New research from National Savings & Investments has found that Britons are now saving 7.3% of their income each month.
This represents average savings of £90 a month in real terms.
More than half of savers believe they have enough money in savings to cope in an emergency.
Whilst these findings represent good news for the state of savers in the UK, the outlook is less positive.
Nearly a third of those asked believe they will save less during the next three months, although the cost of Christmas could play a role in that finding.
We often explain to our clients that cash is king.
Having enough money in cash to avoid taking on expensive debt in times of financial emergency is an important financial planning concept.
Planners will suggest different levels of cash appropriate for an ’emergency fund’, although a general rule of thumb suggests that something between three and six months worth of committed expenditure is a suitable amount.
This means that, if you have to spend £2,000 each month on items such as your mortgage, council tax and groceries, holding £6,000 to £12,000 in a savings account for emergencies makes sense.
If you do hold large amounts of money in cash, there are some factors to consider.
Firstly, you should expect price inflation to reduce the real value of your cash over time. In the current low interest rate environment, with price inflation remaining stubbornly above the government target, holding money in cash means you are guaranteed to erode its real value.
Secondly, you need to consider the financial security of the bank or building society you use for your savings, if you hold more than the Financial Services Compensation Scheme (FSCS) compensation limit with a single provider.
Determining the ‘right’ amount to save each month and hold in your emergency fund is best calculated during the Financial Planning process, helping you understand how much cash you will need to satisfy various objectives.
Rules of thumb are a great starting point when taking control of your financial planning. Detailed and personalised Financial Planning always provides a more accurate answer.
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