Building an emergency buffer is often the main reason to save
People save for different reasons but a main factor is often to build an emergency fund. Research suggests that setting a goal, imagining the outcome and even naming a bank account to reflect the goal can all help savers meet the target. ING Direct UK’s Consumer Saving Monitor has found that building an emergency fund is the most common motivation for saving with 33% noting this as their motivation for saving. These results are similar to those reported for the UK by confused.com, which found the most common reason for saving was to put money aside for a rainy day. Although it may not be recognised as a saving goal, building an emergency fund, accompanied by reducing debt with high interest rates, is highly important and should be a goal in itself. Having sufficient emergency funds is the first step in building financial independence.
Saving after building an emergency fund
It is often recommended that between three and six months’ take home pay should be saved for emergencies. The exact amount varies depending on individual circumstances, including whether they have a large mortgage to pay or family to support. Once this goal has been met, money can then be saved to meet other goals. Having a specific reason to save can help avoid unintended spending even amongst those who maintain their finances appropriately. Research has suggested that having specific saving goals and being reminded on a regular basis about these goals not only helps people reach their targets but increases the amount saved.