Saving guidance for someone who has never saved before

[kuopo]

I'm in my 30s, never had any savings, due to a combination of reasons, but essentially boiling down to not enough money to do so, lots of min wage jobs and some life events, that have meant debt. So I have never had to look into any kind of savings options or best practice, as I have never been in the situation of even having £20 in savings.

I have a loan (5 years but manageable to combine previous debt), and I'm about to start a new job, which is a higher wage, and means I will be able to put about £800 into savings a month, sometimes maybe more.

What do I do? I've read that, the most important thing to do will be to get a 3 month wage supply, so that's going to be my focus, but after that... do I put in ISA, government bonds, just in a savings account?

MN-ers generally seem to have it together when I read financial threads when people do the threads on how much savings people have, so I am hoping to get some guiding wisdom! Very excited to finally get some savings.

Emergency fund first of 3 months living expenses.

How much interest are you paying on your loan and can you make early repayments? If the interest is more on the loan than you can make in interest after tax, overpay the loan.

If you can make more in a savings account, get your emergency fund up to 6 to 9 months of living expenses.

I would then look at paying more into my pension to get the tax relief.

The most important thing for me is the principle of Pay Yourself First. Before any bills or anything else comes out of your account, pay into your savings. Set up a monthly standing order on your payday into your savings account. This will both prioritise and automate the process of saving.

https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/

An ISA is just a savings account where you don't pay tax on the interest you earn. (The first £1k of savings interest is tax-free if you're a basic rate tax payer anyway).

£9,600 a year is well within the ISA allowance - so an easy-access ISA will allow you to have your emergency fund plus any additional savings in the same place. If you hit the ISA limit one year then anything else can go into a "normal" easy access account. Some ISAs have restrictions so make sure you understand those if you go for an ISA.

Watch out for bonus rates - set a reminder for 11 months' after opening to review & move to a new bonus rate.

Depending who you bank with, if you're planning to save every month - a regular savings account would be worth looking at, as well (so a regular saver up to its maximum, plus an easy access account for anything you want to save above that) - https://www.moneysavingexpert.com/savings/best-regular-savings-accounts/

I agree with pp , have a look at mse and wrap your head around the different options . A flexible one means you can add money to it a fixed one you can not

Also look at your own and other banks , a lot have decent interest on savings accounts , like pp said set up a direct transfer the day after you get paid , I do this and you very quickly get use to getting paid x amount minus your savings.

If you are with the RBS ( other banks may do it too) look at there round ups , this is when you have spent say £4.80 using your cash card in the shops ( not on line ) the bank automatically put the 20p into which ever account you want . I have been doing this for about 2 years and have saved about £1500 without even thinking about it.
A lot of banks also have savings pots , they are a good way to earmark money for a specific project but check the interest rates

Look for regular saver accounts - these usually pay high interest but limit the amount you can save each month.

This flowchart is really helpful https://ukpersonal.finance/flowchart/

Thank you so much! Loan is 7.3% and early repayment is okay, I said its a 5 year loan, but its 8 actually, not thinking today clearly!

I've recently signed up to Monzo, so I can use the pots and they have a savings challenge that I am tempted to give a go.

I like the sound of the pay yourself theory @DwarfPalmetto I think that's definitely something, I should do, as I think it will be easy to think oh well, not this month, I've already thought that for the first month, like oh maybe I will start on the second months pay cheque type thing, as there are some essentials I need to pick up.

Thank you for all the links and advice!

The interest rate on your loan is higher than you will make in savings, you are better off paying the loan off before you save (although make sure you have an emergency fund saved first). You need to keep that fund easy access.

Use the financial flow chart to help!

I’ve always been a saver.
Definitely pay yourself first - this means move the money out of your saving account.
First month put £800 in an ISA - which ever one Martin Lewis says has the best interest rate. You need this for emergencies.
Next month, overpay your loan by £800 and do this every month until it is paid off.
7.9% interest is huge and there is no point saving any more than your emergency fund until it is gone.
Get a spreadsheet or free app where you can track your achievements!
Happy saving :)

Read / listen to "What they don't teach you about money" by Claer Barrett. Fantastic.

I find it helpful to have different savings pots, even if there isn’t much in them to start with.
I have a general contingency fund- car repairs, dental work, house stuff that comes up. A holiday account, and the pension. We’ve just started talking about moving house so will set one up for that. It’s very easy to move money around if it’s needed for emergencies, but it helps me keep track.

Another rec for the financial flow chart.

Definitely save a bit of an emergency fund (eg £2-3k) then concentrate on overpaying the loan. If you get a bigger emergency you can always drop back to making the standard loan repayment while you pay for the emergency.

If you've not already done so, review your budget. Firstly to make sure you're getting the best price for everything and not spending on things you don't value eg subscriptions you don't use. Look at the MSE budgeting advice.

The other reason is so you get a feel for annual and irregular costs that need to be factored into your budget so you can plan for these by saving. Things such as insurance, car repairs, Christmas, holidays etc.

