We talk to high earners and to those on the lowest incomes to see just how much they manage to put aside ... and why
As energy bills soar again and wages fall behind inflation Britain is in the grip of a cost of living crisis. Figures from the Office for National Statistics show that the average household is now able to save just £5.20 a week, or £270.40 a year. Those on the lowest incomes are saving nothing, while those on middle incomes are raiding their savings to pay their monthly bills.
Analysis by Which? has found that one in five households has no savings, and that only 26% of us are saving regularly. Part of the problem, according to Which?, is that interest rates are so low few households feel there is much incentive to put money aside.
Which? executive director, Richard Lloyd, said: "Our research paints a worrying picture of consumers vulnerable to financial shocks and unable save for retirement, with the rising cost of living forcing them to dip into their savings to pay for essentials like food and bills. We want the regulator to take real action to help savers to get the best deal out of the savings market, rather than leaving billions of pounds languishing in accounts paying poor levels of interest."
So how do people manage to save? Guardian Money conducted in-depth interviews with five families and individuals, asking how much they earn, how much they are able to put aside, and what they go without to be able to save. The stories reveal how even relatively high earners find it difficult to build up long-term savings balances, although we also found that it can be the people on the lowest incomes who are the most budget-concious and who put aside cash for a rainy day.
The most important lesson? If you want to save, set up a direct debit that takes money from your account as soon as you are paid and don't even give yourself a chance to spend it.
'We're on £65,000 a year but only save £100 a month, which soon gets spent'
Vicky, 35, is an accountant earning £25,000. Her partner, 38, is an online marketing manager on £40,000. They have a one-year-old son and live in London.
We try to save regularly but we haven't managed to set aside as much as usual in the past year as I have been on maternity leave, so things are tight.
We save £100 a month. It is our emergency fund – we use it to pay for any DIY and repairs around the house. We bought a house last year and are slowly trying to add our own mark to it. If there's enough left over after all that, we use the money to pay for a holiday once a year. That's unlikely at the moment. We've just cleared out our savings – about £500 – to pay for some bits and pieces for the house.
We also set aside £50 a month in a junior Isa. That is topped up with any money he gets for his birthday, Christmas and general hand-outs from grandparents – we're lucky to have a generous family around us. We've saved £1,600 so far. That is for when he is older – hopefully to pay for university, if that is what he wants.
I definitely think folk spend money unnecessarily, but then I'm pretty tight. I'd rather save into our son's Isa then buy him unnecessary treats and toys. Some mummies buy any (and sometimes it seems every) piece of plastic rubbish going for their kids. It's not cheap and gets the attention of the child for two minutes. I've even heard some admit it is that they like to buy it, rather than because the child needs it.
It would be nice to be able to save more but the mortgage is our killer expense. That costs us so much each month that savings are relegated to what is left in the pot afterwards.
'I got rid of the car so I could save'
Laura-Jayne, 23, works in sales support for a telecommunications company earning £16,000 a year. She and her fiance are saving for their wedding.
We are living on a very tight budget as we are saving £500 a month into our Nationwide savings account. It means we are really having to tighten our belts, but it will be worth it in the end when we have a beautiful wedding day.
We started off saving each month so that we could buy a house. We've done that and it was nice to see what saving could achieve, so we carried on and started saving for a wedding.
In order to keep it up we have direct debits to take money straight from both our accounts at the start of the month. That way, if we don't see the money, we can't spend it.
We've made some big sacrifices so we can keep saving so much. I sold my brand new car because I simply couldn't afford the mortgage, the car and to save. It was a wrench, but my wedding is simply more important than a car.
Becoming a saver has been a big change for me. I always used to be the type of person for whom money just burned a hole in my pocket.
I loved spending, but now I love having the security of savings, and feel a lot less inclined to spend money frivolously.
Once we're married, I aim to continue saving, just maybe not quite so much each month.
