Finding any spare cash to set aside can be particularly difficult at this time of year, but ditching some of your financial bad habits will give you the best chance of building up your savings. 

As with anything worthwhile, it can take some time and effort to overcome the habits that are holding us back in life. Here are some ways to overcome bad savings habits, so you can get your finances on a sound footing for the years ahead.

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1. Not having specific savings goals

If you’re in the habit of saving without any particular goals in mind, it’s time to change things. It’s important to know why you’re saving in the first place, otherwise there can be little motivation to get started. This could be simply, for example, to build up an emergency cash fund, which is an important goal if you don’t already have one. 

Read more about how to do this in our article How to build an emergency fund. Experts recommend that you have around three months’ worth of essential spending (or around six months’ worth if you’re in retirement) set aside in an easily accessible cash account for those unforeseen expenses such as a boiler breakdown or car repairs.

Once you’ve built up an emergency fund, you can focus on other goals. For example, perhaps you want to save for home improvements, or your children’s university fees. Work out how much you need to save each month and your timeframe, and get started by setting up a direct debit from your account into the savings account of your choice (more about how to choose one later). Setting a goal is a bit like when you make a list of things to do, as you’ll usually get more done than if you don’t write it down in the first place.

2. Failing to benefit from the best rates

If you’re not in the habit of moving your money to the top paying savings accounts, start now. Inflation stood at 4% in the 12 months to November, which is still double the Government’s 2% target. Fortunately, savings rates remain relatively high following hikes in the Bank of England base rate, which now stands at 5.25%, so for the first time since early 2021, you may be able to find savings rates that keep pace with or beat rising living costs.

A difference of three percentage points in interest, for example, might not sound much, but it can amount to hundreds of extra pounds a year. For example, if you have £30,000 saved at a rate of 2%, you’d earn £600 a year in interest. By contrast, if you moved your balance into a top-paying easy access account paying 5%, you’d earn £1,500 a year in interest.

If you can only afford to save small amounts on a monthly basis, then the good news is that regular savings accounts pay some of the highest returns. For example, Nationwide’s Flex Regular Saver is paying 8% on payments up to £200 a month, although you must be a Nationwide current account holder to qualify for this account. Find out more about how these accounts work and the best rates in our article What are the best regular savings accounts? 

If you’ve an emergency cash pot set aside, you could consider locking your money away for a year or longer in a fixed rate account. Keep track of the top rates in our article Fixed rate savings bonds explained. For example, Smart Save is paying 5.16% on a minimum deposit of £10,000 for one year. Check savings websites such as Moneyfacts or SavingsChampion to find the top rates.

3. Waiting until the end of the month to save

If you wait until you’ve spent your monthly income to see how much you have left to save, you may find you’ve little money left. This is particularly likely to be a bad strategy when budgets are tight. 

It’s usually best to set up a monthly direct debit to move money from your current account to a savings account the day after you’re paid. This way, you’ll start an automatic savings habit, and you won’t forget to put money away or find you’ve nothing to save. Before setting up a direct debit, though, make sure you can afford to save every month, and think about whether you’ll need easy access to this money. Read more about the different types of savings accounts and apps that make it easy to save automatically in our article Four ways to save on a tight budget.

4. Keeping your savings in your current account

Some current accounts pay a decent amount of interest on relatively small balances. For example, Nationwide’s FlexDirect account pays 5% on balances up to £1,500 held in its current account. However, the majority of savers will benefit from a better rate on their money by moving it to an easy access or fixed rate savings account. That’s because most current accounts pay little to no interest on your money, and there’s the risk you’ll spend this cash if it’s sitting in your account. 

Once you’ve squirrelled money away in a savings account, there’s far less chance that you’ll spend it. If you’re looking to keep a small amount in a current account and receive a decent rate of interest, though, check out our article What are the best current accounts and switching incentives?

5. Not being realistic about how much you can save

If you’re in the habit of thinking that saving is only worth it if you can afford to set aside hundreds of pounds a month, you might never get started. You may be waiting for a time when you’ve a lump sum to spare from, say, a work bonus or inheritance that you may never receive. Shift your thinking to it’s better to start small and then to increase your savings over time. Even making small changes and saving £50 a month by, for example, taking a packed lunch to work instead of buying it, can be easy ways to boost your savings potential. 

If you’re struggling to budget and start saving, we have plenty of guides that might help. Read more in our articles How to make a budget and stick to it and 7 myths about budgeting busted.

6. Not making the most of tax-efficient accounts

When you’re choosing a savings account, an important consideration should be tax. When rates are relatively high, it’s possible that you could exceed your Personal Savings Allowance (£1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers). This is the amount you can earn in interest on your savings in a non-ISA account before being subject to tax at your marginal rate. 

According to Shawbrook, £19,500 in a market-leading savings account could see you breach your Personal Savings Allowance (PSA) threshold as a basic-rate taxpayer. If you have a bigger amount in savings, you may want to consider moving your money to a tax-efficient ISA. Interest on ISAs is tax-free and doesn’t count towards your personal savings allowance. Read more in our articles Everything you need to know about ISAs and Best cash ISA rates – which cash ISAs pay the most interest?

7. Only thinking short-term

Saving is both for short-term goals, and longer-term objectives, such as retirement planning. It’s important that you don’t neglect your pension savings so that you build up enough to fund your retirement. There are also several advantages to saving into a pension. For example, you’ll benefit from tax relief on your contributions, and if you’re saving into a workplace pension, your employer will also be contributing to your pot. Read more about the benefits in our article Five reasons why it’s never too late to start saving into a pension.

If you’re considering getting professional financial advice, Unbiased is offering Rest Less members a free pension review. It’s a chance to have a qualified independent financial advisor (IFA) take a look at your pension arrangements and give an unbiased assessment of your retirement savings.

The consultation is free and without obligation, but if the IFA feels you’d benefit from paid financial advice, they’ll go over how that works and the charges involved.

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