1. Saving

Saving: the 3 most common myths

We all know that saving is fundamental. Your education probably started from childhood when you were told to save your pocket-money instead of spending it. As you've grow older, however, and both life and money have become a tad more complicated, you may have picked up a few false truths about saving and spending.

This is your chance to dispel the myths and kick the bad habits!

Myth #1 - Cash is always better than credit

Whilst it is true that you should not get into the habit of spending more than you earn, it is not true that only spending cash is the best way to do this.

Credit is important because it allows you to do things like buy a house, or go to university. Activities like these let you build your wealth (by accessing the housing ladder) and increase your earning power (bby gaining an education).

Credit cards can also be useful tools. Because of Section 75 of the Consumer Credit Act, credit card providers provide legal and financial protection when you buy online. This means that if you’re the victim of fraud, or if something goes missing then you are not stuck with debt for something you never had!

Most importantly, new apps like Oval allow you to keep track of all your spending across your different acconts. They help you manage your money so that debt does not spiral out of control.

Myth #2 - Save only after paying your bills

Quite simply, this is the wrong way to be thinking about your savings. If you are in the headspace where you pay your rent, bills, and other standing costs at the beginning of the month and then allocate your savings according to what you have left, then it will be much more difficult for you to grow a substantial savings balance.

Your savings are part of your monthly standing costs and should be factored in with them and given the exact same level of importance. You would never be able to skimp on your rent; so similarly, you should never skimp on your savings.

Automating your savings is the easiest way to do this. If you are concerned that you don’t have a fixed income, then you can even decide to set aside a percentage amount of your income each month, meaning that your saving is consistent but always proportional.

Myth #3 - I can dip into my emergency fund

The thing about an emergency fund, is that it's designed to help you in an emergency. An emergency usually constitutes job loss, medical expenses, or anything else that could push you into serious financial debt if you don't pay off at once. Holidays, new clothes, or your credit card being declined are not in the emergency bracket.

Even if your emergency fund is full, and you promise yourself you'll top it up as soon as your next paycheque comes in, this is a dangerous habit to get into. It is a buffer between you a debt, and as such, you should not ever put yourself in a position where you do not have enough money to cover the emergency expense.

Once your fund is full then you need to place the account in a safe place that's difficult to access on a whim. For all other savings you need separate accounts.

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