Today’s Money Management post is about the 4 essential savings accounts that are essential when you’re on a tight budget or paying off debt.
I can tell you that when I got myself into debt, I didn’t have these accounts. Once I set them up, even though I was still paying off debt, I felt much calmer about money and felt much more in control.
4 Essential Savings Accounts When You’re On A Tight Budget
- ONE-OFF YEARLY EXPENSES – such as insurance, MOT, car tax…
- EMERGENCY FUND – Because emergencies do happen
- A GIFTS FUND – Christmas, birthdays…
- A CAR FUND – To save for replacing a car
One-Off Yearly Expenses
This bank account is specifically for payments that you know you’ll have over the course of a year but they don’t come out of your bank monthly. For me, this includes things like house insurance, car insurance, car tax, MOT and service… I didn’t catch everything the first year but over time keep a record of yearly payments.
Estimate (overestimate) the amount for each of these expenses for the entire year and divide by 12. This will be the amount you’ll need to set aside in this bank account monthly.
Example – Let’s say you have 8 yearly payments that total £1200 for the year. Divide this amount by 12 which gives you £100. Set up a direct debit for £100 paying from your current account into this yearly one-off payments account. Then when a payment is due, you always have the money ready to pay without going into debt.
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Emergency Fund
An emergency fund is essential for practical reasons and from a mindset point of view. Before I had my emergency fund set up, I would panic, cry and overall feel incredibly stressed by even the smallest unexpected expense. It was not a pretty picture and it kept me stuck in a debt cycle.
I recommend an emergency fund of £1000. I built mine up by paying £5 per week. Then gradually I was able to increase that to £10 a week and occasionally add a little extra here and there.
I talk in much more detail about the power of an emergency fund in this post Why you need an EMERGENCY FUND
Even just having a £100 gave me a totally different feeling about money. I was able to calmly deal with unexpected expenses.
Longer-term I encourage you to build a minimum of 3-month living expenses fund. This would mean if your current income completely stops for any reason, you will have a minimum of three months to live on.
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A Presents Fund – Christmas, birthdays…
Let’s face it, presents are something most of us pay for throughout the year. Family birthdays, Christmas. These things are not surprises or emergencies and need budgeting unless you’re super strict and say NO TO ALL PRESENTS. I could never manage that completely although I did limit my spending in this area and told everyone concerned.
Let’s say that you spend £20 each on 10 people for birthdays and the same at Christmas. That’s £400 a year you will need to budget for. £400 divided by 12 is 35 ( I rounded up to the nearest 5) – So you should set up a monthly payment into this account for £35.
What I will say about present spending is that people who really care about you will totally understand if you have to limit or even stop buying presents. My advice is to let them know your plan in plenty of time.
This is not strictly an essential savings account but after speaking to people who are in debt and on a tight budget, even if the spending is a small amount on children then this still needs to be budgeted for.
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A Car Fund
If you drive a car, you need to have a car fund. My car fund pays for repairs (if needed) but not my car tax, insurance, or servicing. But mostly this fund is to save for replacing my existing car. Whilst my car is running fine right now, I know that at some stage I will need to replace it. I pay a set amount into this account every month and then top it up whenever I can.
I’m not going to tell you how much to put into this fund monthly. But to give you an idea, take a look at the price of the cheapest car you would be willing to buy right now.
Let’s say that car is £2500, you want to plan to get to this figure as quickly as you possibly can especially if you have an older car. Anything over this amount then becomes a bonus and allows you the option to buy a better car. As soon as you buy a car, start saving for your next car.
Money Management – Essential Savings Accounts
I hope you’ve found this post helpful. Of course, once you’re in a better financial position you will want to look at more savings accounts but these, in my opinion, are the absolute essential savings accounts when you’re on a tight budget and/or in debt so that you can stick to your budget and get control of your money.
Other posts that will help you with your money skills and money mindset are…
- Money Management – Creating a positive money mindset
- 25 Ways To Save Money And Get Out Of Debt
- EFT Tapping for Money
- Positive Affirmations For Money
- EFT Tapping When Money Is Tight
- Spend less on food
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I’ve put together a special debt-free living download following my 10-step system to get out of debt and start saving, plus tips to save money.
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Coach Wendy – Wendy Tomlinson Coaching
Lincolnshire, UK.
Mindset Coach
EFT Master Practitioner
Law of Attraction Practitioner
Life Skills Coach
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