It is hard to set aside money, especially if your earnings are low. Financial experts suggest the savings amount equivalent to at least three months worth of living expenses. Unfortunately, many people fail to stash away this much money for one reason or another.

Undoubtedly, you will need to create a budget to have sufficient savings for a rainy day. Budgeting will help you be on top of your expenses by tracking them. You can better understand the areas where you need to cut so you easily stow away. In addition to a rainy-day fund, experts also suggest building a retirement fund.

Savings can help you meet unexpected expenses when your financial situation is turned upside down due to a job loss or any other reasons. Many people do not bother about setting aside money for a rainy day because they can easily rely on loans from a direct lender for people on benefits.  

Such small emergency loans are not a bad idea, provided you can repay them, but even so, you will need some savings. Unemployed loans are small, and they cannot be sufficient all the time to help you meet the gap.

4 effective ways to increase your savings

Here are the ways to improve your savings in a short period:

·         Set goals

First off, you need to understand that you cannot achieve your target without setting specific goals. They should serve as a direction. The goals you set should be specific, realistic and achievable within the given timeframe.

You should chip away money even if you are living from paycheque to paycheque. Here is how you should determine how much you can contribute to your emergency corpus each month:

·         Look over your income and expenses. Find out if there are ways to cut back on your costs.

·         The money you save on your discretionary expenses can be contributed to your savings account.

·         Link your savings account to your pay account. Make sure that a fixed sum of money is pulled from your account every month. An auto-debit will ensure a consistent contribution.

·         Increase your saving limit as your pay rises.

·         Ensure you do not sip into those finds unless there is an emergency.

It may feel a bit difficult in the beginning, but stick to your savings plan.

·         Choose a savings account wisely

Savings accounts do not yield high interest rates, which is not good news. Your money loses its value due to inflation, so you should choose an account with higher interest rates to protect your buying power. Talk to your bank if they have a high-interest-yielding account. Some of the banks offer this facility but restrict you from using an amount for a particular time length.

Do not go for these accounts, as savings should be accessible during emergencies. Once you have stashed away a considerable amount of money, you can think of other ways to grow your money. For instance, you can buy a fixed deposit or invest in stocks and mutual funds. However, this is not a great idea if your savings are not huge.

It is suggested that you invest in a diversified investment portfolio so you do not lose your income. There is always a massive risk in the investing world. Calculate your risk tolerance capacity before investing money in diversified assets.

·         Pay off debts

Debts are very expensive. You are to pay interest on top of what you borrow. It almost doubles the cost of the debt. Small emergency expenses are also costly, even if they do not seem to be. Many people just focus on the interest rates, not the annual percentage rate. Because you can get rid of them by paying them off in full in one go, such loans seem cheap to you. But actually, they cost you a lot of money.

You should settle your accounts as soon as possible because interest will keep accruing. If you cannot repay your debts, you should come up with a repayment strategy.

·         Take out an unsecured loan to pay off your existing loans.

·         Talk to your lender to see if they can put you on a different repayment plan.

·         Ask for a payment holiday.

·         Try to pay more than a minimum payment.

You should always avoid carrying on too much debt. A golden rule of thumb says that you should borrow money only when you are in dire need of it. Make sure you can quickly repay the debt. Use online loan calculators to determine the estimated cost.

It will help you get an idea of how much you may have to pay on top of the borrowing sum. Carefully analyse whether you can actually repay the debt without impairing your household budget.

Keep your credit score in good condition to get the nod for lower interest rates. Here are some tricks on how to keep it good:

·         You should settle your accounts on time.

·         Pay off your credit card balance on time.

·         Do not keep your credit card utilisation ratio above 30%.

·         Keep an eye on your debt-to-income ratio. It should not be more than 25%.

The repayment length also decides whether your loan is expensive or not. A longer repayment length will increase the total cost of your debt because it is paid in smaller amounts. Experts recommend carefully examining the repayment length so you do not end up paying more than you should.

·         Cut and track your spending

Get a bank statement for the previous six months to look over your expenses. Split them into categories of essential and inessential expenses. Fixed expenses will remain the same, but you can cut back on your inessential expenses.

·         Look out for ways to save money on groceries. Coupons and special offers can help you achieve your goal. Buy in bulk to save some money.

·         You should buy high-street clothes in lieu of designer clothes. It will undoubtedly help you save a lot of money.

·         Downsize if you still cannot stay on top of your expenses.

You may still need to borrow money during emergencies, make sure you borrow from a reputed direct lender like FloraFinance.

The bottom line

It may seem a bit difficult to achieve your savings goals. It requires commitment and immense patience. You cannot achieve your savings goals unless they are realistic and achievable.

Debt is one of the reasons for pulling you back from achieving your goals, so try to settle it as soon as possible. Choose a savings account that yields a high interest rate. Invest money if you can. It will help build your wealth. A rainy-day fund and a retirement fund should go hand in hand.