How to save money

Sometimes money can seem to slip through your fingers. If you find yourself pining for payday, having a savings goal can seem like a luxury. But there are small lifestyle changes that can make it easier to tuck money away for big things, and those unexpected upsets. We’ve got some ideas that could help.

There are ways to save across all parts of your life. And small changes here and there can really add up. Here are some ways you can build up your saving pots.

Cut the non-essentials

You can make saving easier by getting to grips with your outgoings. Things like rent, mortgage costs and bills can be hard to reduce, but by understanding what you’re spending on other things, you could cut some of those non-essentials to trim your costs. This might include things like eating out less and cancelling unused subscriptions.

Shop smarter

Some shopping habits that can save you money are fairly obvious - like choosing cheaper supermarkets and own brand products. But there are other things you can do too. Joining loyalty card schemes means you’ll earn points you can spend and get special prices. That can help whittle down your shopping bill. Also, get the calculator out and work out whether buying in bulk could save you more on the things you use regularly. Picking up good shopping habits can make you impervious to impulse buys - like having a shopping list and sticking to it, or never going food shopping when you’re hungry.

Save before spending

One of the things that can hit your bank account hardest is buying on a whim. If something catches your eye, like a new gadget or clothing, try saving for the cost first by making changes elsewhere. Maybe give up one of your online subscriptions for a few months or stop buying daily coffee for a few weeks. Then, when you finally treat yourself, you’re not blowing up your budget.

Use sites, apps and extensions

If you’re buying online, you can often find voucher codes and cashback offers to cut your costs. Internet browser extensions can search for money off vouchers and find you the sites with the best prices. Others will let you earn cashback on the things you buy.

Be clever about credit

Any debts you have will be eating away at your money faster than you can earn interest on your savings. So, make sure you’ve paid off any loans (other than student loans) and outstanding credit card balances before you start to save. It is possible to earn points with credit cards and get travel perks, but if you’re taking advantage of them make sure you clear the balance every month, before any interest kicks in.

Set a budget

Ask your bank if you can set up a standing order to move money above a fixed amount to a savings account every time you get paid. Having a fixed budget every month can help make you more disciplined about saving. And spending on luxuries can be harder if you need to dip into your savings to do it.

Go 50/30/20

One simple savings strategy is to split what you earn into blocks of 50, 30 and 20.  Every time you get paid, 50% should go on living expenses, 30% on non-essentials or luxuries, and the final 20% on savings. So, you’ll have your savings covered and still be able to enjoy yourself.

Lockdown your savings

There are a couple of ways you can salt away your savings so they’re safe from moments of weakness. By putting money into fixed-term savings accounts, your cash will be locked away from one to five years. The benefit of this is that you’ll often get a higher rate of interest than with an easy-access account. You could also choose a savings account which has a notice period before you can make a withdrawal without a penalty – that’s normally something like 90 days. This can keep your money sheltered from spending sprees, as you won’t be able to get to it in a hurry. We’d suggest keeping this cash separate from an emergency fund.

Overpay your mortgage

With mortgage rates higher than the last few years, you might balk at paying even more. But making mortgage overpayments to reduce the capital you owe can be even more useful when your interest rate is high. It can really cut down the amount you’ll pay back overall. You can find a mortgage overpayment calculator here. Run the numbers and see how it would affect your mortgage.

The size of your savings pots will depend on what you’re using them for. Cash savings are there for emergencies and short-term goals like a holiday, while investments are for long-term ones like your retirement. 

Cash savings

Basing the cash savings for your emergency fund on your age or income isn’t really that helpful. Often your lifestyle will grow to match your salary – like a bigger home, better car and nicer holidays. A good rule of thumb is to have enough cash in a savings account to cover around three months’ personal expenses – that’s your rent, food and anything else you spend.

This gives you a realistic amount to tide you over if you face a financial shock, like losing your job or getting ill. It also means you can cover any surprise bills like a broken boiler,  without having to resort to loans or credit cards.

For example, if all your outgoings in an average month are £2,200, then you should aim to have £6,600 in your savings. If you’re saving for something bigger like a wedding or dream break you can top up this account, but always try to keep this emergency fund intact.

Saving for retirement

Your first step in saving for retirement should be to think about what kind of lifestyle you’d like when you retire. Then you can check what size pension you’ll need to hit your goal. You can play with some numbers using our retirement planner.

Your first port of call should be a workplace pension, if you can get one. It boosts your retirement savings by adding a contribution from your employer to top up yours.

If a workplace pension isn’t an option, you can open your own. You can even choose your own investments with a self-invested personal pension (SIPP).

The value of pension investments can go down as well as up, and you may get back less than you’ve put in.

A big hurdle to get over when you’re buying a house is pulling your deposit together. Your rent is likely to be your biggest outgoing, so looking at different ways to pay less is a good idea. Consider staying with family if that’s an option, or find a house share rather than a flat.

Where you put your money is also important. You’ll want a high interest rate to grow your deposit fund faster. With Aviva Save, you can choose from a range of competitive interest accounts.

Use your ISA allowance

As saving for a deposit could take many years, you may look at putting your money into something like a stocks and shares ISA. This could deliver bigger potentially returns than cash savings over a longer period.

Opening a Lifetime ISA (LISA) can also help. It’s designed to help you save for a home or retirement and gets a 25% boost from the government, up to a maximum of £1,000 per year. In the tax year 2024/2025 you can pay in £4,000 per year as part of your £20,000 annual ISA allowance. The money you make is free of UK Income Tax or Capital Gains Tax, so you’ll keep more of your savings.

Tax benefits are subject to change and depend on your individual circumstances. The value of your investments can go down as well as up, and you may get back less than you’ve invested.

If you need to build up a savings pot fast, you’ll need to get radical with how you manage your money. That means drastic cuts to what you’re spending and creative ways to make and earn extra money.

Slash your outgoings

To save quickly, you’ll have to cut the money you’re spending to the bone. This can mean opting for cheaper meals and cutting all non-essential spending like takeaways, gym memberships and monthly subscriptions. It might be tough but think of it as a short-term thing. When you’ve built up your savings, you can begin to ease up and start spending a little more again.

Go minimal

Look around your home for things you don’t need or could live without, everything could potentially add to your savings pot. Clothes you don’t wear can make a mint on second-hand clothing sites and auction sites or social media marketplaces can be a great way to sell household items you don’t need.

Try leftover food apps

Some apps let you pick up bags of unsold food from shops at the end of the day. It can be a lottery in terms of what you’ll get, but you’ll have a few meals worth of stuff at a low price.

Look at renting a room

If you have extra space in your home you’re not using, consider getting a lodger. The government Rent a Room Scheme lets you earn up to £7,500 per year tax-free from letting out furnished accommodation in your home. You can find more details on the allowance and renting out a room here.