Financial experts have always talked about the importance of saving, setting a budget and borrowing sensibly, and it’s easy to feel with some of the time-honoured advice that you’ve heard it all before.
But with the current cost of living crisis testing many of us like never before, it is useful to go back to the basics.
Fortunately, there are new tricks that can help – from having regular money chats with friends on Zoom to some financial apps that bring the “Couch to 5K” model to saving.
Forget products from your high street bank – here are other ways to build financial resilience over the coming months.
Find an accountability buddy
It is easier to stay motivated to do things we find unappealing if we have someone with us – the fear of letting someone down, or breaking a pledge, can be a powerful reason to keep going.
Stacey Lowman, a money coach for Claro, the digital coaching app, suggests you apply this approach to budgeting and financial admin. During lockdown she created free Friday finance sessions on Zoom. A group would drop in and each introduce what they needed to focus on, sometimes prompted by a question from Lowman such as: “What is your biggest money challenge right now?” They would then use the pomodoro technique, setting a timer for 25 minutes, to separately focus on whatever admin they needed to get done, paying a bill, filling out a spending spreadsheet, switching banks.
“I generally find that people tend to put those little practical money things off,” Lowman says. “Having a dedicated space, especially for people stressed about money, can make a difference. If you wake up thinking: ‘Oh no, I forgot to do that thing’, you can think: ‘OK, I’ll deal with it in Friday’s session.’”
You could set up something similar with a friend or group of friends, like a money admin version of a book group. Or use a site such as Focusmate, designed to help you get stuff done distraction-free by matching you online with someone else also keen to concentrate.
Emilie Bellet, who founded the women’s money network Vestpod, has created in-person accountability sessions in London, Hove and Manchester. Her money “pods” offer a space to share knowledge and find a willing listener to thrash something out in more depth.
Topics covered include debt management, budgeting, pensions, starting the investment process, finances if you are freelance, negotiation, as well as emotions around money.
“It can be difficult to stay motivated when it comes to our finances,” Bellet says. “Sometimes, we don’t even know where to start, or it can feel downright lonely and scary. Inspiring each other and sharing accountability makes money management so much easier.”
Jess Rad from Brighton, who runs the platform the WomenHood, attended a Vestpod pod where 35 or so women met to talk about personal finance. “It made me realise how infrequently we do that,” Rad says. “It’s not a regular conversation. Even if you have close friendships and family, it doesn’t mean that those conversations can happen frankly. Sometimes, we need people outside our immediate networks to create that.”
Affordability is not the only thing that stops us building a cash savings safety net. Often procrastination, or not knowing where to start, means we don’t get round to it. This was demonstrated with the success of auto-enrolment as a method of saving for retirement. When people don’t have to think too hard about joining the workplace pension, they usually stick it out.
The National Employment Savings Trust Insight team is applying the same “nudge” logic to savings, as a significant proportion of workers who are putting aside decent amounts into their pensions have little or no money set aside for short-term emergencies.
Employees of Suez, the recycling and waste management company, have been taking part in an automatic payroll savings trial. Each month £40 of a worker’s wages is moved into an easily accessible cash savings account before they are paid. They can adjust the default sum up or down.
Take-up of the previous opt-in workplace saving scheme was only 6%. Since it shifted to being an opt-out arrangement, that has risen to more than 40%.
“Our research shows that inertia, people’s tendency to keep doing what they’re already doing, is a strong barrier to participation,” says Jo Phillips, the director of research and innovation at Nest Insight.
The opt-out payroll savings model is yet to be widely adopted but you can ask your HR department to consider setting one up.
Phillips also encourages employees to find out if their employer has an opt-in payroll savings scheme. “Even where programmes are in place, awareness around what’s on offer can be low,” she adds.
If you want to set your own nudges, take up a savings challenge. These typically involve putting aside small amounts on a regular basis, with the aim of not really feeling it.
The 1p challenge, where you save 1p on day one and increase that each day to £3.65 on day 365 will give you a total of £650 in a year. It is popular with users of the MoneySavingExpert website, who go online and share that they are signing up.
The 365-day challenge, where you start by putting by £1 on a Monday, £2 on Tuesday, through to £7 on a Sunday, and reset each week, adds up to almost £1,500 by the time you have finished.
This can be time-consuming to do manually but if you are a customer of Monzo you can automate the process using an app called IFTTT.
During 2021, £17.7m was saved by 28,000 customers (an average of £630 a person), many of whom became debt free for the first time, using IFTTT, according to Monzo.
The app lets you connect your Monzo current account to more than 500 other internet services, from your calendar to Twitter, Strava to the weather app, creating what it calls “applets” – instructions that send money to savings pots. You may choose to move £10 from your current account to a rainy day pot, every time your weather app predicts drizzle, for example, or £1 for each 1km you run or cycle and record on Strava. Once you have put it in place, you don’t need to do anything.
The app Chip uses AI to scan your bank account and work out how much you can afford to save. In theory, never so much that it takes a noticeable chunk out of your bank balance but enough that it adds up: the average Chip customer automatically saves £3,000 a year. Its payday put away feature proactively moves money into a savings account as soon as you get paid.
The best interest rates available tend to come from challenger banks or financial companies you may not have heard of.
Savings platforms including Raisin UK, Hargreaves Lansdown’s Active Savings, and AJ Bell’s Cash Savings Hub help you find them. They let you open multiple savings accounts with non-mainstream banks, without having to fill in separate forms for each, and manage them all in one online portal with sign-up bonuses and special offers attached.
