Money Talks: How to start saving for a rainy day

How to set goals, review expenses, and generally stick to a savings plan

A rainy day fund is an essential starting point for saving

Despite every good intention to start saving, I am continuously living from paycheque to paycheque and I do not even have an emergency fund in place. 

I have recently become a single parent, so this situation is beginning to stress me out. 

Have you any advice?

Do not worry, many of us need to introduce better behaviours within our lives, be it eating healthier or spending more time with family, but at least you have now made the major decision to improve your finances - you just need to set up some new strict savings goals, and really try and work towards these.

Here are my top tips:

Develop a Detailed Savings Plan 

So, you need to look at your savings in terms of three time periods: short, medium and long term.

For the short term, you should ideally have at least three times your monthly net salary in savings, in a bank account which you can easily access. This fund is often called the ‘Rainy-day fund’.

Research shows that the vast majority of people do not have this fund in place. This should be your starting point, or your initial savings goal. Once you have this amount saved, you can then look at tying amounts over and above that into three to five years’ savings or longer.

Set a Realistic Savings Target 

In conjunction with your first goal of creating an emergency fund - think of a realistic savings goal even for the remainder of 2021. The most important thing is that this goal must be realistic.

Review Your Expenses 

As you are finding it difficult to achieve any savings at all, you need to conduct a meticulous review of your monthly outgoings.

Start with the largest expenses, for example, mortgage repayments. Ask yourself, when was the last time I reviewed my package? For example, a homeowner who took out their mortgage in 2011, when variable rates were at their highest 4.4% could now qualify for a fixed rate as low as 2.2%. This could mean huge savings.

Then, look at the other big-ticket expenses, such as health and car insurance.

When you finish reviewing your big monthly expenses, you next need to focus on the smaller items. We have achieved savings of at least €150 to €200 per month alone for clients who we helped with reduced unnecessary spending.

Set a Budget and Stick to It 

Try your best to cut back on unnecessary spending and stick to a strict budget. Try and practice more ‘self-disciplined spending.’ For example, you could buy your weekly groceries and fuel at the weekend, take out a set amount of cash from the ATM, say €100, and try your best not to use your credit and debit cards during the week. This will eliminate the temptation to impulse buy.

Take a “total no-spend” Challenge 

Try also to cut out all expenses but the absolute essentials for a whole month. This will boost your savings considerably in just a few weeks. Clients who do this just need to keep focusing on their end goal and being mindful of spending and in the end will not only save a lot of money but also take on a new appreciation for spending on “needs” versus “wants”.

Consider Alternative Options 

Once you have reached your short-term goal, there are various ways to make your savings grow and investing in the markets is one of them. For example, if you are saving for a college fund for your children, this is a long-term savings goal. Your accumulated funds could increase quicker and more effectively by considering alternative savings options.