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Fit a Savings Strategy into Your Spending Life

The web is an ocean of consumerism, filled with exhortations to spend, but there’s also a counterculture promoting savings.  The savings movement gained traction during the global recession:  households tended to pay down large debts, spend less, and save more, and Britain in particular has seen its household savings ratio increase from 4.4% to 5.9% in the second quarter of 2013.

Some households achieve savings naturally:  whatever they get, they set a portion aside, not to be touched except for large and essential expenses like a medical emergency or home repair.  Others are more comfortable using a formal approach.

Build Your Savings Plan

Savings plans require you to set goals for your life, figure out what you need to meet each in terms of money, and then arrange to put aside those necessary sums.  Here are some common savings goals:  purchase of a house or car, return to college, marriage and family, or retirement.  Sometimes in order to get there you have to set your financial house in order by completing tasks like these:  repairing your credit, paying off your debt, or even changing careers to make saving possible.

Whatever goals you end up with must be priced with your income in mind, because if the two don’t match either the goals or the income must change.  Where this is not possible immediately you may want to consider a payday loan to reach your goal within a shorter time frame, just be sure to check the rates beforehand and get the best rates available.

Here are some hints on how a savings plan aimed toward a home purchase goal might look.

Credit History

Any time you plan to take out a large loan, present the best credit history you can possibly manage, because that often determines your interest rate on the loan.  That means trying for a low debt-to-income ratio and a high credit score, with any errors not in your favor removed.

Some of the special tricks for credit improvement include avoiding any extra credit inquiries (those lower your score), keeping older cards open even if you’ve paid them off (longer credit history is preferred), leaving a small balance on each card (alters your credit utilisation ratios), and using a low percentage of your credit (makes you seem less of a risk).

Work Backward from the Monthly Payment

You have to calculate the monthly payment you can afford in order to determine the size of the loan you can afford, and one way to test that calculation is to put the payment amount aside for each of six months before making the loan.  That will give you an idea of whether you can meet your commitment as planned, and if not you should revise the loan terms you seek.

Find the Best Deal Within the Constraints Imposed by Your Life

Do your research on where you can find the very best deal, within the constraints imposed by your life.  That means if you work in London, don’t bother vetting homes in Huddersfield, and also skip the London mansions that you will never be able to afford.  You know ordinary housing there is out of reach, but you can look for creative solutions in alternative housing.

If, for example, you could picture yourself in a social rent/intermediate development like The Bloc (Enfield), look into some of their affordable three- and four-bedroom houses.  You’d be well advised to make sure you understand the legal ramifications of this type of partial purchase-assured tenancy agreement, but the subject of this cautionary post did manage to acquire a home for thirty thousand quid… at least for a while.

That means you’d want to negotiate an agreement protecting your initial payment in the event of later disputes, and also buy into a property where responsibility for building maintenance is clear.  You can also try a more conventional house purchase in one of the outlying communities like St Albans or Wimbledon (more pricey) or Slough/Uxbridge (less so).

Other location-specific costs

But housing cost won’t be the sole criterion for your determination.  You’ll have to investigate length and price of commute by train (your best option), and ancillary prices for living locally unless you plan to do all your shopping in London (not practical on a daily basis).  The more research you do, the better decision you’ll make – or at least you’ll know exactly why your choice is less than optimal from the savings standpoint.