Savings and bonuses

Savings Recapped

I've written a couple of articles previously on the subject of savings. My article Savings made Simple outlines how to set up your savings by automating them to come out if your paycheck each month. 

I suggested that you should save set up 10% of your net disposable income (income after your tax and pension has been paid). You could then try to increase this percentage over the following years, particularly as you receive pay increases. If you receive a pay increase, say 2%, it will not hurt your finances at all if you decide to save 80% of that pay increase. For example, let's say you earn £20,000 per annum and receive a 2% pay increase. That's a further £400 per year that you didn't receive previously. Psychologically, it would not be too damaging to your finances if you were to save £320 of this straight away. You should adjust your standing order that you set up with your bank to transfer to savings out of your paycheck each month to now incorporate this pay rise.

Bonus culture and savings

In much the same way as pay rises, it's good habit formation to save a portion every time you receive any bonus - even the Christmas Bonus! Even if you receive a small token bonus of £100 make sure you save 20% of it! Transfer it directly into your savings account. It is all about encouraging good saving habits. Likewise if you receive cash for your birthday etc, make sure you save a portion of it!

Savings habit formation

As you can see, building savings is straightforward. You need to form good saving habits through the automation of a portion of your monthly paycheck into a savings account and regularly looking to save a portion of any income. 

Once you've formed this habit you will notice that you are paying yourself first! You are prioritising your future over all else. Sit back and watch your wealth grow and be proud of what you are achieving!

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