We caught up with financial literary expert Frank Conway of Moneywhizz & Irish Financial Review to bring you this article on 3 steps to better saving.*
Step 1: Know why you’re saving
The first step to better saving is to be clear about what you’re saving for. There are many reasons to save including:
Saving for a rainy day
Everyone should aim to build up a rainy day fund of 3 to 6 months’ living expenses which include the cost of your mortgage or rent, utilities, groceries, transport etc. Your rainy day fund allows you to manage unexpected short-term financial setbacks by enabling you to pay the bills until you get yourself sorted.
Saving for life experiences
Life is expensive. If you have a wedding coming up, fancy heading off on a holiday or want to celebrate anniversaries then you’ll need to set a budget and start saving up for them.
Saving to buy a home
If you to want to buy a home you will need to save a deposit of at least 10%, plus the money you need to cover the costs of moving.
Saving to protect yourself
You might also want to save in order to protect you and your family against the unexpected. You can put your savings towards protection against ill health, loss of income or even death.
Saving for retirement
Saving for retirement means you benefit from great tax benefits while building up a retirement fund.
Step 2: Know how much you should be saving
Use the 50:30:20 rule:
- 50% of take home income should be for NEEDS
- 30% of take home income should be for WANTS
- 20% of take home income should be for SAVING
Needs are essentials like living costs, mortgage repayments, rent, utility bills, transport and groceries.
Wants are non-essentials such as social events, entertainment and fashion items.
Saving is saving, of course, but be clear about what you are saving for.
Step 3: Know how to save
In a regular savings account.
You can open a regular saver account and start saving every month to build up your rainy day fund.
In an employer’s pension scheme or in a personal pension plan or PRSA
If your employer has a pension scheme, you should look at how you can use it to save for retirement. If you don’t have a pension with your employer and they don’t offer a pension scheme, you can set up a personal pension or PRSA.
Through personal investments
If you’re already saving for your shorter term needs (emergency fund, life experiences, buying a home), you could consider investing your money for the medium to long term instead.