According to the DWP, around 13 million UK households ( 48% of the total ) have either no savings or less than £1,500 in savings.
In the 2017-2019 report ordered by the House of Commons Treasury Committee the average Household sector saving ratio was @ 4.2% ( the number includes saving such as social security ) if we remove that and talk about Cash basis saving ratio . The ratio has actually gone negative (expenses are larger then the income).
Financially this is very wrong, it’s show’s people don’t budget their finances ( either because they don’t know how to, or they simply ignore it ). Emergency’s and unexpected expenses happen all the time, people have to realize that they won’t be healthy 100% of the time ( neither will their family members ) that their car/computer/phone etc might brake down, that an opportunity might arise and their lack of finance will stop them from taking advantage of it.
When you fail to plan for them, the unexpected situations will push you in the arms of high interest lenders where a simple 500£ loan will cost you in 6 months 800£-1000£. This means you would pay almost double the amount of money ( this is like having twice as many problems as the person budgeting for them ) .
If you decide to change your money habits, how would a budget might look like ?
Basic expenses: 70%
- Health Care
- Debt Payments
- Clothes-shoes etc
This should be around 70% of your total income. Some analyst call for 50% (witch is great if you can manage it) but let’s be serious many family’s barely make enough to cover them.
- Going out to eat
- Enjoying a hobby
- Taking a trip
- Buying a book
Basically whatever makes you feel good. Even on a tight budget this is a nonnegotiable part. You won’t be able to commit to any life style that doesn’t take account of your human needs.
Emergency expenses: 10%
- Car braking down
- Unplanned medical expenses
- Price spikes
- Different repairs
This should be around 10% of your budget. You will have to pay for them no matter what you do, the only question is how much (hopefully the cheaper the better). If no emergency happens. Some of this money can go into the investment fund.
Long term Investments: 5%
- Treasury bonds
It would be your real safety net. Long-term investing will bring you interest and it will be available later in life, you won’t depend on state deadlines (like retirement age) or an ineffective bureaucracy to use your money.
Trading Fund: 5%
- Futures markets
- Leverage trading
- Options trading
Higher risk shorter term investment which gives high returns. The type that could turn 5% in to 10%-20%-50% .
To help with this you might want to browse the article where i talk about how to manage your portfolio.