Martin Lewis: What’s the best savings account
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When it comes to finances, people are well familiar with the notion of budgeting for their monthly outgoings. Whether it is rent or mortgage costs, electricity, gas, council tax, or any other bills, these are usually regularly occurring and straightforward to budget for.
However, sometimes things go wrong, and people who have not budgeted for them could suddenly be in a scramble for cash. A 2021 study from Yorkshire Building Society found 19 percent of people have savings of less than £100, while the number of people who are not actively saving has risen from 12 percent to 21 percent since 2019.
Unforeseen expenses can crop up from many areas of people's lives, so it makes sense to account for them.
It may be more difficult for pensioners to cope with any unexpected costs, as their income will be lower than many people who are still in work, so they may not have as much flexibility to pay for sudden costs.
With the state pension not enough to live on by itself, the majority of retirees will need to have their own private pension funds in order to supplement their income just to get by in retirement, never mind having enough money to pay for a broken boiler.
Older people can struggle to save as much money for unexpected expenses (Image: GETTY)
Karl Tulloch, Owner of Rightio, believes older people could particularly benefit from a rainy day fund.
He said: "Retirees typically rely on savings or their pension rather than a monthly wage. Therefore, a built-up savings pot can be to their advantage and help them meet one-off costs which would typically be more manageable when working."
Mr Tulloch provided some helpful tips for people who may not have enough money to pay for unexpected costs, suggesting how they can put themselves in a better position to weather any sudden financial storms.
What is a rainy day fund?
"A rainy day fund is smaller than an emergency fund, which is recommended for longer-term financial issues and should consist of three to six months of living expenses.
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"That doesn't mean that you can't build up a healthy pot of cash for unexpected costs though – we recommend putting towards your rainy day fund every month.
A rainy day fund is smaller than an emergency fund, which is recommended for longer-term financial issues and should consist of three to six months of living expenses, Mr Tulloch explained.
How much should people save?
"How much you save may depend on your personal circumstances – if you drive, it's sensible to account for the costs of a car breakdown as well as these other common problems. If you don't drive, you might not need to put as much away.
What is state pension? (Image: Express)
"Having an understanding of the rough cost of these surprise incidents will give you an idea of how much to put away. Making a list of the most likely problems and working out how much they'd cost if they happened is recommended.
"For example, gas boiler repairs cost between £150 and £400 on average, so putting away a minimum of £150 will help you cover that cost."
How to start up a rainy day fund
"Many people find the idea of starting to save overwhelming, especially if you don't have a lot of money left at the end of the month after your expenses.
"If you already have a structured budget and you're aware of your monthly outgoings, you'll know how much disposable income is left at the end of the month. This is a good place to start – so if you have £300 a month left over, you might want to put half of that into your rainy day fund, or even £100 a month.
Rainy day funds can help with sudden costs (Image: GETTY)
"By working out how much you can afford each month, you'll be able to work out how long it will take to reach your rainy day fund goal. If you've worked out that you'd need £1,000 to cover a broken boiler, a smashed phone screen, and car faults, and you put £100 away each month, you'll hit that target in 10 months.
"But once you've reached that goal, you don't have to stop contributing – if you can afford to, keep adding to your rainy day fund! You might even be able to finance something that you want, like a new car or a holiday, rather than only accounting for the unexpected.
"For many of us, £100 a month isn't realistic. In fact, even £25 a month might feel like too much, and that's okay. There are solutions available to people who find it difficult to put lump sums away, such as apps that round up your spending to the nearest pound, putting that extra money into a savings fund."
Mr Tulloch also advised people check if they can reduce their monthly outgoings to open up more room for potential savings.
He said: "Reviewing your current bills to see if there are any savings you can make is also a good idea – especially if there's no wiggle room in your budget at all. By using price comparison sites, you could get cheaper bills on your gas, electricity, phone, broadband, and more.
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