Account Draculas: We slay 5 savings myths

Hello and welcome. Pull up a chair and warm yourself by the fire. This Halloween night, we’re going to discuss some dastardly business that may be holding your finances back from reaching their true potential. The horror!

As we head into the deepest and darkest part of October, we’ve heard rumours of some evil myths that are misleading victims when it comes to saving their money. It’s said that they creep up on innocent savers and then sap away any enthusiasm they had for growing their finances for a rainy day.

To put an end to this madness, we’re going to sharpen our stakes and hunt down five savings myths, so that you may once again put your money away in peace.

Myth: You need a large income to save money

Truth: While those with a larger income may have more flexibility to put extra funds aside, it’s important to know that it’s worth saving money even if it’s just a little. In fact, saving just a small percentage of your income can help you to build up a pot of money.

When you’re just starting out, saving is more about building a good habit that will help you in the long run, rather than how much you’re putting away. Then, when you can afford to put more into your account, you’ll already be in a positive place to capitalise.

Myth: You should be debt free before you start saving

Truth: This myth can be misleading and is very black and white. You don’t need to be 100% debt free before you can think about saving some money.

It’s important to say upfront that you need to cover any important, must-pay debts, such as a loan or mortgage. Likewise, you should prioritise any expensive debts with high interest rates that could be very costly over the long term.

However, if your budget allows, it can be useful to put some money aside, even while you’re paying back debt. Your first aim should be to build up an emergency fund to cover any unexpected life costs. A good general rule is to save three to six months’ worth of expenses to ensure you have enough should life put an obstacle in your way.

Myth: You must save a set amount every month

Truth: Many people think that you need to save a set amount of money each payday, but this isn’t always true. It’s more important to save in a way that works for you.

Saving the same amount of money each month will work for some people, but not for others. For example, you might have a variable income, your income might be irregular or your expenses may go up or down every month. Whatever the reason, it’s important not to put pressure on yourself to do something that isn’t compatible with your life or will stretch you financially.

Putting away a little or a lot at your own pace is definitely a valid way to save. Easy access accounts, like our Instant Saver, are a type of savings account designed exactly for this purpose. You can put away however much you want, whenever you want, ensuring that you have as much flexibility as possible.

Myth: Saving means making sacrifices

Truth: No, saving money doesn’t mean that you need to sacrifice things in life, at least if you save sensibly within your comfort zone. It’s all about finding the right balance between spending and saving, and getting there likely means doing a bit of budgeting.

Start with your monthly take home pay. Then work out how much you need to spend on essentials each month, like housing, food and bills, and subtract it from your monthly income. Do the same with any other debt repayments. You should be left with your discretionary income, which is the money left to cover non-essential expenses or to put away in savings. With this figure in mind, you can balance spending on luxuries and how much you choose to save, safe in the knowledge you can maintain your basic lifestyle.

Myth: Once saved, you should not touch your money

Truth: This is not completely true and will be different for everyone depending on their circumstances. If you can comfortably keep adding to your savings without dipping into them, then you can probably leave your money be. However, if you occasionally need to access your savings to cover some expenses, you can’t stick to this rule. Neither method is wrong — it’s about doing what works for you.

Once you’ve established your needs, you can choose an account to meet them. We’ve already mentioned that an easy access saver is a useful option if you need flexibility in withdrawing money. With a lot of these products, you can access funds at any time, so they are definitely a good match if you regularly dip into your savings.

If you’re happy to keep savings until you need them, you can choose from products that include access limits in exchange for benefits, such as a higher rate of interest. For instance, a fixed savings account, like our Fixed Saver, allows you to lock money away for a set term while it earns interest. You won’t be able to access your money until the term ends, but your money will work harder by growing at a competitive rate.

So ends our fireside chat. With these five myths slain, innocent savers can once again put aside their money without fear of being misled. Happy Halloween!

Image source: Unsplash