How to cultivate the habit of saving money

Find out what you could do to become better at saving money.
Woman gardening | Wealthify
Reading time: 7 mins

One in ten Brits (9%) have no savings at all, and a third of the population have less than £600 in their savings account1 – needless to say, this situation isn’t ideal. Putting money aside is no easy task, especially when there’s always a bill to pay or something to buy. But if you want to take control of your financial life and reach your goals, it’s important to try and tuck away as much as you can for the future and the unexpected. The good news is that saving money is a skill that can be learnt, meaning you can become better at it with some practice. Here are some tips that could help you master the art of saving.


Set SMART goals
Before you do anything, it’s generally a good idea to take some time to think about what you want to achieve. In other words, what are your financial goals? By answering this question, you’ll get a bit more direction and planning should be slightly easier. But one thing to note is that not all goals are good goals – some are too vague, and others are way too unrealistic. If you want to succeed in your mission, you may want to set SMART goals. What are these, you ask? Well, they’re goals which are specific, measurable, attainable, relevant, and time-based, and they should help you define the steps you’ll need to take in order to get there. So instead of saying ‘I need to save to pay for my wedding’, try something like ‘I need to save £5,000 for my wedding venue, so I’ll put £450 in my Cash ISA at the start of every month for a year.’ Not only have you got a goal here, you’ve also got a plan, a time frame, and the possibility to track your progress – please note that the figures used above are only examples.


Spend less than you earn
The key to saving money is to spend less than you earn – it may sound easy and obvious, but many people can struggle to limit their spending. We live in a society where we’re encouraged to consume and show off our latest purchases on Instagram – of course, it’s not necessarily a bad thing if you manage to live within your means, however, it can become an issue when you start overdoing it. The danger of overconsumption and instant gratification is that you could lose control and find yourself in debt. So, if you want to limit your spending and claim back the power over your finances, it’s usually a good idea to budget.

Budgeting may sound like a daunting task, but it doesn’t have to be – everybody can do it! A good way to start is to list all your expenses and deduct them from your total income. The sum you get after this is your disposable income and you can choose what to do with it. You could, for example, decide to save a bit and use the rest for leisure – it’s completely up to you. But the advantage of having a budget is that you get to plan beforehand. Budgeting forces you to bring some logic and thought into every purchasing decision and it can help you spot areas where you’ve got to improve. If you can’t be bothered to do it on your own using an Excel spreadsheet, it could be worth looking into money management apps.


Pay yourself first
Many people will save after spending, and whilst it can work for some, this approach may not always be efficient. Say you spend more than usual one month, then you may not be able to put anything aside, and you could be missing out on a month’s worth of saving. If you want to avoid this scenario, it could a good idea to treat your savings like any other expenses and pay yourself soon after your salary goes in, that way you’ll be more likely to make a habit out of it – sometimes all it takes is a change of perspective.


Consider saving regularly
Saving shouldn’t be something you only do once in a while, it should be a habit. And by definition, a habit is something you do on a regular basis. So, if you want to boost your financial future, it could pay off to put money aside every day, every week, or every month –it’s all up to you. The idea here is to shift your mindset towards forming a saving habit – the more you do it, the more likely it will stay with you. You don’t even need to make huge contributions, saving little and often can help you build a decent nest egg too. If you save £70 a month in a traditional savings account, after 12 months, you’ll have at least £840 in your account. If you keep saving at the same pace for another 12 months, your pot will be worth £1,680 (minus interest).


Automate your savings
Saving regularly is a great thing to do, but it’s also easy to forget. Unless you’re extremely good at remembering things, it could be worth automating your savings. By this we mean setting up a Direct Debit transfer going from your current account to your savings account, that way you don’t need to think about it. The money goes in automatically, so you can relax and focus on other things whilst your savings account gets fed – what’s not to love?


Think about saving the excess
Getting a pay rise or a bonus is always good news, and whilst it’s tempting to splash the cash, it could be wiser to try and save the excess. Of course, there’s no harm in enjoying the fruit of your hard labour but having more money in the bank account means you could boost your savings if you wanted to. You don’t even need to add loads to see a difference. In fact, even an extra £10per month could do wonders to your savings pot. Let’s take our example from above, by putting £70 a month, you would have at least £1,680 after two years. But now say you get a promotion and your salary increases, and you decide to increase your monthly contributions to £80 a month. After 24 months, you would have £1,920 in your pot – that’s an extra £240 at the end, without taking into account any interest that you’re paid.


Track your finances
Putting money aside and making saving a habit is great, but it’s also important to track your progress. Chances are you won’t get it right the first few times, and that’s ok. If you keep an eye on your finances, you should be able to spot what you’re doing wrong. Then, once you know, you should be able to adjust your strategy and find better ways to improve your financial health. The truth is that there isn’t only one way to go about saving money. What works for others may not necessarily work for you. By tracking your finances, not only will you perfect your strategy, you’ll also remain in control.


Consider the long-term
When you get to a place where your finances are in shape and you have enough saved, you may want to think about the long-term. Over the short-term, saving is a good and safe option, but as time goes, it may not be the most suited route for you, depending on your goals and situation. What happens is that things get expensive over time – put very simply, this is what we call inflation. And to keep up with it, your savings must grow at least at the same pace as everything else, otherwise their real value will decrease. The thing is that interest rates have been low for years now, which can limit the growth of your money over the long-term. If you were to take your savings out in 10, 20, or 30 years, you may realise that you can’t afford as much as you could before with the same amount. So, what do you do? Well, you could look for a competitive savings account with higher rates, or you could consider investing.

Putting your money in the stock market can be risky, there’s no denying it. Since there’s no fixed interest rates, you could end up losing money, however, this also means that there’s a chance for higher returns. In fact, over the long-term, investing can pay off. According to many studies, the longer you remain invested, the more likely you are to make a gain. For instance, people who invested in the FTSE 100 between 1986 and 2019 and held onto their investments for any 10-year period have had an 89% chance of making a profit2. Joining the investment world isn’t a small decision, and it’s important to consider your personal circumstances, financial goals, and risk appetite as these will have an impact on how you approach investing.

If you’re feeling a bit overwhelmed and don’t feel confident enough to do it all on your own, that’s absolutely fine. Thanks to robo-investing platforms, like Wealthify, you can get the experts to help. All you need to do is select the type of Plan you’d like to open, whether it’s an ISA or a personal pension, choose how much you want to invest, and tell us how you feel about risk. Then our team of experts will do the hard work for you, from picking the right mix of investments to managing your Plan on an ongoing basis.




2: Data from Bloomberg


Past performance is not a reliable indicator of future results.


The tax treatment depends on your individual circumstances and may be subject to change in the future.


Please remember the value of your investments can go down as well as up, and you could get back less than invested.

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