Putting away money needn't be a daunting task and with these tips, you'll be well on your way to building up a respectable emergency fund for a rainy day.
Saving money isn’t sexy. It doesn’t matter whether you are saving on your bills or putting money away for a rainy day, saving the pennies just doesn’t catch the imagination the way splashing the cash does. Even the words that are used to describe saving are almost offensive. Frugal… thrifty… cheap…
On the other hand, having a nice little pile of cash is pretty sexy. Having a rainy day fund, or a wad of emergency cash is like knowing that if you ever get into trouble, someone has your back.
Where to start? Building your “Emergency Fund”
We’ve all heard that an emergency fund should be about three months salary. It’s one of those accepted “facts” that’s been around for years, but no amount of googling seems to turn up its origin or the reasoning behind it. It probably came about as a way to demonstrate an attainable savings goal. Like getting from unfit to running a 10K, or losing a stone. Not easy, but certainly doable.
Anyone will tell you that the best way of achieving any goal is to break it down into a series of more easily attainable tasks that collectively build to towards that ultimate goal. In this article, we’ll explore a few options that could start you on your way to stowing away a respectable rainy day fund.
Step 1: Spend wisely
Before you set up any kind of savings account, we advise reviewing your day-to-day spending habits - and we’re not talking about cutting out spending - we’re talking about HOW you actually make payments.
For example, did you know that your bank could be charging you as much as 35c per ATM withdrawal and 20c every time you use your chip and pin?
By simply being aware of the ways your bank slips in sneaky (and totally avoidable) fees, you’ll already be saving money. Our quick advice here is to pay contactlessly wherever possible (contactless payments are free) and to get cash via cashback in shops rather than via ATMs (no charges apply for cashback transactions).
If you’re looking for more easy ways to save in your day-to-day spending, you might be interested in a Revolut card.
Revolut is a digital banking alternative which offers prepaid money cards.
Via an app on your phone, you can load up your Revolut Visa card with cash and then use it as you would a normal debit card.
Revolut is totally feeless and offers an innovative money-saving feature known as “Vaults” - you’re basically given the option to round up every transaction you make and send those cents into a dedicated savings fund or “vault”. It’s less than a euro every time and could be as little as one cent - but those cents certainly do build up!
Step 2: No pain cost-cutting
Feel like you’ve no money to put aside for saving? Not having the money right now doesn’t necessarily mean you can’t start saving. And you may not need to make any drastic cuts or lifestyle changes.
A good place to find some extra cash is by paying as little as possible for the stuff you need. There are loads of ways to do this, but household bills and direct debits are a good place to start. If there are companies hoovering money directly out of your bank account every month, surely there are providers out there that will give you the same services for less?
There usually are. It’s well worth the effort to look into switching your gas as well as electricity (in fact there’s over €340 to be saved on average by switching both right now). If you can stop paying line rental and get cheaper broadband, go for it. Think about Saorview instead of paying for satellite TV - or better yet, cut both out and replace your TV watching with online streaming services. Get a better mobile deal. Get cheaper car and home insurance. Literally hundreds can be shaved off our bills this way and with no real loss of service. For most of us the only thing stopping us is our own inertia.
Top Tip 2
Did you know with most banks there’s an easy way to cancel out your annual banking maintenance fees and day-to-day charges?
Step 3: Set up a regular saver account
It’s an unfortunate fact that savings rates across the board are at an all-time low at the moment. Add the fact that DIRT currently stands at 37% and you’ve got a sorry state of affairs...
The highest regular savings account interest rate you can hope to see at the moment is 2.50% from KBC - and you’ll only get that if you have a current account with the bank and you lodge €2,500 into it every month. Not ideal.
Other than that, the next best rate is from EBS at 1.75% and rates only go down from there…
However, if you’re at least committed to building that emergency fund, setting up a regular savings account will at least help you form good habits if you aren’t getting the returns you’d ideally want to see.
Once you’ve got your regular saver set up, the next thing is to decide how much you can comfortably afford part with every month and how soon you want to have that emergency fund sorted. If you put away 5% of your take-home pay every month, it’ll take 5 years to reach your three months salary goal. Put away 12.5% and it’ll take just 2.
Once you’ve decided on the amount you can afford, set up a standing order to have it transferred automatically from your current account into your new regular saver. The best time is right after you get paid.
Step 4: Find somewhere safe for your nest-egg
Once you’ve reached your savings goal you’ll need somewhere else to put your cash, i.e. find a good lump sum saver account.
Unfortunately, you’re going to run into the same low-interest rate problems here as you did with regular saver accounts.
If you intend your emergency fund to remain just that - for use in an emergency - you’ll want to go for an Easy Access account. However, the best interest rate you can hope for with one of these is just 0.3%...
Things get a little better if you decide to go for a Term Deposit account but not by much… the best rate you’ll find is 0.5%.
What are the alternatives?
If you’re looking at the above savings interest rates in despair, remember that this is only one option when it comes to your savings.
In fact, an increasing number of Irish people are turning to investments with their savings in reaction to declining deposit rates. For instance, Irish Life reported a €31 million per week flow into Irish Life MAPS funds over the past 12 months compared to €23 million per week last year.
We recently had an interview with Ralph Benson, the CEO of Moneycube, an Irish investment company. Check it out down below for some alternative options for your savings.