After what has probably been another expensive and excessive Christmas, many will be anticipating the arrival of their post-Christmas credit card statements.
Yet, despite several New Year’s resolutions on making this year a more prosperous financial year, Britons are terrible at saving.
Britain is still weathering the financial crisis and the so-called ‘credit crunch.’ Partly, this crisis was caused by high levels of private sector borrowing, i.e. individuals borrowing money to fund their daily expenditure.
This was easy when cheap money was available to banks (i.e. overdrafts), yet when this cheap money dried up, borrowing from banks in the form of short term loans and credit cards to sustain their daily expenditure became more expensive.
Unfortunately, the reaction has not been an increase in savings to plan for a rainy day.
In fact, in 2010 12% of our incomes were assigned to savings, yet today, that amount has fallen to as a little as 5%.
The Money Advice Service found that four out of ten working-age people had less than £100 in savings at any time.
According to an FCA report on borrowing, rather than saving, instead people were doing the following:
- 30 million of us are using credit cards
- 58% do not pay off their balance each month
- 1 million people were in arrears
Alarmingly, the debt that is rising the fastest is the amounts placed on credit cards, with Britons piling on £20 million a day on their cards.
“British families now owe a record £67.3 billion on their credit cards, around £2,500 per household.”
So why don’t Brits save when borrowing levels are at record highs?
There are several reasons, namely, that we are a nation of consumers – with so much choice available to us it has become much easier to have what we want when we want.
1. Keeping up with the Jones’
This is nothing new – neighbour has a new car, maybe it’s about time you have one? Colleague going on a new holiday somewhere exotic? You want a foreign holiday too…
What has got worse is that we are not only keeping up with those around us but copying so-called lifestyle influencers on social media. Instagram has provided us with insight on how the so called other ‘half live’ – staying at high end hotels, dining at posh restaurants, buying the latest fashion designs – all vying for followers to buy their endorsed products.
Combine this with the “you only live once” mantra to live by, it leads to a dangerous and continual need to spend to compete with others rather than plan for tomorrow.
2. Stubborn to amend your ways
People are persistent when it comes to their spending habits and trying to cut back and become accustomed to a more frugal lifestyle is difficult to conceive.
Personal debt is embarrassing, and admitting you have debt in the first place is conceding that you may be inadequate at managing your lifestyle. Acknowledging your need to save is recognising you have a problem.
When your financial situation looks grave, it is much easier to give up hope than look for another solution. Rather than attempting to consolidate your borrowing with a payday loan, stopping excessive expenditure or attempting to getting started with some savings; a negative mindset has developed where people give up and say, “this is who I am.”
3. I’ll save when I earn more
When salaries stagnate, and inflation still continues to rise, people treat this as a convenient excuse to put off saving until they receive more in their monthly pay packet. 28% of households expect their financial situation will improve in the coming 12 months.
Yet, in reality, we don’t know what the future holds. In fact, you could end up earning less if you have to change your job or worse still, lose it. In those months you did not save expecting to obtain more income could have helped.
4. Savings interest rates make little sense to save
Borrowers are reaping the seeds of low-interest rates, but for savers, this leaves little incentive for savvy households looking to put some money aside. Some savings accounts interest rates are as low as 0.1% meaning if you save £1,000 a year you’ll receive £1 in interest. Hardly an attractive prospect to convince people to start saving.
Remember, it is not about receiving interest, but having a little nest egg in case of financial emergencies that require you to dip into your savings; like a broken boiler or renewing your car insurance.
5. It’s too hard to save
It’s easier to spend – bank cards have chip and pin, contactless, apple pay – it’s so simple to pay for goods and services with a swipe of a card, enter a pin number or now withholding your phone next to the point of sale.
To save, we must set up a standing order or direct debit within our bank account to put money aside. For many, knowing how to or being bothered to save is a slower, more laborious, more time-consuming process. Yet it does not have to be, with the advent of mobile savings apps, it is now easier to save as it is to spend.
3 steps to begin your financial saving
Proper financial planning – these three words are hardly inspiring to get started and usually prompt some industrial scale procrastination. Yet, it does not have to be that boring – follow Peachy’s three-point guide and our saving hacks to spend less time fretting over your finances.
Step 1: What are you saving for?
First and foremost, what are you saving for? Maybe it’s an annual holiday or long-term retirement planning? You know that the car insurance needs renewing each year – why not begin saving for the renewal?
More importantly what about saving for an unexpected expense? Increase in winter fuel costs or boiler breaking down? Having an amount put aside and the amount you wish to save is a great start for your financial planning goals.
Step 2: Know where your money is allocated
However, before you begin to think about what you will spend your savings on, you’ll need to determine where your income is going (wages, benefits, other income). You can use a free budgeting tool to determine where you spend your money.
Not only can you work out where you can save, but it will also enable you to view where you are spending more on the ‘little things’ that could be cut out, like takeaways, beers or coffee shops.
Step 3: Begin paying off debts/starting your saving
If you have debt, then first you should pay this off with the money you are aiming to save. Why? Because with interest on that date being higher than those in savings accounts (see point 4) it makes financial sense to pay off those debts with the highest interest payments.
For some, you may not be accruing any savings, but you will be at least reducing your outgoings placing you into a prime position to face those unexpected financial emergencies.
Once you’ve cleared your debts then you can begin putting some aside for a rainy day. Importantly don’t wait until the end of the month to transfer what’s left of your income, you’ll never do that.
Set up a standing order, so you never fail to save, or even better get help from a chatbot app if you like to make saving even simpler through your smartphone.
Not having any financial planning is a dangerous game to play, even for short-term financial goals like having enough to spend at Christmas, or an annual holiday with your friends or family.
Beginning to save now ensures that when your credit card statements arrive in January 2019, they should not be as shocking!