Guest blog: The challenge of saving in the middle of a cost of living crisis
This blog was written by Chris Irwin, the Director of Savings at Yorkshire Building Society. It includes a few different strategies for building up your savings in the middle of a cost of living crisis.
Continue reading or jump straight to the useful tips.
You might think that navigating through a global pandemic is the biggest challenge we will ever face and things will settle down to a new normal. But we are now facing more financial turmoil.
Household finances have been turned upside down and squeezed at every angle as the UK faces a cost of living crisis. Interest rates, inflation and general prices are on the rise. This is affecting consumers’ ability to remain financially resilient.
How the cost of living crisis has affected savings
Just like the Covid-19 pandemic, the current cost of living crisis will affect people in different ways.
For some the squeeze on household finances will bring a complete collapse of their income and a dependence on benefits and savings.
Some people may have saved money over the last two years because they did not spend as much on things like travel and commuting. Now they have more money saved up, which will help them if there are any sudden changes or problems with money, like the recent increase in prices.
Almost four in ten (40%) of people have had to use their savings in the last year. This means that many people are being affected by the current crisis. This current financial situation is not only affecting our money, but also our mental health and emotional well-being. Right now, people all over the country are worried about being able to afford things, and this is negatively impacting their mental health.
Changing views to saving money
Even before Covid-19, the ability for UK households to save was limited. The UK savings ratio is one of the lowest in Europe. People in other nations save two to three times more.
Saving isn’t easy when we’re facing day-to-day expenditure challenges. But putting time and effort into building a safety net always pays off in peace of mind. This is something we at Yorkshire Building Society have advocated and supported since 1864. It sits at the core of our purpose as a building society.
As a country we must think of saving as a natural thing for everyone to do when they can afford it. So that, in times like these, people have a much-needed emergency buffer to fall back on. Giving them less reliance on costly short-term loans. And avoiding taking on more debt to manage unexpected bills.
How can people save money and be better prepared for an emergency?
If more UK households were able to increase their financial resilience, we would all feel the benefit of increased economic confidence.
If more UK households could save money, we would all feel better. To understand this, Yorkshire Building Society asked people across the nation what would make them feel more financially resilient.
The factor cited by the largest number of people was having more money in cash savings, felt by 31%. This was followed by having paid off their debts (20%); and owning their own property (also 20%).
You would think that this is exactly what a building society would want to hear. But we know that for many people achieving these goals may be very difficult. Especially while current conditions persist and that there is no quick win to halt the impact of the crisis.
Some useful strategies to help you make savings
Here are a few small actions people can take that could help in small ways:
- Get into the habit of checking the state of household finances and spending. Comparing your spending to previous months or years may be difficult in the current cost of living crisis. But knowing where your money is going can help you feel more in control. You may even be able to spot some potential areas for saving.
- Go digital – using online banking services will make it easier to track finances. This doesn’t mean you can’t still enjoy those face-to-face visits to your local branch. But digital banking gives access to your finances around the clock.
- Consider creating a financial plan. This could be for general and/or retirement savings or reducing debt. Or any other measures to increase your financial resilience. Set goals and review progress towards them regularly.
- If you find you’re able to save even a small amount money, transfer it into to a savings account. This could be a standing order on or just after pay day. Or you could check your bank balance just after pay day and transfer any extra money left over at the end of the month. Over time, regularly saving small amounts, will build up more financial resilience.
- Ask for help by reviewing options available. Such as opting for a one-to-one appointment with Citizens Advice. Their advisers offer independent advice in private. They can assist people with a wide range of issues, including financial wellbeing.
- Find out what help is available and ask for help. Organisations and charities are there to help. Yorkshire Building Society’s partnership with Age UK has highlighted initiatives like their Building Better Lives project. This aims to help around 5,000 older people to become more financially resilient in later life. It helps to address and overcome issues such as fuel poverty, unsuitable housing and the financial shocks that later life can bring.
- Consider reviewing your savings to ensure your current options are working for you. This could mean with access that suits you as well as the best interest that matches your needs. This is especially important now we are in a rising rate environment where rates and returns are increasing. Consider speaking to an adviser if you are unsure where to start.
- Review debt commitments. Make sure you aren’t paying over the odds. You could find a better deal by switching to different providers. This could be for mortgages, credit cards or loans. This can save money on the amount of interest paid. Repurpose those savings back into household income. You can then use this to pay off more debt or save some for future needs.
- If monthly mortgage payments are becoming challenging, consider increasing the term on your mortgage. This can give you some breathing space month by month. Or, if you can, overpay a little on your mortgage now to reduce the amount you will have to pay in future. Speak to your lender for the best options to suit your circumstances. But consider that making changes could cost more interest overall.
- Shop around to find better deals for utility prices. It’s very difficult at present to change energy providers, but still possible in some cases. But don't forget to shop around for your internet or phone tariffs. Or even your insurance contracts. It often pays to ensure you are on the best possible deal.
- Check you are not still paying any direct debits that you no longer need. Checking over your finances on a regular basis will mean you no longer pay for things you don’t want or need.
- Try to plan ahead if you can see an expensive event coming up on the horizon. Schemes like envelope stashing and saving pennies a day have become viral sensations over recent years. But simply making plans and saving towards them will make purchases easier to manage.
- Take a bit of time before making an impulse buy. Make it harder for yourself to buy things quickly online by not allowing websites to keep your card details for future purchases. Go back to your basket after a 48-hour gap. Taking a bit of time can help you decide if you really need the item. And you may find the retailer emails with discounts in the meantime.
- If things get too tough, always remember there is help out there. Organisations such as the Samaritans, Step Change and Citizens Advice are there to help.
The most important step to take towards building financial resilience is for people to start a savings habit – however that works for them.
All of us here at My Stroke Guide want to thank Chris and the team at Yorkshire Building Society for this blog. All savings tips in the above are made exclusively by YBS.