The world of savings can often be a little confusing at times, particularly when you look at the range of savings and investments products out there on the market. At the end of the day, we should all plan in some shape or form, and savings can help to meet your financial goals– whether you’re thinking of retirement, your family’s future, or some cash to simply get you through a rainy day.
Our in-house expert, Karen Deenihan, is here to answer some of the most asked questions on all things savings and investments, so you can consider your options and save your well-earned cash with peace of mind.
Where should you start when it comes to saving?
The best place to start is to take a look at your financial circumstances overall. You should ask yourself three questions:
What’s my current financial situation?
If you have considerable short-term debt, it may make sense to prioritise paying this off and to focus on building a rainy day fund so you can start saving for the longer term with a clean slate.
What are my financial goals?
These can be divided into three areas:
- Short-term goals, such as holidays or a rainy-day fund.
- Medium-term goals, such as saving for a house deposit.
- Long-term goals, such as financing your kids through college or saving for retirement.
How do I accumulate money to help me to achieve these?
This is where budgeting comes in.
What is the best way to review/keep tabs on my spending?
There are lots of great budgeting apps, such as MoneyLover: Expense Track and Mint, which can help you to realise precisely where you are earning and spending your money. Look at your outgoings to see if you can save some extra money. For each item, ask yourself three important questions:
- Do I really need this?
- Do I really want this?
- Can I get this for less elsewhere?
For example, when I looked at my budget spreadsheet, I saw that my husband and I were spending around €40 a week on takeaway coffees. When you add it up, that’s over €2,000 a year or a whopping €10,500 over five years! Using this model above:
- Do we really need this? No
- Do we really want this? Yes
- Can we get this for less elsewhere? Yes
By looking at our spending vs needs and wants, we decided to buy a coffee machine on special offer for just under €400. This has more than paid for itself and we can enjoy our coffee without splashing any further cash!
How much money should you aim to save each month?
This depends on your personal circumstances. If you’re in a good position financially, putting at least 10% of your monthly income into savings may be a good place to start. However, this is just a guide and may not be suitable for everyone. Some people will be able to save well above this rate, while others may struggle to save this amount. The most important thing to remember is that every little helps, and it’s better to save something rather than nothing at all.
How do savings accounts work?
This depends on the savings product you select. If in doubt, you should take a look at the terms, conditions and guidance for the particular savings product you’re interested in.
What types of savings accounts are there?
There are lots of different savings products available. Here are some of the most popular:
- Easy access: This type of savings account means you can add and take your money out quickly without paying a fee or penalty.
- Fixed-term savings accounts: Generally, with this type of account, you lock your money away for a certain period, which can be anything from months to years.
- Notice savings account: With this type of account, you will need to tell your bank or other financial institution in advance that you want to take your money out. You will need to check the terms of your account to see how long this notice period is.
- Savings Plans with a Life company. Of course, there is a whole world of investments out there. These may be a better option if you’re saving for bigger long-term goals such as your retirement. Here your monthly savings will be invested in funds that invest in assets like company shares. This means your money will have the potential to outperform deposits and inflation, especially over the medium to long term. Of course, you need to remember that with all investments, your money has the potential to go down and up, and you may get back less than you invested.
What should I take into consideration when choosing a savings account?
What is suitable for you depends solely on your specific circumstances, and taking into account things like what you’re saving for, how frequently you’ll want to get your hands on your money, and your attitude to risk. Remember, you don’t have to pick just one type of savings product. You might find that mixing them up produces the best result for you. Your local Financial Broker is an excellent place to start understanding what’s suitable and the options available to you.
Will I pay any fees or taxes with a savings account?
Yes, you generally pay fees and taxes on all types of savings accounts. For example, you pay DIRT or deposit interest retention tax on any interest you earn on cash savings. You also pay an exit tax on any returns you make on a savings plan with a life company.
Will I make any money on my savings?
The longer you’re prepared to lock your cash away, the higher your interest rate and the higher your return will be, generally.
As a savings expert, what are your top five realistic and easy-to-implement tips for saving more money?
If you need to find more money in your budget, there are a few things you can do:
- Pay yourself first: Set up a direct debit to your chosen savings product that transfers your money the same day you receive your salary. That way, you don’t have to think about saving; it just happens instantly.
- Reduce your significant expenses: Such as by repaying your mortgage quicker, if you can.
- Reduce your smaller expenses: Evaluate ways to lower your bills. You might find by switching your usual supermarket or by opting for supermarket own brands, you could reduce your weekly grocery bill by a substantial amount. Switching utility providers can also bring down your bills with introductory offers to avail of. Spend some time and evaluate the number of subscriptions you’re signed up to and cancel any unnecessary or unused ones. When buying bigger things like appliances, furniture, and cars, research the best time to buy these and shop around for the best deals.
