Is it Worth Keeping Money for a Rainy Day?

We often here that we should keep some money for a rainy day. That we should have some money in reserve just in case we need it. However, often with these old sayings they are not really right, but what about this one? Is it something that we should be doing?

It is good to think about what rainy day money is for. It is not really to use on a literal rainy day of course, but it means having some money tucked away for the future. This is something which could be useful for a number of reasons.

For Emergencies

If you are in a situation where you suddenly need to pay for something, perhaps an unexpected bill comes or you need to buy something to replace an item that is broken then you will need some money to do so. It can be tricky to find the money when you need it all of sudden like this and so it is wise to think about where it will come from. If you have nothing saved then you will really have two options. Find a way to very quickly earn the money, which could be very tricky or borrow it. Borrowing is easier but of course it costs money and so you need to think about whether it is an option that you want to take. Obviously, there are loans there that are designed to use in emergencies, but that does not mean that you have to use them. If you can have some money tucked away in a savings account then you will be able to use that and it will be a lot cheaper for you.

For Treats

It can also be nice to have some money available to buy treats with. You will sometimes be in the position where you might like to treat yourself or others and if you have a bit of extra money then you will be able to afford to do so. This can be really nice and can give you a good feeling knowing that there is the money available. You might even want to save up towards things such as holidays or days out. It can be great to have the money there.

However, although having savings is great, it is worth being aware that any interest that you get on savings, tends to be a lot less than interest that you pay on a loan. This means that if you have debts, whether that is a credit card, overdraft or loan, then you should consider whether it is better to repay that rather than have savings. It is good to do some calculations and think about this. It is normally better to repay the debt, although a student loan is normally not worth repaying early as most do not get repaid before the thirty year loan term is up so the government writes them off. A mortgage can sometimes have a very low interest rate as well, but this will depend on the type of mortgage, the mortgage rate, the lender etc. So, it is well worth calculating whether it is better to pay off a loan rather than have lots of savings. You need to think that by repaying the loan you could save a lot of money in interest but you will not have those savings. However, if you do need money in an emergency you could borrow rather than use savings and just hope that this will not happen and you will stay well in control of your money and not need to borrow during this time.

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Top Errors People Make When Trying to Save

Many of us try different things so that we can save money. There are things that can help us with this, but it is also important to recognise the mistakes that people make when they are trying to increase their savings in their savings account. If you can avoid these then this could help you to be more successful when you are trying to save money.

  • Putting coins in a jar – some people will decide that they will save up certain coins or all their coins and then pay them into a savings account when they have accumulated a certain amount. This might seem like a way to save but it actually is not. Firstly, having the money in a pot rather than a bank account means that it earns no interest there. Secondly, by putting coins in a pot you are not spending less money. You just draw out more money and possibly even go overdrawn and that money is not saving. To properly save you need to put money into a savings account and make sure that you budget carefully so that you can manage to buy everything that you need on what is left without having to borrow.
  • Saving at the end of the month – a lot of people will see what money they have at the end of the month and then pop that in a savings account. Although this sounds like a good idea, it is not the best one. This is because if we check the balance and see that there is money there, then we will spend it and so by the end of the month it is likely that there will be nothing left. However, if we put some money into our savings account when we have just been paid, then this will force us to spend more carefully and budget to make sure that what we have left lasts us until the end of the month. This can be a better way to ensure that there is always some money available to save but you will have to work out how much to regularly transfer so that you still have enough for what you need to buy. If there is still some left at the end of the month, you will be able to save this as well.
  • Not Choosing a High Interest Savings Account – a lot of people will just choose a savings account which is with the bank that they have their current account with. This could be okay, but it is sensible to compare the different accounts to see how the interest rates compare. You could find that it will make quite a big difference if you choose an account with a better interest rate. This will mean that as you save, you will have more money added to those savings in interest and even a small difference in percentage rate can make a big difference. It is worth looking around regularly as switching can make a difference even when interest rates are low. There are also different types of savings account and it can make a big difference if you investigate these and choose one that has good interest. You may have to keep your money in the account for a certain period of time, give notice for withdrawals or pay in a certain amount in order to get better interest, but it is a good idea to make sure that you have some that is in an instant access account so that you have some that you can use for emergencies as well.

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