dip into your savings, but locking money away will see you get better returns. You can compare saving options and find the best deal using our best buy tables.

You can also try to trim down those unwieldy utility bills by shopping around for a better deal. Switching provider or changing your tariff can help you slim the bills, especially if you also opt for money-saving options, such as direct debit payments.

Finally, if the festive season is weighing on your mind, a 0% interest purchase card could be an option for you. These cards will add no interest on to the money you spend for a select period of time. You can use our charts to find the credit card that suits your needs.

What next?

Check out the best savings deals

Compare the best 0% interest purchase credit cards

Compare gas and electricity prices with our handy tool

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.