We are often told that we should save money so that we have some to help us out in emergencies. This can allow us to feel secure and know that if we need money really quickly, we will not have to get out a loan in order to pay for it. Although loans can be very helpful at times, they need to be carefully planned and may take a while to be approved. This means that having savings can work out much better. However, knowing how much to save can be tricky.
Pay off loans first?
It is wise to perhaps start by paying off your loans first. This is obviously not going to help you to save up some money in the short term but financially it could be wiser. This is because the loans can be more costly compared with the return you get on savings. Therefore, compare the rates and see how they add up. You might find that your loan interest is twice and much as you can get in interest on savings. It will of course depend on your loan rate as well as how much money you can get on your savings. The rate you can get will be higher if you tie the money up in something like a bond or are prepared to give notice before drawing out the money. So, it could be a good idea to compare these rates and work out whether it is best to repay your loan first. Once the loan is repaid you will be able to save that amount of money and you will be able to save up more quickly if you are not also making interest payments on a loan.
Enough to replace a few white goods?
Often we find that it is white goods that we have to find money to replace. This is because they can tend to break down suddenly and finding the money to replace them all at once can be very tricky. You might be able to get a finance deal with the retailer and repay them in instalments, but this will depend on where you get it from. This will also be an expensive way to buy something as you will be paying the interest on it. Therefore, if you have the money available to pay for it without having to borrow this could make a big difference to how much it costs you. We can often find that several white goods might need replacing together or in quick succession and therefore it could be a good idea to make sure that you have enough money for two. You should be able to calculate how much you will need to put by if you look online at the prices of the sort of items that you think you might need to replace.
Enough to cover a few bills?
If you are short of money then you will still need to pay certain bills. You will need to make loan and mortgage repayments, pay your rent and pay your utility bills. If you run short of money then you risk being cut off or evicted and so you it is wise to make sure that you have enough money to cover these things. How much this is will vary a lot so you will need to take note of how much you normally need to spend and this will allow you to be able to make a decision as to how much you think might be a sensible amount of money to put by.
Enough for a few months’ salary?
Some people might think that it is better to put away a few months’ salary. This is so that if you lost your job, you will be able to afford to continue to carry on as usual with regards to your spending. This will give you a bit of leeway while you look for something else. How much you decide to save will also depend on the stability of your job. This will vary depending on the work that you do. If you have a zero hours contract or do contract work or any type then you may not have guaranteed hours and it is possible that you will be able to be released from your job with no notice at all. If you are in this situation then you will need to put by more money compared with someone in a permanent job with a notice period that will have more time to find something new to move to.
It is also worth noting that for some people a month’s salary is a lot more than a month’s expenses. If you save a lot of money or buy a lot of things that you do not need, then you may not need to consider how many months’ salary you need to save but how many months expenses. You might want to be completely sure and save the whole salary but it could be that you would rather just save what you really need so that you do not have to save so much money each month.