I don't really class money put by for these sorts of costs as 'savings' as its expenses that you know will happen in the next few months. People get disheartened because they save a few hundred pounds but then spend it on tyres and the annual service/MOT and then complain 'what's the point of budgeting and saving if it never builds up to much and then you have to spend it on something boring like tyres'.

But if you look at it as 'I can pay for the car servicing and new tyres without worrying' that's a good place to be in.

Good luck!

As others have said move the savings money from your current account as soon as it’s in. Try and view it as another bill and get used to not having the money there so you’re not tempted to spend it. Build an emergency fund then lay down your debt. Although this doesn’t make as good financial sense in some ways it makes me feel better to still save a tiny amount when paying the debt, like £50 a month into an ISA, just to establish some longer term savings too.

I would put the money into your savings account the minute you get paid as you’re less likely to spend it then. (I see others have already mentioned this). Also check out moneysavingexpert - will be able to find advice re best places to save etc.

I’d save an emergency fund first then I’d pay that loan off pronto. You need to change the behaviour that led to you needing a consolidation loan.

Then, I’d save a proper emergency fund of 3-6 months. Invest 10% of my income into a pension. Then I’d start saving into an ISA. My budget has savings as the second line. First line is tithing, then saving, the essential bills and food etc.

good luck.

I do pay yourself first, and save the change both easy ( you may start with a very small amount), no thinking required

I would try to get 1 month ahead on your outgoings to start.
Tidy up your finances, all monthly DDs in a separate account that are all programmed to come out on the same day. A week after payday.
Another account for savings, an easy access flexible cash isa to start. (Flexible means you can withdraw your savings and pay it back in within your annual tax free entitlement, some don't allow it). If you don't want an isa, Cahoot do a 5% savings account (called a sunny day saver) on up to £3k which is easy to use but no app, online access only.
Another account for debit card spending with limited funds in, you could add money from savings to this weekly, like savings envelopes. I do all my spending on a cashback credit card so I don't have this step, my card is paid in full with the DDs above.

So the flow of money is this:
24th Payday - all in savings
Set up weekly standing order to spending account
31st Transfer to cover DDs
1st DDs are paid

There's something about transferring all income directly into savings and then having to pull money out to spend. I'm all about maximising bank interest and making my pennies work for me. Every day my cash is in an interest bearing account is more pennies for me.

£800 is not really a sufficient emergency fund. The savings interest rate and that of the loan isn't really relevant over the course of a few months.

OP - if you can save £800 month, do so for as long as required to accumulate somewhere between 3 and 6 months of your essential spending. If you believe your job to be secure or you have a partner with another income then 3 months might be fine, if your job is at risk and its not easy to find a new one where you live then id focus on building 6 months.

You can then decide whether overpaying the loan or something else is the most appropriate action for whatever your financial goals are. The maths will say that paying the loan earlier Vs savings interest is better financially better, but you need to remember that any loan overpayments that money is then gone.

I’ll tell you how I did it, but I didn’t have debt.
Yours, at 7% is quite high, I would make sure I plough as much into the debt as I could if I were you.

I set up a regular saver with First Direct, £300/month, paid the day after I got paid. After 12 months I had £3,600 (I blew the interest on something I needed but couldn’t justify spending most likely).

The other thing I did was open a regular saver with NatWest all my bills paid from one of their accounts, it’s a cashback on bills one and it allows you to open their regular saver (max £150/month). This regular saver became my emergency fund, they pay 5.11% interest up to £5,000. It took a long time, because I had to dip into it a couple of times. I now get £27/month in interest and I have the full £5,000 saved. It’s no longer my emergency fund, I use it for yearly bills like the gym, car service, insurances etc.

Every time I get a promotion/increment, I put whatever the difference is in savings, but I allow myself to pay for something to mark/celebrate the pay rise. It’s normally a city break.
HTH.

Overpay the debt first and get rid of it.

Then put the money in an ISA and erase it from your mind. It’s not there. You don’t have it to spend except in the absolute worst of emergencies

I think you mean easy-access rather than flexible here. A flexible ISA has a rather more specific meaning:

https://www.moneysavingexpert.com/savings/flexible-isas/

Thank you all again, lots to read up on. I’m not worried about getting into debt again, I had never been able to save but was able to live within my means previously but then I got cancer and some other health issues which meant life got expensive due aspects of that (needed to travel for treatment, so needed a reliable car amongst other things)hence the long loan!

Thank you all so much for the advice, was first say of new job today and I’m excited for the pay at the end of the month to put this into practice!

I read a great book called Money: A User’s Guide by Laura Whateley. Highly recommended - it covers everything you need to know about savings, debt, etc, in a really friendly, hand-holding and empowering way. It definitely helped change my mindset on saving and my outlook on money.

7.3% interest on loan is exceptionally high…focus on repaying that in full then build an emergency fund equivalent to 3-6 months worth of your core expenses/outgoings.

You can keep the three months in the ISA. If you need it, it's there, if you don't it's earning good interest, tax free.