Saving for a specific goal is better.
New research from M&S Bank has found that while nearly two thirds of regular savers believe it’s important to contribute towards a ‘rainy day’ fund, a quarter see themselves as ‘aspirational’ savers.
This means that, instead of simply saving towards a rainy day, they choose to put their money towards a tangible savings goal.
What goals you ask?
The most popular savings goal for aspirational savers, with more than half saying they were contributing towards this every month, was holidays.
A new home was the second most important goal for many aspirational savers, with nearly a third saying they were saving to buy a new house.
17 per cent were saving towards home improvements.
The research found that four in five adults have at least one savings account and nearly half of those with a savings account said they saved at least once a month.
The average savings pot stands at £10,156 and the average monthly contribution is £156, but 15 per cent have less than £100 in their savings.
Savings often get overlooked alongside the more exciting world of investing, but they should form the foundation of any solid Financial Plan.
Certainly any financial goal you have with a short or medium term (say up to 5-7 years in the future) is usually better suited to cash savings than investing the money.
Yes, low interest rates are a bit rubbish right now. Yes, over time the impact of price inflation will erode the buying power of your cash savings.
But cash comes with the clear advantage that the value will not go down. Investments don’t have that luxury.
This research from M&S Bank makes an interesting distinction between saving for a rainy day and aspirational savings.
Saving for a rainy day – saving to create an ’emergency fund’ – can still be aspirational, assuming you quantify the amount you need to save and how much you are prepared to save towards this goal.
Clearing debts, putting in place financial protection for your family and saving for a rainy day are all important financial goals; things that should be satisfied before moving onto the longer-term objectives of investing for the future and retirement planning.