With inflation continuing to push prices higher, saving can seem like a distant dream for many in the UK.
But fear not, budget-conscious Brits!
There’s a simple yet powerful tool that might just help: the 50/30/20 method. It’s not a magic spell, but it can work wonders for your savings, even in these turbulent times.
The State of UK Savings
According to the Office for National Statistics, UK households had a median disposable income of £32,300 in the financial year ending 2022.
However, it’s estimated that a third of all UK adults either have no savings at all or less than £1,000 in a savings account – likely not enough to cover expenses in the case of an emergency.
So, what’s going on?
Well, the cost-of-living crisis is certainly playing a role in this savings slump. With necessities like food and energy sucking up an ever-larger chunk of our income, prioritising long-term savings can become an afterthought. This is where the 50/30/20 method may be able to help.
What is the 50/30/20 Method?
Think of the 50/30/20 method as your personal Robin Hood, redistributing your income from unnecessary spending to help you save. Here’s how it works:
- 50% Needs: This covers your essential expenses like rent/mortgage, utilities, groceries, and transportation. These are the non-negotiables.
- 30% Wants: Craving a fancy coffee or eyeing that new pair of shoes? This category is for your optional spending, the fun stuff that adds a little spice to life. But remember to be mindful. Prioritise your wants and try to avoid impulse purchases.
- 20% Savings: This is where the magic happens! Dedicate 20% of your income to savings, whether it’s building an emergency fund, saving for a dream holiday, or making your financial future more secure.
Applying the 50/30/20 Method
Now, let’s put theory into practice. Say you earn £2,000 after tax. Based on the 50/30/20 rule:
- Needs: £1,000 goes towards your essential expenses.
- Wants: £600 can be used for that coffee, the shoes, or any other non-essential purchases.
- Savings: The magic number, £400, gets stashed away for your future self.
But wait, what if your needs eat up more than 50%? Don’t fret! The beauty of this method is its flexibility. Adjust the percentages to fit your unique situation. Perhaps you need to trim your wants to 25% to give your savings a bigger boost. Remember, it’s all about finding a balance that works for you.
How Creating a Savings Goal Can Fuel Your Motivation
Visions of a sun-drenched beach holiday, driving a brand-new car or getting onto the property ladder can be powerful motivators.
Having a specific savings goal gives your efforts meaning and keeps you on track. Whether it’s a short-term goal like a new gadget or a long-term plan like a house deposit, visualising your target can make saving feel less like a chore and more like an exciting adventure.
