Knowing you have a tidy pile in the bank can help you to feel relaxed, even if you never have to touch the money. Simply having the reassurance that you have a nest egg to fall back on if the worst happens can make challenges far easier to deal with.
However, a recent report has suggested that the amount Brits need in the bank before they feel comfortable has risen sharply in the face of economic uncertainty.
Just two years ago, more than eight out of ten people said that having £5,000 in their savings account would make them feel happy. But the number who said they would be comfortable with this sum has now shrunk to only six in ten, according to a study carried out by financial firm, Skandia.
Experts recommend that individuals strive to keep between three and six months worth of income aside in case the worst happens. In 1980, the savings ratio in the UK – the amount of money squirreled away – peaked at over 12%. After the recession in the early 90s, the savings ratio once again came close to this amount, before plunging to close to zero during the credit crunch in 2008. This has been attributed to the pattern of increased borrowing in the Noughties, which analysts have said was the way growth was achieved. According to the Office for National Statistics, the savings ratio has slowly risen back up to 7.4% when it was measured last summer.
Individuals want greater nest eggs – Average is £1,858
One of the investment experts from Skandia, Graham Bentley, said that economic pressures were making individuals seek a greater nest egg before feeling able to relax. Mr Bentley pointed to the hike in the cost of living, together with ‘talk of recession,’ as well as ongoing ‘economic uncertainty’ as all being key factors in the rise in desired savings.
The results from Skandia were supported by a separate study carried out by ING Direct, the Consumer Savings Monitor. The research revealed that more money had been deposited in savings accounts, with balances climbing by 18% on average, in the first three months of the year.
The average nest egg currently held is £1,858 which, despite increasing, is still lower than the figure from the end of 2010, when it reached £2,050.
One of the reasons is that individuals are focusing on paying off their debts, especially whilst interest rates on savings are much lower than that being charged for borrowing. The ING report also revealed that unsecured debts, which include borrowing such as loans, overdrafts and credit cards, had also fallen on average by £18, to £2,242.
It’s important to get the balance between paying off debts and building up savings right.
Whilst it is a very good idea to have a nest egg in case the worst happens, there is no point having a healthy savings account and still paying extortionate amounts in interest on outstanding debts.
If you do not have savings and are struggling to pay your unsecured debts, you could consider getting some help from a professional debt management company, such as Baines and Ernst.
Baines and Ernst is a member of DEMSA and follow a code of conduct that’s approved by the Office of Fair Trading and have been helping people get out of debt since 1996.
They offer a range of solutions, from Debt Management Plans to Individual Voluntary Arrangements and even advice on Bankruptcy. These services are particularly helpful for people who are in a position whereby they are struggling to make repayments on debts.
If you have a small cash flow problem, then you could explore whether you qualify for a PPI refund. Some households have been given a helping hand recently by the payouts from Payment Protection Insurance. According to ING’s figures, around 4.3% of individuals had either received or were expecting to receive money as a result of a claim.
Around one in three said any PPI refund they received would be ploughed into their savings, whilst around four in ten people said they would use it to pay off their debts. Council tax bills along with utility costs topped the list of things people most resented paying for, with TV licence fees not far behind.
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