How to save money

So, you want to become a saver. That’s great news! It’s an important first step on the road to financial wellbeing and independence.

With money in the bank, you can look forward to living more confidently, where you’re not taken by surprise by unexpected or hidden expenses. You’ll also be in a much better position to achieve your life goals.

Whether you’re completely new to saving or have dabbled with it in the past, we’ve put together this guide to help you build your savings habit and save money.

We’ll help you work out how much you can save, then share some ways that you can help them reach their full potential when they’re in the bank.

Understand your money

Before you can start saving, you need to get an understanding of your financial situation. Why? Well it’s important to both work out how much you can afford to save and to make sure you’re doing so in a sustainable way.

After all, if you rush into saving large amounts of money, you may just end up having to dip into your new pot straight away. Or, if you save too little, you might get frustrated and stop saving altogether.

Review your debts

Before you start saving, you should review any debts you have.

If you have a lot of expensive debt with a high level of interest, you may benefit from paying it down before saving. In the long run, it could cost you more in interest on these debts than any interest you would earn from your savings. Therefore you may be better off repaying your debt first.

However, if you have low interest debts or debts you’ve already budgeted for, like a mortgage or loan, then it may not be worth paying these off early.

If you aren’t sure what to do, it may be worth speaking to a financial adviser or getting free debt advice. For more information, there is a list of trusted services on the Government’s website.

Understand your spending and create a budget

Before you start budgeting, you’ll need to understand your spending during a typical month. Not only will it give you an idea of where your money goes, but it will help you to decide where to make cuts if you want to channel more money into savings.

Categorise your expenses

We recommend getting hold of your last three months’ bank statements. Then, go through each one separately and sort your outgoings into:

1. Essential costs: These are expenses you simply can’t afford not to budget for, like your rent or mortgage, utilities, groceries, transport and debts.
2. ‘Nice to have’ costs: These aren’t essential costs, but they are for things that you have a preference to keep in your new budget. For instance, you may have a gym membership, a media subscription or want to allocate a budget for eating out.
3. Extra costs: These are either one-off expenses you don’t pay regularly or costs you would prefer to reduce or not spend money on going forward.

Calculate your average monthly spend

When you’re finished, you should have a list of your categorised expenses for each of the last three months. The final step is to get an average of these three months, which will give you an idea of how a typical month of spending looks. To do this:

1. Add up your essential costs across each category, then do the same for your ‘nice to have’ and extra costs. You should end up with totals for each one.
2. Divide each of these totals by three to get an average spend for your last three months. You should now be able to see how your spending is split up.

Identify where you can reduce your spending

With this information, you can decide whether you need to make any changes to your spending to reduce your costs.

• Essential costs: Is your essential spending higher than you’d like? While there isn’t a lot you can do about fixed costs, there may be ways you can reduce others, such as switching utility suppliers, shopping at a cheaper supermarket or choosing to walk or cycle more.
• ‘Nice to have’ costs: As these costs are non-essential, you have more wiggle room if you want to reduce them.
• Extra costs: These are the items of spending that you’re considering removing from your budget, as well as one-off expenses. Any money that you cut back each month from this category can go towards your savings.

Calculate how much you can save

Lastly, you can calculate how much you can afford to save:

Amount of money you can afford to save = Leftover funds + extra costs cut

Note: You may want to budget for any one-off or irregular expenses within each month before moving everything to your savings. However, if you’re still left with some money at the end of the month, you can always transfer it then!

If you’re not satisfied with the amount you can save each month, it might be worth reviewing your extra costs or finding ways to bring in more income. Read how to save more money in our money saving tips guide to get started.

Set yourself a savings goal

Now you know how much you can afford to save, you can think about what you actually want to do with your money. Are you wanting to save money for a house deposit? Save money on a car? A holiday? Or, maybe you need an emergency fund to cover unplanned expenses? It’s worth thinking about this early, so that you have an idea of what it is that’s motivating you, how much you need and whether there’s a timescale involved.

Once you have a goal in mind, you can concentrate on reaching it. Should you ever be tempted to dip into your savings for something that’s not aligned with your target, you may find it easier to remind yourself about what you’re trying to achieve and avoid splurging on something unnecessary that will set you back.

It’s easy to put a price on a lot of savings goals. For instance, you can get an idea of how much a house deposit will be and it’s easy to find out the price of a car. Once you have an amount in mind, you can track your progress pound by pound, which is even more motivation to be disciplined and dedicated.

Maximise your savings

Having worked out how much you can afford to save, you’ll need to make sure you’re getting the most out of the money you put away.

Open a savings account

First, you’ll need to think about opening a savings account that works for you. This will be an account that pays interest on money that you deposit, so you’ll also benefit from growth while you continue to build your pot.

While you may be tempted to keep your money in your current account as it builds up, you may actually be losing out on earning a higher level of interest. In fact, in 2023 we calculated that you could be missing out on over £600 per year if you don’t make use of a dedicated savings account — so it’d be silly not to, right?

