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Money saving

Could the Help to Save Scheme help you?

Posted 19 March 2016

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Do you know about the new Help to Save Scheme? Read our blog to find out more and for great saving advice.

This week the Chancellor George Osborne made his Budget announcement and in it he announced a number of new savings schemes, including the Lifetime ISA. But earlier in the week the Prime Minister announced a savings scheme specifically designed to help people on low incomes start to build a savings “buffer” – the Help to Save Scheme. This scheme will see the government match half of the savings of people whose minimum household income is equivalent to 16 hours at the National Living Wage which works out at £6,365 for 2017-18, or it will be available if you’re receiving Working Tax Credits. 

Many low income people have no savings at all, which means as soon as something unexpected happens financially – for example the cooker breaks and needs replacing, they have to fall back on credit. The new scheme is designed to help people put money aside for just such eventualities - so could it help you build up your savings? In this blog, we’re going to look at the new proposal from the Government in detail to help you work out whether it applies to you. And we’ll also have a look at sensible and realistic ways that you can approach saving. 

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How does the scheme work?

The scheme will come into effect in April 2018 and, as we’ve said, will only be available to a certain number of people who fit the criteria. If you do, this is how the scheme works:

You can save any amount up to £50 a month for two years and the Government will top this up by 50%. So if you manage to save £10 a month for two years - £240 in total - the government will add £120 to your savings, and you’ll be able to earn interest too.

The maximum you can save over four years will be £2,400 and the Government will top this up by £1,200. This gives you a maximum potential nest egg of £3,600, plus interest, which is a reasonable buffer by most people’s standards and could definitely come in handy. 

Could you put something aside?

Clearly, the Government is sending out a very clear message that they want us to save more and prepare financially for the future, and in general this is wise advice. But what if you’re worried that you can’t afford to put anything aside each month, let alone £50 per month?

A good place to start is to think small.  Could you find £1 a week? That’s over £100 in two years, plus an extra £52 from the government. It can sometimes be easier to use a little and often saving approach, rather than trying to put the £50 away all at once at the end of the month. 

Have a good look at your spending during the week and see whether you can get £1 or more back here and there. Could you cut out a coffee shop drink on the way to work? Try making your own coffee and taking it with you in a flask so you don’t have to do without. 

Or could you possibly cut the amount you pay on travel costs to and from work? This is normally quite a big expense throughout the month for most people, so cutting this down might really help you. If you get the tram or train and you cut out one stop and walk the rest of the way, would it make a difference to the price overall? It may require a little more effort, but it’ll be worth it in the long run, as you’ll save money and improve your health too. Or is there any way that you could lift-share with someone or bike to work instead of driving or getting the train? Remember, hitting this saving target might not require you to change your routine every day of the week – you just need to make enough changes to free up a few quid. For lots of ideas about how to travel for less, have a look at our blog How to get around for less. 

Start a spending diary

A great way to find out whether you could free up some money to save is to keep a spending diary. Get yourself a notebook, or use your phone, and write down everything you spend your money on day-to-day. And we mean everything – the diary has to accurate to be effective! As you’re keeping track, why not write an “e” next to the expenses that you consider essential, or that you don’t think you could realistically cut down, and “non-e” next to ones that are not essential or that you could cut down. This way it’ll become clear very quickly where you’ve got room to save more. For more tips, have a look at Are you Leaking Money?

It makes sense to try to save as much as you can as none of us can predict the future and having a financial safety net can be a lifesaver if something breaks down around the house, or you find yourself unexpectedly unable to work. It’s also clear that there’s a real link between how financially secure we feel and our overall feeling of well-being. 

The only instance where would not advise that you start saving is if you’re still focussed on paying off debts. This is because you will usually be paying more in interest on the money that you borrowed, when compared to what you could earn in interest on money that you saved. So in the long-run it wouldn’t make economic sense to start saving while you’re still paying the interest on debts. 

How much should you save, ideally?

If you look around at the advice out there, you’ll see quite a lot of variation in terms of what is considered the “right” amount to have stashed away in savings. Some people advise it should be one months’ wages. With the average weekly take-home wage in this country at £400, this would mean £1,600 is the sensible amount to have squirreled away, on average. 

Some set the bar higher and say that you should ideally have six to nine months’ worth of expenses put aside for absolute emergencies, for instance if you lost your job and couldn’t find work straight away. As you can see from this spending map of Britain, the average weekly spend of a household in Britain often exceeds the £400 mark. So if you are supporting a family, and aim to save up six to nine months of expenses, you could be looking at something over £9,000 – which is obviously unrealistic for many people. 

Don’t be discouraged if you don’t think you can’t save up the “ideal” amount. In reality, there isn’t really a “right” amount, but there is a “right for you” amount, and what this is will just depend on your circumstances. Again, if you’re paying off debts, don’t worry about not being able to save straight away, you’re prioritising sensibly after all. You can also make a distinction between saving for long-term goals and simply for a rainy day. If you haven’t started putting thousands away for the future, just having a little put aside in case the boiler breaks will give you some peace of mind and is a great start. Just make sure that you’re saving strategy reflects what is realistic for you and your family, and that you look for the highest rate of interest available on your savings account. 

Make sure you check out the rest of the blog for lots more money savings advice, and if you’re worried about the amount of debt you have, we have people who can help. Just use the options to the left for impartial debt advice – if you’re not managing your repayments make sure you get the help you need.

 

by Christine Walsh

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