Saving for a rainy day is a must to combat debt 30 June 2009
Steven Jackson (about the author)

In the current economic climate where people are worried about their financial future and making ends meet, it may seem a little strange to talk about saving. However, I feel that there could be no better time to start to plan for a better financial future.

I believe that the cornerstone for any personal financial plan should be an element of saving. Whatever your circumstances, there will always be times when the unexpected happens and you need to spend money. For many of us, this is likely to be something as mundane as the washing machine breaking or an unexpected car servicing bill. On their own these type of expenditures many only amount to a few hundred pounds. However, when money is tight and you do not have a fund to fall back on, these bills inevitably end up being paid for on a credit card or by borrowing money from friends.

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I understand and have read many recent articles by commentators who say that it is crazy to save if you have outstanding debt. I agree with this advice to a point. Clearly if you have a credit card balance of £3000 and are only paying the minimum monthly repayment, the interest you will be charged will certainly be over 10% and will probably be nearer to 25 or 30%. Therefore there is no point having £5000 in your savings account which is likely to be earning little or no interest. However, in my view, you should only pay off your debt out of your savings if you keep enough back to make sure you are covered for the unexpected.

The point that I will re-emphasis is that we are all at one time or another going to face unexpected bills. When this happens, you need a cushion of savings to fall back on so that you do not have to reach for the credit card. If these savings are non existent because you have just paid off a large debt then all that is going to happen is that you will get back into debt once again.

Of course, it is all very well to say that it is important to have savings. However, how on earth can this be achieved when there is no money left at the end of the month? I am under no illusion that saving money is extremely difficult for most people. This is why you need to plan to save.

Saving must be done as soon as you receive the money that comes into your household whether this be your wages, benefits or any other income. As soon as the money arrives you need to put to one side the amount you have decided to save (ideally in a separate saving account). If you make this your weekly or monthly routine, you will not miss the amount you have saved. If you wait until the end of the month, believe me, the money will not be there.

It is very important to be realistic and not be over ambitious with the amount you decide to save. Making the decision to save just £25 a month means that you will have a pot of £300 at the end of the year which is all you will need to protect you from that washing machine disaster. The most important thing is get into the routine of saving. Once your financial circumstances improve, you will then be able to save more.

I feel that if more people took the responsible step of saving for the unexpected rainy days, the impact of economic downturns would certainly not be so great and we would all be in a far better position to face all of the other problems that life throws at us.

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WHERE TO START

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