Colin Thomson from Capital Credit Union tells us how building a buffer through workplace savings can help improve our financial future.
It’s startling that up to a third (34%) of UK adults have either no savings or less than £1,000 in their accounts, leaving them vulnerable to unexpected financial shocks.
Forming a Habit: the Key to Financial Wellness
Creating a new habit typically takes about 21 to 66 days. By setting up payroll deductions, anyone can gradually transform their financial future. Automating your savings, to come out as soon as you are paid helps establish a consistent routine without the temptation to spend what you might otherwise save. As our members say, “What I don’t see, I don’t miss — and that’s how my savings grow effortlessly.”
Getting Started: Your Path to Savings Success
1. Set clear goals. Define what you want to achieve with your savings. Whether your goal is a short-term purchase or a long-term investment, having a clear target keeps you motivated and on track.
2. Pay yourself first. By arranging for a portion of your wages to be automatically deposited into a dedicated savings account, you simplify the saving process and ensure that your savings grow with little effort. Saving a little every payday will soon add up to a tidy sum to meet sudden unexpected expenses or could help you pay for that unforgettable event.
3. Save your pay rise. When you receive a pay rise, it’s easy to increase your spending to match your new income, especially with cost-of-living pressures. However, by saving the increased amount or at least a portion of it you can significantly boost your savings without feeling any financial pinch. Since you’re already accustomed to living on your previous income, directing the extra money to a savings account helps you grow your financial safety net or achieve long-term financial goals faster, without altering your current lifestyle.
4. Choose the right accounts. Open separate accounts for different purposes. This method, known as the “3 Pots Rule” helps you manage your finances more effectively.
The 3 Pots Rule: A Smart Way to Save
Pot 1: Emergency Fund. This should be easily accessible and is your safety net for unexpected expenses, like car repairs or unexpected bills. Ideally aim to save 3-6 months’ worth of living expenses in this account. It’s your financial cushion for rainy days.
Pot 2: Short-Term Savings. Use this account for goals you want to achieve in the next 2–3 years, such as a holiday or a deposit for a home. Setting aside money for these goals ensures you’re financially prepared for future opportunities. If you don’t need to access your money you could lock it away for a period of time in a product like a Fixed Rate Bond or use an ISA account if you want to have a tax-efficient way to save.
Pot 3: Long-Term Investments. This is where you’ll build your wealth for the future. Whether it’s for retirement or a major life goal, this pot should be invested wisely to take advantage of compound growth over time. Depending on your circumstances, contributing to a pension plan is one of the most effective ways to prepare for retirement.
The Credit Union Advantage
By choosing to save through your credit union, you benefit from a range of tailored financial solutions and personalised service. Capital Credit Union for example offers competitive interest rates and financial education to help you reach your savings goals. Our commitment is to our members every step of the way, making it easier for them to build a secure financial future.
Ready to take control of your financial future?
There are a range of different ways you can save with your local credit union. Capital Credit Union offers a range of savings accounts including instant access accounts which offer a guaranteed return on your savings. If you live in our common bond or are employed by one of our payroll partners (or are a member of a bona fide organisation) then Capital Credit Union is can assist you in setting up automatic payroll deductions. Start saving today. Your future self will thank you!
