Tuesday 19th August 2008
by Bob Bardsley
Know Your Money Editor
With all the media coverage given to the credit crunch, Britons could be forgiven for feeling like there is no spare cash in the country at the moment. But with economists such as Capital Economics forecasting that it could take until 2010 before the nation begins to recover, that rainy day could be coming sooner than expected. However, they do say that every cloud has a silver lining - and at present the relatively high interest rates faced by mortgage holders may be accompanied by similarly high rates of return on savings.
Although household budgets may have been hit by inflation in recent months, there is some advice around on ways in which you can cut your outgoings. Even if no one thing is enough to leave you with spare cash to put to one side, making a number of well thought out changes to the way you spend might just be the kick-start your finances need in order to start saving for the future.
Why save now?
The middle of a so-called credit crunch might seem like the wrong time to be thinking about putting funds to one side, as every penny counts when there are fewer of them around. However, placing that money wisely may actually reduce the amount of it that is lost to taxes - for instance, by using your full individual savings account (ISA) tax-free entitlement each year. Recent figures from Nationwide suggest that two-fifths of people think it is a bad time to save, while one in five are currently putting no money aside at all.
In addition to the tax exemption offered by an ISA, National Savings & Investment continues to provide inflation-beating products to consumers. And with inflation currently above its target, the rate of return may also be high compared to other savings accounts out there. The annual rate currently paid on the accounts stands at one percentage point above the rate of inflation on the retail price index.
How can I save more?
Chelsea Building Society notes the double impact of addressing your outgoings as it points out that reducing the amount you spend not only helps your finances immediately but can also mean greater savings to call on in the future, should you need them. The financial services provider advocates careful consideration and "reining in unnecessary spending" as good ports of call in a financial storm.
Healthcare provider Bupa, meanwhile, has some ways to improve the health of both your wallet and yourself. The organisation suggests drinking water, rather than coffee - for a monthly saving of £50 and whiter teeth. Exercising outdoors, rather than at the gym, could save an estimated £80 per month. Quitting smoking may be the biggest earner though, as Bupa claims £170 could be saved each month after quitting a 20-a-day habit. Assistant medical director at Bupa Dr Annabel Bentley points out that "stopping smoking reduces your risk of lung cancer, heart attacks and strokes - and your health starts to improve within minutes".
So is it worth it?
The value of having savings put aside is shown by recent figures from Abbey - part of the Santander group - which reveal that £50 billion of funds are drawn from savings accounts each year in order to be spent on booking holidays by Britons. But even here the financial services provider suggests that consumers could do more to protect their monetary standing. Director of savings and investments Reza Attar-Zadeh says: "If people cut back a small proportion of the amount they spent on holidays and kept their savings, this would make a real difference to their financial wellbeing. With savings rates at excellent levels, there has never been a better time to save for the future."
Yorkshire Bank has also revealed that saving might help not only your financial outlook, but also your state of mind. In what may be stressful times for many people, the financial services provider notes that more than three-quarters (77 per cent) of respondents to its recent survey are more satisfied by buying a large item if they have spent time saving up in order to afford it first. The discovery could spur many Britons into ditching those hire purchase agreements and turning to their savings accounts instead. Head of retail banking Gary Lumby claims that this may be the case as consumers move away from a "buy now, pay later" approach to high-value goods. He too echoes the assertion that the current economic climate favours savers - while lower-priced goods such as shoes and clothing may be used to provide that buzz of having made a purchase without having too much of a negative impact on your bank balance.
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