When we talk about savings, we mean the money you put away and do not spend. The idea is to use it sometime in the future to buy something such as a car, a holiday or a house, or go towards emergency unexpected costs.
It’s something which you do overtime. For example, by putting away a certain amount each month into a savings pot or account when you get paid.
Why saving is good
Everyone should save, even if only for a rainy day. Doing so can give you peace of mind in the short term should you need to pay for something unexpected. It can also be a way to help you achieve mid to long-term goals.
The sooner you start saving, the more money you will have put away for things you may want to use it for later. This could be buying your first house, paying for a big life event such as a wedding, or, if you are thinking long-term, your retirement!
How much you should save
It’s generally considered a good idea to have at least three months worth of living expenses saved somewhere safe and accessible for emergencies.
However, how much you save depends on what you can afford. You may want to have a look at some popular budgeting methods that help you manage your money effectively.
Some popular ways to budget are the 50/30/20 method and the 80/20 method. These suggest keeping 20% of your income as savings and using the rest to pay for other costs each month.
Getting started with saving
You can start saving at any age. As we mentioned earlier, the sooner you start, the better it will work out in the long run.
You might want to start small. Try saving towards a goal such as buying yourself an item of clothing you want or saving up for a trip with friends or family. This way you can work out what method works for you and use that for bigger, longer-term goals.
To do this you could open a savings account, put your money into investments or use a savings app to help you track your progress. It depends on what works for you.
How saving is different from investing
When you’re saving you are putting money away little by little. For instance, into a savings account, and building it up over time with little to no risk.
With investing you are using your money with the expectation of generating more money than what you first put in. You can invest in lots of different things such as a business, property, funds, trusts, stocks, bonds and much more! Check out our investment glossary to get to grips with the definitions of some common terms.
Another type of investment is a pension, read our article to find out more about the different types of pension and how they work.
The main difference is that investment usually carries more risk because it has the potential to grow your money faster.
If you want to know more about investing and whether it may be a good idea for you, check out this video from Iona Bain.