Financial experts generally recommend that you should have a savings pot that is equal to between three and six months’ income—and certainly enough to cover your household expenses for around three months. This will give you a cushion in an emergency. This might include losing your job, or needing to take time off because of an injury to yourself or someone else who needs you to care for them.

However, a recent survey by Paragon Bank found that 31% of people had no emergency savings at all. Of these, around two thirds said that they could not afford to save any money, either. This is hardly surprising, given the rising cost of living. However, it is worrying, because there are also predictions that we are heading towards a global recession, which may mean that many more people cannot find work.

This page provides some tips to help you build up a savings pot over time.

1. Use ‘change savers’ and ‘round-up’ apps to save small amounts all the time

There are apps and add-ons to banking apps that allow you to save small amounts of money all the time, by rounding up what you spend.

For example, in the UK, Lloyds Bank’s Save the Change option rounds up any spending on your debit card to the nearest pound, and puts the ‘change’ into a savings account. These are only small amounts each time, but when you think how many times you use your debit card each week, they do add up over time.

2. Take the 1p/c (or £/$/€1 challenge)

Small amounts add up, especially if you save them each day.

The website Money Saving Expert suggests taking the 1p challenge. You start on Day 1 by saving 1p. On Day 2, you save 2p, and so on, right through a whole year. On the last day of the year, you will put aside £3.65—but in the course of the year, you will have saved £667.95. If you want a larger savings pot at the end of the year, you could increase it to 10p, 50p or even £1.

The advantage here is that the amounts involved each day are very small, so you probably don’t even notice them each day. However, they again add up over time.

3. Put loose change into a savings jar

A traditional approach to saving is simply to transfer all your loose change into a savings jar at the end of each day or week.

This is perhaps less simple now that most of us do not use cash—but it is worth considering if you still use coins and notes to buy lunch or get your morning coffee. The ‘round-up’ apps are basically a modern extension of this idea.

4. Shop around for cashback offers on bank accounts and credit cards

There are two types of cashback offers worth hunting down: those that give you a bonus when you switch, and those that give you cash when you spend.

Banks really want your business. There are therefore plenty of banks (and other providers of banking services) that are prepared to give you cash to switch your current account or credit card to them. These are worth checking out, because they give you a lump sum that you can put straight into your savings pot.

Banks also offer cashback on purchases, often with specific retailers. If you can find offers at retailers you use regularly, these are well worth hunting down. Again, the sums involved are likely to be small, at least to start with, but they add up over time.

5. Move your savings around to maximise your interest

It is always worth keeping an eye on the interest rate on your bank accounts, especially savings accounts.

Interest rates on savings are not high at present, but they are going up—and some banks and building societies have been quicker to increase rates than others. This is especially true of newer and less traditional providers. You may therefore find that there is a 1% or more difference between accounts. Before you start saving, make sure that you have an account that offers the best rate of interest for its type.

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6. Choose the right type of savings account for your needs

Different types of savings account have different interest rates, and it is worth checking out different types to see if they will suit your needs.

If you are willing and able to tie up your money for a fixed period, or agree to make only a certain number of withdrawals each year, you can get a better rate of interest. This makes sense if you are saving for a particular event, such as a wedding. However, it is less ideal if you are building up a general contingency fund, when you will probably want an instant-access account with unlimited withdrawals.

7. Maximise any tax-free savings allowance

Governments often want to give people an incentive to save, and may therefore enable you to save a certain amount of money tax-free.

For example, in the UK, you do not pay tax on the first £1,000 of interest paid on savings accounts if you are a basic rate taxpayer. However, you can also save up to £20,000 into an Individual Savings Account (ISA) each year, without paying any tax on the gains from the account. UK residents are therefore often advised to save into an ISA first, to maximise that tax-free allowance.

8. Use a ‘jam-jar’ system to manage your spending—and save anything that’s left

One good way of managing your money and budgeting is to use a ‘jam jar’ system (see box). This can also help you to save.

Using this approach means that if you can find ways to make savings within the week or month, you can put that money aside without feeling guilty. For example, if you don’t spend everything you budgeted on petrol, perhaps because you cycled to work instead of driving, you can put that money into your savings pot.

9. Have specific savings pots for specific needs—and prioritise them

It is worth having different savings pots for specific needs, because some are likely to be a higher priority than others. You can then save into one first, and only move onto others when that one is ‘full’.

For example, saving for a wedding for which you have already set the date is probably a higher priority than building up a general savings pot. However, saving for a holiday is a lower priority than having a contingency fund in case your boiler breaks down. Keeping your pots separately therefore allows you to build them at different speeds, and also ensures that you don’t raid one to fill another.

10. Save first each month

It is something of a cliché, but saving at the start of the month is much easier than having money left over.

When we have money, we are all tempted to spend it, and little treats add up. If you have some discretionary spend in your budget, take your savings out at the start of the month. Don’t wait until the end to see if there’s anything left.

Of course if you are struggling to find enough to meet your regular monthly needs, this won’t work, and you shouldn’t be tempted to try.

Instead, have a look at our pages on Spending Less/Reducing Your Outgoings, and Making More Money, to see if you can improve your financial situation before you try to start saving into a contingency fund.

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