I only earn £12,000 but am careful and can save regularly
Claire, 35, is a teaching assistant earning £12,000. Her husband is a builder with an annual income of £18,000. They live in York with their six-year-old daughter.
I've had a strong savings habit since I was a teenager, which has meant I've been able to build up a good savings pot over the years. When I met my husband he was a spender rather than a saver and had built up some hefty debts. But, thanks to my savings, I was able to pay off his debts when we got married, then I started getting him to save, too.
We have several accounts. I have a standard savings account where I place any money that is given to us as gifts. That has a balance of £6,000. This is for our next house, which I hope will be our forever home. I'd rather spend the bare minimum on our current house and have money to make our next home just right.
We also both have Isas. We save £50 a month into each. My Isa has been going for 14 years and has a balance of around £7,000. This is the rainy-day fund, there to give us a safety net should anything break or go wrong.
My husband's Isa has several thousand pounds in it, but that's his business contingency fund.
He set up on his own six months ago so that money is there to cover slow months as he gets himself up and running.
Saving is hard work and we do have to make cutbacks. I'm a naturally frugal person and know where to make cutbacks. For example, I go to discount supermarkets to buy the cupboard essentials and use the money I've save there to be able to buy better quality meat.
As a family we aren't flash with our cash, but I don't think we are missing out on anything. I work in a private school and get to see the small children with laptops and iPads. Our daughter is no less happy for not having the latest gadgets.
Love is about a lot more than giving your child material things. We're saving so she'll have a brighter future.
'Our total savings are just £3,000'
Laura, 28, lives in Brighton with her husband, 32, and their three-month-old son. She is on maternity leave from the council's youth service where she earns £20,000. Her husband is the head of operations for a food company earning £20,000 a year.
Our aim is to save at least £100 a month but, if I'm honest, we don't always manage that. Sometimes we save a lot less and sometimes we manage to set aside a little bit more. We do have a rough budget that we try to stick to each month, but there is flexibility within that. We make sure we allow ourselves some treats, such as a nice meal out from time to time. So far we've managed to save £3,000.
Sometimes it is difficult to find that extra cash to set aside – especially now, when I am only getting maternity pay – but we think it is important, even though it is often more appealing to spend on various nice things.
We look for the best deals on everything and if it is a big purchase we make sure we shop around. Now we're always on the lookout for nappy deals.
We've always been savers – we saved to buy our first house, then once we had bought it we just carried on. Now we have our son we feel it is really important, and it allows us to treat ourselves. For example, we're heading off to Spain for a holiday soon. That would have been hard to do while on maternity leave without our savings.
'We are in our 30s but have been able to save £60,000'
Jono, 34, is a web designer. He lives in London with his wife, 37, and their two-year-old son. They have a combined income of £80,000.
We manage to save £500–£1,000 a month, although sometimes less. How much depends on what is happening that month. If we have a big expense, like a buying a flight for a family holiday, or having to replace some furniture, it will be right at the bottom end and we'll more or less be paying off the credit cards.
We started saving when our son was born. We opened an account with an online investment management firm, Nutmeg. We only invest around £50 a month but, from the projection, we see that could come out as a sizeable sum when he is 18 – the account is already worth £15,000 thanks to some extra transfers from our other accounts.
The money we set aside for him is instead of paying for life insurance for me and my wife. A basic policy would have cost about £50 a month, but as we're both healthy and have supportive families should something happen, we decided to save the money instead. It's a risk, but it feels better to have that as a credit towards our son, rather than an expense.
We put the rest of our savings towards filling our Isa allowances as best we can. So far we've managed to build up a £60,000 nest egg.
Saving is definitely a priority as we need to make sure we can support ourselves and our family in the future, especially if we have another child. Nursery costs are significant in London.
We try to spend on experiences we will remember, rather than things that will be used up or break.
So we do without some interior decorating and tech upgrades we might like in order to save and spend our money on things that may make us happier in the long run.
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