Is it Worth Keeping Money for a Rainy Day?

We often here that we should keep some money for a rainy day. That we should have some money in reserve just in case we need it. However, often with these old sayings they are not really right, but what about this one? Is it something that we should be doing?

It is good to think about what rainy day money is for. It is not really to use on a literal rainy day of course, but it means having some money tucked away for the future. This is something which could be useful for a number of reasons.

For Emergencies

If you are in a situation where you suddenly need to pay for something, perhaps an unexpected bill comes or you need to buy something to replace an item that is broken then you will need some money to do so. It can be tricky to find the money when you need it all of sudden like this and so it is wise to think about where it will come from. If you have nothing saved then you will really have two options. Find a way to very quickly earn the money, which could be very tricky or borrow it. Borrowing is easier but of course it costs money and so you need to think about whether it is an option that you want to take. Obviously, there are loans there that are designed to use in emergencies, but that does not mean that you have to use them. If you can have some money tucked away in a savings account then you will be able to use that and it will be a lot cheaper for you.

For Treats

It can also be nice to have some money available to buy treats with. You will sometimes be in the position where you might like to treat yourself or others and if you have a bit of extra money then you will be able to afford to do so. This can be really nice and can give you a good feeling knowing that there is the money available. You might even want to save up towards things such as holidays or days out. It can be great to have the money there.

However, although having savings is great, it is worth being aware that any interest that you get on savings, tends to be a lot less than interest that you pay on a loan. This means that if you have debts, whether that is a credit card, overdraft or loan, then you should consider whether it is better to repay that rather than have savings. It is good to do some calculations and think about this. It is normally better to repay the debt, although a student loan is normally not worth repaying early as most do not get repaid before the thirty year loan term is up so the government writes them off. A mortgage can sometimes have a very low interest rate as well, but this will depend on the type of mortgage, the mortgage rate, the lender etc. So, it is well worth calculating whether it is better to pay off a loan rather than have lots of savings. You need to think that by repaying the loan you could save a lot of money in interest but you will not have those savings. However, if you do need money in an emergency you could borrow rather than use savings and just hope that this will not happen and you will stay well in control of your money and not need to borrow during this time.

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Money Management

How Can I Feel More in Control of my Money?

It can be really stressful when we do not feel in control of our money. It is difficult at times to be able to imagine that we will be able to feel in control but there are things that we can do which will be really helpful.

Keep Household Spreadsheets

IT can be really useful to know exactly what is going on with your money and accounts and keeping a household account can be really useful with this. So you can use a spreadsheet or pen and paper to write out the things that are taking place in your account. For example, it can be a good idea to make a note of the money you have coming in and what you spend, perhaps in two separate columns and then you will be able to work out whether you normally have enough money to manage or if you will need to do something to address this. Once you have been keeping track for a while it will enable you to see patterns. Things like which months are more expensive and that you will need to prepare for and other things like this.

Identify Essential and Non-Essential Spending

It I can be really worthwhile to also identify within your spending, what items are essential and which ones are not. This is because you may need to cut back on some items if you find that you do not have enough money to manage. You will not be able to cut back on the essential items but you will on the non-essential ones. You will also be able to look at the prices that you are paying for all of the items that you are buying and this should help you to be able to see what is expensive and what is not. You might be able to try to find cheaper versions of some of the more expensive things which could help you to save money. It is not always good to go cheap, but making sure that you get good value for money is really important and that is something which you might be able to take a close look at.

Increase Earning Potential

It might be that even when you examine your spending closely and think about what you need to buy compared with what you earn, you may still feel you are not in control as there is not enough money to buy everything you need. In this situation you will need to have a think about what you are earning and whether you can increase it. There might be things that you can do in addition to the job that you are doing so that you can earn more money. Perhaps you can do some freelance work, temping or online work or you may want to see if you can get a better paid job. It may not be as hard as you think.

By doing these things, you should start to feel more in control of your money. By keeping records you will start to see where your money goes which means that you can keep track and have a better understanding of it. You may also be able to see where you might be able to change your spending behaviour so that you always have enough money to buy the things that you really need. You will be able to then think about whether you should look at ways to earn more as well. This will help you to feel more like you are in control of what is going on and be able to manage more easily.

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What are the Alternatives to Borrowing Money?

If you are thinking of borrowing money for any reason at all, it is always a good idea to check first to make sure that there are not any better alternatives. This is because borrowing money can have a number of disadvantages despite being extremely helpful at times. It has a financial cost for one thing and there is a responsibility as you have to come up with repayments each month in most circumstances. It can even cause stress to some people if they struggle to make repayments or just knowing that they have to come up with the money all of the time. This means that sometimes it can be better to find an alternative to borrowing money and there are a number of things that you can try out first.

Use Savings

If you have savings then it can be a really good idea to use these rather than borrowing money. This s because it will normally be cheaper to use savings rather than getting a quick payday loan. There may be a few exceptions to this, so you need to check but normally the interest on savings is low and the interest on any loan is high. If your savings are tied up in a bond or notice account then calculate the additional losses that you will suffer from cashing them in to properly check that you will not be disadvantaged by using your savings. It can be hard parting with savings as it is likely that you have worked hard to build them up and you will want to look after them. You might even have something in mind that you want to buy with them. However, it can be a good idea to consider the cost of borrowing compared to saving and how you can start putting money regularly into your savings account like you would if you were repaying a loan.