- Segment your savings goals: Segmenting your money into different pots can give you more control over your money. It allows you to use different savings products to meet unique savings goals.
- Mindful spending: When purchasing anything, consider whether you really need or want it before you part with your well-earned cash. You should also try and pay with cash rather than credit cards where possible, for some, the physical presence of cash makes it easier to track how much you’re actually spending. If you happen to fall into debt, don’t ignore it, as that can make matters worse. MABs is a useful service to help with any debt worries and put you on the right track.
How can I improve my spending habits when it comes to big events?
- Start saving as early as you can, even if you can only save very small amounts at the beginning.
- Set a budget and stick to it, the best you can!
- Understand what’s important to you financially and what’s not. Try to reduce your spending on things that are not important or necessary to you and your family.
- Cut back big spending in the run-up to the event, where possible. For example, if you’re saving for Christmas, you could cut back on the number of times you eat out at restaurants and instead try meal planning and batch cooking to get you through the week. You’ll also find that by cooking more at home, you’ll be creating family friendly meals which are healthier and better on the pocket. Or, if you happen to be tying the knot soon, you could move in with your parents for a few months to help save more money, if this option is available to you.
- A key to saving more is often to earn more, if you can. For example, if you happen to have a spare room in your house which you don’t use, consider renting it under the tax free Rent-a-Room scheme. If you have the opportunity to earn overtime, ask for more hours if you have the capacity.
How can I teach my children the value of money and saving regularly?
- For very young kids who are under the age of five, you can teach them about the value of money through hands-on activities such as piggy banking and play shopping.
- For primary school aged children between five and 12:
- Instead of giving your children an allowance, allow them to earn pocket money by doing simple chores around the home.
- After big events in the family’s calendar, such as birthdays or communions and confirmations, open a children’s bank account and segment their money into ‘money to save’ and ‘money to spend’, so they can begin to understand the value of money and saving.
- Allow them to help with grocery shopping. My mother-in-law often gives my children a budget when they go shopping with her. This is an ingenious way of teaching your kids about budgeting and the value of money when it comes down to things like everyday groceries.
- Playing board games like Monopoly and the Game of Life are also fun and easy ways to teach children about money.
- The teenage years are a crucial time to improve your child’s financial literacy and teach them money management skills to get them through future third level education and employment. At this age, financial independence is important.
- Encourage your children to get a part-time job at the weekend and show them how you work out payslips so they can understand this process. Let them manage their own income and savings.
- Educate them about the dangers of overspending on credit cards and the importance of having an emergency fund to fall back on.
How can I plan an effective family budget?
Good organisation skills are key to successful budgeting. There are plenty of tools and apps to get you started. We’ve put together advice on how you can make family budgeting work for you, in one place for ease.
What is the difference between investing and saving?
When you have extra money in your budget, you have two options; save or invest. One could be better than the other – it really depends on your unique circumstances, goals, and attitude.
If you think you’ll need to access your money at short notice, or you’re thinking of using your savings to buy something in the short-term, such as a holiday, saving your money is probably the best option for you. This is because savings are easier to access and much lower in risk. The downside is that you’ll probably only make a small amount of interest on the money you save. Inflation will also eat into the real value of your savings.
If your goal is longer-term such as saving for retirement, it's possible to generate a greater return on your money by investing it. In fact, money invested in the stock market over five to ten years has tended to go up more than money in savings accounts. However, investments fall as well as rise in value, and you could get back less money than you put in. One way to lower your risk level is to spread your money across different asset classes. Aviva’s multi-asset funds spread your investment across a diverse range of asset classes and regions while aiming to achieve a certain investment objective and risk level.
How can I invest my money?
If you want to start investing, it’s not difficult to get this set up and running. With Aviva’s Savings Plan, you can invest from as little as €250 per month. Aviva's Savings Plan allows you to invest in funds that suit your attitude to risk and how much control you’d like over your investments:
- If you’d like our investment experts to manage your investment portfolio, you can opt for our ready-made Multi-Asset ESG Funds.
- If you want more control over your investment portfolio, we offer a range of funds across different asset classes and risk levels that allow you to manage your own portfolio.
We also offer responsible investing options across our ranges.
Our investment products give you a straightforward way to save every month and help you achieve your family’s long-term financial goals. See how you can take a step towards your goals by investing with us today.
Talk to your Financial Broker to see if a Savings Plan is a good option for you. You can find a Financial Broker at brokersireland.ie.