You’ll find that there’s a lot of choice when it comes to savings accounts, and that they come in many shapes and sizes. So, you’ll need to choose one that suits your needs. Here is a quick overview of some of the common types that you might come across:

Easy access savings accounts	These accounts allow you to add and withdraw money at any time, allowing you to save money at your own pace. You usually don’t need a huge deposit to open one of these savings accounts — for example you can open one of our Instant Savers without making a deposit at all.
Fixed rate savings accounts	These accounts usually allow you to benefit from a higher interest rate than many other accounts, provided you can lock your money away for a certain term. This type of account works best when you’ve already built up a pot of money that you won’t need access to for a while. These accounts allow you to add and withdraw money at any time, allowing you to save money at your own pace. You can typically choose from a range of terms to lock in your rate for — for instance, our Fixed Saver is available in 6 month, 9 month, 1 year, 2 year, 3 year and 5 year versions.
Cash ISAs	An ISA — or Individual Savings Account — is a savings account where you don’t pay tax on interest you earn. There are different types of cash ISA, including easy access and fixed rate, which are similar to the accounts described above. You can deposit up to a certain limit that is set by the Government in these accounts each year.
Regular savings accounts	These accounts require you to make a regular minimum deposit, usually on a monthly basis. They also usually have limits on how much you can put in each month. There may be some withdrawal conditions depending on the product. In return, they typically reward you with a higher interest rate.
Notice Savings Accounts	To withdraw any money from these savings accounts, you need to give a certain amount of notice before you can do so. You typically receive a higher interest rate in return.

If you’ve already got a savings account, it’s worth checking if it’s still paying you a good rate of interest compared to other accounts.

Automate your savings

Now you know how much money you can save and have opened a savings account where you can begin to build your fund, you’re in a good position to start automating them. This means setting things up so that you automatically pay in your desired amount at the same time every month, without having to even think about it.

Not only will this take a task off your plate, but it will ensure that you don’t forget to make that all important deposit. It will also help you to stay on track to hit your savings goal and you’ll be more likely to stick to your habit when it’s completely effortless.

Setting up an automatic transfer is easy. You just need to access your current account online or through your banking app, then set up a standing order to make a regular payment into your savings account of choice. You’ll need to have your savings account details at hand, and an idea of what day of the month works best for you.

Review your savings progress

Congratulations on becoming a regular saver! You’re well on the way to building a life changing habit. While you’ve set everything up to be automatic and affordable, it’s still a good idea to check in with your progress every now and then to make sure you’re on track and saving as efficiently as possible.

Make a point of reviewing your savings if anything in your budget changes. For instance, if you get a wage increase at work, you’ll probably want to make sure that you increase the amount you save to match. On the other hand, if your life costs increase or you’re earning less than when you calculated your budget, don’t be afraid to adjust the amount you save to ensure it’s still affordable.

When you review your progress, always take a moment to celebrate your achievement in how far you’ve come — it’s a positive thing you’re doing after all! Even if you’ve made a small amount of progress towards a much larger goal, it’s important to remember that you’re trying to achieve something bigger and any financial milestone is worth celebrating.

General FAQs

You’re bound to have some questions when you’re starting your savings journey. We’ve answered some of the most common here.

What is the fastest way to save money?

If you’re in a rush to save as much money as possible in a short amount of time, you’ll need to reduce your costs right down to the essentials and move the extra money to your savings account. Finding some extra income will also speed things up.

Here are a few things you could do:

• Be stricter with your expenses: You can be even more frugal with your ‘nice to have’ expenses and find ways to reduce your essentials. If you’re willing to live a streamlined lifestyle for a few months, you’ll be able to save a few more pounds.
• Pick up a side hustle or two: If you’re in a rush, you can dedicate more of your time to bringing in some extra money and putting it straight into your savings. Take a look at our side hustle blog for some inspiration.
• Don’t incur any new expenses: As you’re channelling all of your extra cash into your savings, you’ll need to be careful of incurring any new expenses.

Need more inspiration? Read our 11 money saving tips guide to discover other ways to save more money.

Please note: If you need to save money fast, it’s still worth doing it responsibly within your budget. Pushing yourself and saving at an unsustainable level will likely mean you need to dip into your savings early and may derail your overall savings habit and goals.

How much should I save per month?

The amount you’re saving every month will depend on your financial circumstances and how quickly you’re trying to hit your savings goal. It should always be an amount that is affordable and within your budget.

That being said, you can possibly use some data and general advice as a guideline for a monthly savings amount. According to the ONS’s latest data, in Q3 2023, the average household in the UK saved an average of 10.2% of their post-tax income.

On the other hand, if you’ve followed the 50-30-20 rule for budgeting, you should be saving 20% of your income. This budgeting rule allocates 50% of your income for necessities, 30% for discretionary items and 20% for savings.

How much money should I have saved?

Your amount of savings will depend on what you can afford to save and your savings target. Having any savings at all is better than having no savings whatsoever, so building up your habit and your fund is the most important thing.

If you don’t have a goal in mind, a good idea for a first step is to save up an emergency fund that’s big enough to cover your expenses in a loss of income situation. Generally, it’s worth aiming for three to six months’ expenses for this fund.

Should you be looking for some data on this topic: Money.co.uk calculated that the average amount of savings in a UK savings account is £17,365. It’s worth noting that this figure takes into account those with very little savings right through to accounts for very high earning individuals.

Thanks for reading our guide on how to save. We hope it helps you start your savings journey toward greater financial wellbeing and independence.

Be sure to check out our savings hub and the Atom blog for more great content.