Save Up

If you do not want to use the savings that you have or you do not have enough in the way of savings, then saving up money could be an option. Obviously, if you are borrowing to buy something in an emergency then you will not be able to wait and save up. However, if it is something which is not urgent, then you should be able to wait and save up and then you will not have to pay the extra money for the loan. So try to put spare money aside into a savings account and then you should be able to accumulate enough to pay for the item eventually.

You should always try and spend less on other things.

Spend Less on Other Things

If you are borrowing to help you to make ends meet, then you might be able to reduce how much you are spending and that could be enough to enable you to save enough money so that you will not need to borrow. You could do this by checking prices on the things that you buy and seeing whether you can buy them cheaper elsewhere or switching to cheaper brands. You also might be able to buy less items if there are things that you are buying that you do not really need.

Earn More

It could also help if you try to earn more money. It can be a good idea to have a think about whether there are any ways that you can get more. This could be by finding a second job, some temp work, online work, doing some freelancing or something like that. There are a lot of options and opportunities to earn money, it is just a matter of finding one that will fit with your skills and lifestyle.

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Is it Worth Getting a Fixed Rate Bond?

If you are looking for somewhere to save money, you may wonder whether a fixed rate bond will be a good idea. These are a specific type of savings account and it is good to understand how they work so that can make a decision as to whether they will be the right sort of account for you.

What is a Fixed Rate Bond?

With this savings account you will normally have a maximum (and sometimes minimum) amount to pay into the account. You will get a fixed rate of interest for a certain time period and will have to keep your money in it for that time period to get the interest. It will usually last for a year or number of years, potentially up to five. Sometimes you will be allowed to withdraw your money early with a penalty – which will mean not getting all the interest your earned, but sometimes you will not be able to withdraw any money at all. It is important to check the terms on this if this is something which could be a problem for you.

What are the Advantages?

  • The interest rate tends to be higher on these types of accounts compared with instant access savings accounts, which means that you will get a much bigger return for your money.
  • The interest rate is fixed, do if general rates go down, you will still be paid at the higher rate.
  • As the money will be tied up, it will be difficult for you to withdraw it. This means that you will not be able to be tempted to spend it and therefore you will keep hold of it. This means it will be great if you are saving up for something.

What are the Disadvantages?

  • You will need to pay in a lump sum of money, so if you want to save in small amount regularly, then this account will not be right for you.
  • The money will be tied up, or if you can get it out you will have a penalty. This means that it is only really suitable for money that you know that you will not need to access.
  • The interest rates are fixed so if rates go up generally you will not be able to take advantage of this.

Therefore, you will need to have a think about whether this sort of account will work for you. You will need a lump sum of money that you know you will not need to spend for at least a year. Therefore, you may need to think about whether this is a good idea or whether you might need that money to fall back on. Of course, you may have a lot of savings and be happy to have some in an instant access account and the rest tied up in a bond. If you do not have loads of savings then you may not be wise in taking out a bond.

If you do decide on a bond then you need to think about how long you want the money to be tied up in it. You will find that there will be a number of bonds available with different banks or building societies and it is worth comparing them. Look at the different interest rates as well as how long you need to have the money in the bonds and decide whether you feel it will be better to get a shorter one such as one year or one that lasts longer. Consider what might happen in the future and what money you might need to have available to you. Also make sure that you compare the interest rates and think about whether the higher interest ones will offer you good value for money.

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Top Errors People Make When Trying to Save

Many of us try different things so that we can save money. There are things that can help us with this, but it is also important to recognise the mistakes that people make when they are trying to increase their savings in their savings account. If you can avoid these then this could help you to be more successful when you are trying to save money.

  • Putting coins in a jar – some people will decide that they will save up certain coins or all their coins and then pay them into a savings account when they have accumulated a certain amount. This might seem like a way to save but it actually is not. Firstly, having the money in a pot rather than a bank account means that it earns no interest there. Secondly, by putting coins in a pot you are not spending less money. You just draw out more money and possibly even go overdrawn and that money is not saving. To properly save you need to put money into a savings account and make sure that you budget carefully so that you can manage to buy everything that you need on what is left without having to borrow.
  • Saving at the end of the month – a lot of people will see what money they have at the end of the month and then pop that in a savings account. Although this sounds like a good idea, it is not the best one. This is because if we check the balance and see that there is money there, then we will spend it and so by the end of the month it is likely that there will be nothing left. However, if we put some money into our savings account when we have just been paid, then this will force us to spend more carefully and budget to make sure that what we have left lasts us until the end of the month. This can be a better way to ensure that there is always some money available to save but you will have to work out how much to regularly transfer so that you still have enough for what you need to buy. If there is still some left at the end of the month, you will be able to save this as well.
  • Not Choosing a High Interest Savings Account – a lot of people will just choose a savings account which is with the bank that they have their current account with. This could be okay, but it is sensible to compare the different accounts to see how the interest rates compare. You could find that it will make quite a big difference if you choose an account with a better interest rate. This will mean that as you save, you will have more money added to those savings in interest and even a small difference in percentage rate can make a big difference. It is worth looking around regularly as switching can make a difference even when interest rates are low. There are also different types of savings account and it can make a big difference if you investigate these and choose one that has good interest. You may have to keep your money in the account for a certain period of time, give notice for withdrawals or pay in a certain amount in order to get better interest, but it is a good idea to make sure that you have some that is in an instant access account so that you have some that you can use for emergencies as well.

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