The cost-of-living crisis continues to impact a considerable majority of households in the UK. Even as interest rates have fallen far below the damaging double-figure percentages they held just a year prior, the spectre of such inflation hangs heavy over the average family.
A huge reason for this, outside of the medium-term impacts associated with inflation, is the general state of financial literacy amongst our nation’s population. A recent survey found that nearly three quarters of the UK fall below the financial literacy benchmark. On an individual basis, this might mean that you find it difficult to save for the future, or find yourself in a precarious position whenever an unexpected cost appears. What can you do, then, to improve your own financial literacy and build a robust foundation for yourself?
Creating an Emergency Fund
First and foremost, you should focus on creating an emergency fund for said unexpected costs. This emergency fund should amount to at least three months’ household outgoings, and as much as six if possible. In starting to save for this, you’ll encounter some of the basic methods intrinsic to managing your income soundly, such as budgeting your weekly expenditure and decreasing your outgoings.
Setting Financial Goals
Here, it is crucial that you consider and define your short-term and long-term financial goals. Without a clear idea of your motivations and financial aims, you won’t be as incentivised to save as you could be. You might want to save simply for a financial buffer, so that you worry less about outgoing costs each month. You might wish to save for your child’s education, or for your own later-life comfort. Defining the most important aims can help you pick the right financial pathway.
Maximising Savings Accounts
With your emergency fund in hand, you can turn your savings efforts towards the longer-term, and building your savings up. Here, you should be keeping a careful eye on the interest rates; your money can work for you passively, if placed in the right account. High-interest savings accounts return more money, often in exchange for limited access to withdrawals. ISAs are another good call, saving you tax on your savings if you happen to exceed your personal allowance.
Investing for the Future
When you find yourself in a position where you have a solid emergency fund, and a significant amount saved, you would do well to think more ambitiously about managing your finances in the long term. Savings accounts can do a great deal for growing your holdings, but there are better ways to make your money work for you. For instance, you could place the money in property, where it will naturally grow with the asset’s value over time.
Alternatively, you could invest in stocks and shares, allowing the economy to grow your money for you; global tracker funds are the lowest-risk, and can still produce relatively high yields, but working with the right broker can help you create a portfolio that balances risk and reward for a stable, financially-supported future.
Photo credits: Coworking London