To Save or not to Save?

The accepted wisdom has always been that you should save money no matter what circumstances you find yourself in. The fact is, it’s not always good to save and it very much depends on your personal circumstances.

If you have no debt (except your mortgage) and find yourself with spare cash at the end of every month then you have a choice, you can spend or save. With savings rates at the level they are at the moment you may be wiser to overpay your mortgage than to save money in a savings account. If this describes you, then decide what level of liquid funds you need to have at hand and then find out how much you can overpay your mortgage by. Depending on your mortgage provider this may be somewhere between £0 and 100%.

The situation is completely different if you are carrying any debts i.e. loans, credit card balance, etc. The difference between the interest charged on debts and the interest gained by saving is now so pronounced that you should seriously think about using any savings you have to pay off your outstanding debts.

Any interest you have gained from your savings is being wiped out by the interest you are paying on your debts. The sooner the debts are paid off the better off you will be and you can start saving again but this time you would be safe in the knowledge that you are actually gaining from putting your money away.

Where many people become confused on this is when they think not saving means having no money in reserve that they can use if they need to. Savings should only become savings if you do not intend using them in the next 6 months. Everybody needs a little bit of ready cash now and again for unforeseen expenses.

If this is all completely alien to you because you never have any money and you are always in debt then you need to take more drastic action. If you require any more information about debt you should log onto the Citizens Advice Bureau website.

The Best Best Buys website has a number of financial product guides to help you get a greater understanding of how Mortgages, Loans, Credit Cards and Savings Accounts work.