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5 saving pitfalls for higher earners to watch out for

We look at five saving pitfalls for higher earners to avoid and what you can do to save more.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

At this time of year, there aren’t many of us who struggle to find a way to spend every penny of our disposable income. Because while a family Christmas might be priceless, it’s also pretty pricey.

Unfortunately, for millions of people, spending down to the last penny isn’t just a festive aberration, it’s a regular occurrence. Over a third of us* don’t save a penny in a typical month. This isn’t just an issue for those on lower incomes, plenty of higher earners aren’t finding the cash for savings either.

How much we can save isn’t just about what we have coming in. Higher earners often have so many drains on their income that they can struggle to free up money for saving. It’s one reason why one in seven* people with a household income between £100,000 and £150,000 don’t save anything in a typical month.

This isn’t always a major concern. In some cases, people don’t put extra cash away because they already have enough emergency savings. By enough we mean three to six months’ worth of essential expenses if you’re working and one to three years’ worth in retirement in an easily accessible cash savings account. However, an enormous chunk of people don’t – almost half of us* wouldn’t have enough savings to last for three months if we lost our income.

Again, this affects higher earners too. Almost one in four people* with a household income of £100,000 or more don’t have enough savings to last longer than two months. And a similar number of those earning £150,000 or more worry most days about being able to save to cover emergencies. Resilience isn’t just an issue for those on lower incomes.

*HL financial resilience survey, conducted by focaldata 10,030 participants, June 2021

Pitfalls to watch out for

Plenty of people who can afford to save don’t have the recommended emergency savings pot, and still aren’t prioritising cash savings. There are five common reasons why.

  1. Part of it is purely about outgoings. The more you earn, the more these will grow, and once you have a demanding mortgage and start to see some luxuries as must-haves, even the biggest incomes will be stretched.
  2. In other cases, it comes down to how remote financial difficulties seem at this stage. It’s difficult to imagine a financial crisis hitting, so it doesn’t feel like a priority to prepare for it.
  3. You might also be more comfortable going into debt to cover emergencies, because it will take less time to pay it off at your current level of income. Of course, this assumes you will continue to earn. If you have a gap in income that isn’t resolved as quickly as you’d hoped, running up debts is going to make life even harder in the long run.
  4. You might prefer to keep the money invested because it’s working harder for you. However, this is a risky approach as you could be forced to withdraw at a loss. Investments need to be planned over the long term – rather than being cashed in every time life throws us a curveball.
  5. There’s a good chance a lot of people have never really worked out how much emergency cash they need. You might have decided to keep a lump sum aside, based on a gut feeling of what makes you feel secure. Problem is, this could fall well short of how much you really need.

What can you do to save more?

A good place to start is by working out how much you need to set aside in emergency savings. Start with your budget and see exactly what you are spending on the absolute essentials every month. If you’re still working, we think you should have three to six months’ worth of essential expenses in an easy access account. If you’re retired, you’ll need more – one to three years’ worth is sensible.

Where you fall on this spectrum will depend on everything from the level of security that helps you sleep at night, to the number of people depending on you.

If you already have assets elsewhere, you can move them over into savings. One of the easiest ways to keep an eye on your savings in one place is through a cash savings platform.

If you’re starting from scratch, you’ll need to go back to your budget. Check your bank statements or banking app for the last few months and see where you’re spending most of your money. Online budget planners can be helpful when looking at what you can cut back on.

Once you’ve cut back on what you don’t need, you can work out what you have left over to save. It could then be a good idea to set up a monthly direct debit into a savings account on payday. That way your money is saved before you even notice it’s hit your account.

Sorting out your savings isn’t the most exciting task. However, when it comes to the unexpected, you want the boring reliability of knowing you’ve taken sensible steps to save, and you have something to fall back on.

How to build a savings portfolio

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Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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