How to start when you are struggling to save

One of the foundations of proper financial planning is having cash savings.

Despite the importance of this cash buffer, a surprisingly high number of people have no savings on which to fall back during unexpected tough times.

New research by National Savings & Investments (NS&I) has found that nearly a quarter of people in the UK have no savings at all.

This lack of savings comes despite 77% of people saying they believed it is essential to save.

In an encouraging development, 87% of 18-24-year-olds said that saving is essential to them. If younger people are forming a savings habit, this could create a solid financial foundation for the future.

In contrast, those aged 65 and over were more likely to be ambivalent on the importance of saving, with just over 22% of respondents saying they neither agree nor disagree.

Young adults aged 18-34 face new challenges to the ways they with high rent and property prices earning them the moniker Generation Rent

Many young adults living in rented accommodation struggle to get a foot on the property ladder but are eager to become homeowners themselves.

According to the research, nearly half of all 18-34 year-olds said that a lack of disposable income is a significant barrier to their ability to save. Although it isn’t for lack of trying, as less than 5% of 18-34-year-olds said they did not want to save.

Debt repayments are also affecting a third of 25-34-year-olds’ ability to save. In contrast, only 6% of over 65s said the same.

Generation Rent is keen to save it seems, but are increasingly restricted by the limited savings options available and the uphill struggle to even begin saving.

Nearly 80% of those with savings admitted to dipping into their savings to cover their day-to-day living expenses, especially those in younger age brackets of 18-24-year-olds.

Similarly, 75% of 18-24-year-olds and 63% of 25-34-year-olds said they were likely to cut down on their spending to help them save. Only 36% of 55-64-year-olds and 30% of respondents over age 65 said they cut their spending to help them save.

These findings suggest a generational split in attitudes to saving between older and more financially secure savers (35-65+ age brackets) and their younger counterparts (18-34-year-olds).

Here are our top 3 tips for starting saving when you are struggling to save:

  • Put them auto-pilot. By saving by Direct Debit it makes it much easier to not spend the money
  • Put them out of reach. By keeping your saving pot detached from your current account puts a mental hurdle in place before spending savings
  • Treat yourself! Set a 3 month target and treat yourself when you reach it by spending 10% of the target. For example if you have a £1000 target over 3 months then treat yourself with a £100 shopping trip when you hit £1000. You’ll still be £900 better off in savings whilst also treating yourself.

Almost a quarter said they think they would be able to save more by keeping the change from a purchase. Those aged 18-24 were far more likely to believe they would be able to save more in this way.

When surveyed, those with savings said they keep their savings in a current account rather than in any savings product, while nearly a quarter of Britons use investment accounts such as stocks and shares and trust funds to make the most of their savings.

A smaller but significant group of those with savings, around 13%, are missing out on better interest rates as they keep their savings in a cash pot at home.

However, one in five said that they would set up options in advance, including direct debits or standing orders, to help them save. This finding proves that good savings habits do exist.

There is some good news in the research, with 38% of those who have savings save when they can from their income, while 42% save each month from their payday.

This may be the same amount each month (14%) or different amounts each month (15%), and encouragingly 13% save a certain amount on each payday and then tend to top up afterwards, gradually building a savings habit.

It’s clear that attitudes to saving are changing, with Generation Rent, in particular, facing new challenges to their ability to save. Often there is a sense that younger people are ambivalent about saving today for a rainy day tomorrow, but this research challenges that myth.

If we want to build a stronger savings culture, it’s clear we have to support the younger generation in their aspirations to save.

Jill Waters, NS&I Retail Director, said:

People must be realistic when it comes to saving and acknowledge that small steps can eventually lead to bigger savings pots.

To start that savings habit, you can save some of the change from purchases, putting little bits away now to make regular savings from your income.

There is plenty of information from various sources, including comparison websites and financial providers, about where you can start your savings journey and how to make the best decision for you in terms of growing your savings pot.