Best way to save

oliviarosejackson

I was wondering if anyone can help for the best way to save?

A little about us. We have no savings what so ever. We moved into our first home on new years day this year and we have been doing little home improvements, so have not had any spare money to save. I would like this to change in 2012.

I am wondering, what are the best savings for us to have. We would like to start saving for a few different things, christmas 2012, have an emergancy fund for the house, long term savings, savings for the chiildren. What are the best accounts to go for. Do we throw it all into one or have separate accounts for different savings?

Thank you in advance

Derivative

First thing to go for is some emergency (short term) savings.

This is money to be used for small bits and bobs like car repairs, new washing machine, kids need new PE kit, etc.

I would recommend you put these savings into an account which can be easily accessed. If your own bank offers an interest bearing account of around 3% gross, then they are probably the best to go to as it will be easier to transfer money when required.

If not, MSE's Banking page has all the information required. I currently hold a 3% savings account with Santander.

The amount you wish to keep easily accessible is really up to you. I am a student and as such I keep around £1000 easily accessible (a month or two of rent). You may wish to have more or less, depending on whether or not you have two steady sources of income, for example.

After that, start to budget for medium term expenditures using fixed rate accounts (1 year, 2 year, 3 year). These accounts generally lock away your money for the time period, but offer a higher rate of interest to make up for it. Check the MSE website for details - if you are taxpayers, go for ISA accounts as they will pay more interest.

An example from me - I am graduating in 2014 and so I plan to put some money in a two year account set to mature (pay out) a month or two before graduation, for a tenancy/lodger deposit and food costs etc.

Once you have everything sorted for the next 5 years or so, I would then begin to invest in stocks/bonds using mutual funds, and think about a pension plan. As this is probably fairly far off for you at the moment, I wouldn't worry too much until you have the rest sorted.

In summary, the different types of accounts and what they are for:
Short term (< 2 years): instant access savings account for 'unexpected' expenses and everyday things
Medium term (2 - 5 years): fixed rate savings accounts which lock away money but return more interest, for expected events such as 16th birthday, etc
Long term: mutual funds, shares, bonds, starting to look at pension plan

oliviarosejackson

Thank you very much for the detailed reply Its amazing how people can put a whole different perspective on things.

So you suggest that we just concentrate on the emergancy fund at the moment and build that up? And then look at longer term investments in the future.

OH has save as you earn with work and once that starts paying out, we are making sure he creates a new one every year, so that we will then have a lump sum every year which will be nice.

We do have two incomes, not brilliant ones thou, OH takes home roughly £1,250 4 weekly and I take home roughly £610 per calender month.

I am looking at reducing a few of our out goings in the new year, virgin being one of them and we are looking at switching our providers and trying to get the best deals.

Derivative

oliviarosejackson wrote: »

Thank you very much for the detailed reply Its amazing how people can put a whole different perspective on things.

Not a problem.

So you suggest that we just concentrate on the emergancy fund at the moment and build that up? And then look at longer term investments in the future.

Yes. Something I had not mentioned in my earlier post and is probably worth thinking about is setting some clear savings goals.

I have no idea of your current situation but I reckon £50-100pm might be a good place to start. I have just finished my budget for this year - it's not terribly specific, and it is fairly simple for me as a single student, but it sets out how much disposable income I have per week in order to meet my savings target.

I am unusual in that I pick a (reasonable) amount of money I would like to have by a date, and then plan my budget around it. I recognise that others may prefer the opposite approach and simply try to save what they can.

OH has save as you earn with work and once that starts paying out, we are making sure he creates a new one every year, so that we will then have a lump sum every year which will be nice.

I don't have much knowledge of this scheme but that sounds great.

We do have two incomes, not brilliant ones thou, OH takes home roughly £1,250 4 weekly and I take home roughly £610 per calender month.

The main reason I bring this up is that this means that if one of you were to be made redundant, you would not lose all income and as such can probably get by with less in the 'emergency' pot, and more into longer term stuff.

It is great that you are planning to start the new year with a fresh outlook on things. Have a look at the other boards and I am sure they will be able to help with cheaper deals on TV, cellphone, etc.

oliviarosejackson

That sounds like a good amount for our situation.

I like the idea of starting small and then building it up, we are not putting too much pressure onto ourselves then.

I don't fully understand the SAYE scheme with OH work, but we do get more than we have paid into it. I think we get our first payout in two years. and then after that it shall be every year. It should be able to pay for a summer holiday every year, or be a big chunk of payment for one.

I have been scanning round the boards to help with utilities. Need to have a proper look though.

Derivative

oliviarosejackson wrote: »

I like the idea of starting small and then building it up, we are not putting too much pressure onto ourselves then.

Indeed.

I find it easy to say "right then, let's save £2k by year end" and adjust my spending accordingly.

But then, I don't have a husband breathing down my neck when all we get is beans on toast for a week.

The girlfriend does moan a bit about me not taking her out though.

atush

Ok, first of all emergency savings. You should have 6 months spending in cash, easy access. Won't happen over night but get onto it.

while you are doing this, you can also start a pension if you don't have one already. And saving monthly for the kids. Put their CB into a Halifax regualr saver?

SAYE schemes are great, but I would earmark that for longer terma savings (uni, retirement etc) rather than holidays.

Holidays, xmas and cars should be saved for in cash monthly.

You each get a 5340 annual allowance for Cahs ISAs. Not using it, and using a lacct is silly as you will pay tax on the interest and earn less. I would put al your cahs here until you have enough cash, apaort formt he money for the children and pension.

Derivative

atush wrote: »

Holidays, xmas and cars should be saved for in cash monthly.

I would second this as it forces you to think about what is actually affordable. If you can't save for it monthly, it's beyond your means.

xylophone

Be aware of tax treatment of interest arising on parents gifts to children (except in CTF/junior isa/tax free products.)
http://www.hmrc.gov.uk/tdsi/children.htm - and note what happens when a child turns 16.