All cash savings are covered by the Financial Services Compensation Scheme, which means up to £85,000 is protected from the financial failure of a bank. The platforms generally offer a mix of fixed-rate savings bonds, notice accounts or easy access accounts. The downsides are they do not list cash Isas or show a full picture of every account available.
The budgeting app HyperJar, meanwhile, has a feature offering a 4.8% return on your savings if you commit to spending all of the money at a partner retailer, such as Welsh Water, Tui, Dyson and ATG Tickets.
From a menage in Scotland to a stokvel in South Africa, committees in Pakistan to pardners in the Caribbean, friends and family have been creating money circles to lend to one other, outside the banking system, for generations.
All follow a similar format: one organiser gathers a group, each member pays in an agreed sum on a regular basis, for example, £100 a month, and then everyone takes it in turns to withdraw the saved cash. If 10 people saved £100 a month that would mean a £1,000 lump sum each month for one of the group for a period of 10 months. Even if you go last, it’s a way to force you into regular saving while supporting people you care about.
Young people who have witnessed their parents using money circles are now seeing the benefits of working together to gather cash for things such as house deposits.
Nina Mohanty, a co-founder of Bloom Money, wants to digitalise more community schemes, known as rotating savings and credit associations. “I grew up with my family members, my father is an Indian immigrant and my mother is a Taiwanese immigrant, taking part in these circles,” Mohanty says. “They are still run typically with cash and a notebook to keep track of who has paid in and whose turn it is to draw from the pot.”
Bloom Circles will run on your phone and let you invite between five and 10 trusted people to join your digital circle, setting a sum to save up to £300. Payments will be taken automatically from the debit cards of those who join. There is a monthly fee to use the app, based on the amount you choose to deposit, from £1 to up to £8 a person in the circle.
However, Mohanty hopes that ultimately this may save people money and hassle, removing the admin burden from the organiser.
The circles are based on trust, there’s nothing but losing face to prevent anyone stopping contributions once they have received their payout. However, many people find the commitment aspect helps to cement a regular savings habit.
Stepladder also offers digital versions of circles, which you can enter with members of its community you do not know. It has protection in place if people default, which, the company claims, is rare. Stepladder says people who save in groups are 300% more likely to hit their goal than those who save alone, citing data from the National Bureau of Economic Research.
Instead of being forced to take out a high-cost payday loan, you could access your wages early when an unexpected expense occurs. That’s the selling point of employer salary advance schemes including Wagestream and Hastee Pay, and now the banking app Revolut.
Wagestream is offered by employers to employees in sectors such as the NHS. You can use it to get hold of up to 50% of your wages at any point during the month for a fee of £1.75.
Revolut offers similar, and sells its service as a way to smooth your income by changing the frequency of your payment, to every fortnight rather than monthly, for example.
Borofree’s salary advances are up to £300 paid in shopping vouchers for retailers such as Sainsbury’s, Amazon, Currys and Costa, free.
Approach these services with caution, however. Critics warn that the sector is unregulated, and they could trap employees into being reliant on getting their earnings early. While the fees seem low, they are hard to compare with percentage interest rates on loans, and can add up if you’re advancing small amounts regularly.
However, they are an affordable way to access money at short notice if you use them as a one-off. Wagestream is backed by charities including the Joseph Rowntree Foundation.
If you are paid by the bankers’ automated clearing system into a Monzo account, and you can’t quite hold out until the end of the month, the bank lets you access your money at 4pm the day before you were due to get paid, free.
For those with a thin credit file, personal loan rates can be eye-watering. Robert Pasco, a co-founder of the loan company Plend, which has pending B Corp status, is attempting to challenge this. Pasco moved from New Zealand without a UK-based credit history, took out a high interest credit card to build his file, and got stuck in a debt spiral, resulting in him having to seek help from the charity StepChange.
Plend uses open banking technology to create its own credit scoring system that circumvents traditional credit histories, to give what it claims is a more accurate picture of someone’s financial position and whether they can afford to borrow.
“It’s outrageous that we are still experiencing financial discrimination based on a system that hasn’t been updated since the 1950s,” Pasco says. “We believe affordable and ethical loans should be easily accessible based on your personal spending habits today, not your credit history over the last six years.”
Plend’s loans range from 10 to 25% APR, which compares favourably with rates on credit-builder cards that can charge 59.9% APR.
Don’t forget credit unions, which are run for the benefit of a community, not profit. You can use the tool at findyourcreditunion.co.uk to see what is available in your local area or through your employer.
Sahra Abdille, from London, has inherited an interest in using money circles to save for the future. Her parents used hagbad when they first arrived in the UK from Somalia. “They relied on family members to introduce them to a local money circle which allowed them to access short-term borrowing driven by their desire to avoid interest,” she says. “You do not need a credit score to be able to borrow or save. No interest is applied if payment is late, and during times of financial stress you have the assurance of a community. Hagbad is based on an informal background check which relies on references and previous interactions with other people who are already part of the money circle one is looking to join.”
She believes it is a more positive approach to saving, too, because it is community-driven. “I love the sense I’m saving with others. There is the feeling you are helping each other achieve your personal goals, whether that is going to hajj, an annual Islamic pilgrimage to Mecca, or saving for a wedding. In my opinion, many people would choose the generations-old honour system over conventional banking because it’s what they trust.”
She knows there are risks, and questions to ask, such as what do you do in the event a member stops contributing once they have received their funds? Or what if they fall into financial distress and are unable to contribute? She hopes that the increasing digitisation of money circles will remove some of this risk, by offering an audit trail, fraud controls and Financial Conduct Authority regulation.