Keep up the good habits
£30,000
As we already said, your saving power is going to depend very much on your personal circumstances. With an income nudging up toward £30,000 a year, you’re going to find a few more savings and investment options opening up.
Let’s assume you’re already keeping up a few of the good habits we’ve already mentioned. You’re getting your essentials paid, your debts are under control and you’re saving regularly. Now’s the time to take a second look at that 50/30/20 rule we talked about. If you get this thing up and running, it’ll help you steer clear of overspending, make sure your critical costs are met and keep a steady flow of cash into your savings – and here’s where things get “interesting”.
If you put those savings into a standard savings account, you’ll be protecting them through the Financial Services Compensation Scheme (FSCS). Basically, every eligible person is covered up to £85,000 per bank, building society or credit union they’re saving into. On top of that, as we already said, savings accounts like this can allow you to get your hands on your cash in a hurry. This makes them a great place to stash money you might need soon for major purchases like a house deposit.
The downside to savings accounts is that they don’t pay out a lot when interest rates are low. Worse still, when there’s high inflation at the same time the money in your account gradually gets less valuable. Suppose, for instance, you’re getting 2% interest a year on your savings, but the rate of inflation is 4%. Over a year, your money’s actually gone down in value by 2%.
So, what other options are out there? Well, you could start looking into stocks and shares, for one thing. These can come with better interest than a basic savings account, but they come with some pretty tangled strings attached. Investments like this carry some risk along with them, so they’re not a sure bet for building up your cash. That’s why they always come out of the 20% of your income you’ve set aside for them, keeping the cash that’s going toward your essential living costs safe.