SETTING aside money can feel like an impossible task right now as bills and food costs climb higher and higher.
But even very small amounts can add up over time, and there’s things you can do to help you start saving even if you’re on a lower than average salary.
Plum’s personal finance expert Rajan Lakhani explains how to start saving on a low salary[/caption]
The Sun has chatted to Plum’s personal finance expert Rajan Lakhani about how you can start saving on a salary of around £25,000.
Here’s what he said…
Work out how much you can afford to save
The first step you should take is to sit down and work out what’s affordable for you to save.
You might want to do this manually by listing all your incomings – such as your salary and any benefits you receive – and then all your outgoings, such as rent, bills and average food costs.
From here you can work out how much you have left over per month.
Alternatively you can use an app like Plum which connects to your bank account and can calculate how much you can afford to save based on your outgoings.
Rajan says most people are surprised by how much they can save, but you shouldn’t be put off if you can only afford to set aside £5 or £10 a month for now.
“That might not sound like a huge amount but that money will build, particularly if it’s earning interest,” he says.
“It’s really important just to take that first step and then see what you can do.”
Reduce your spending
If you want to give your savings an extra boost, you should look at where you can cut costs.
Many people saw their bills rise in April but there are some ways you can reduce the costs of essentials.
For example, you should use price comparison websites to look for better deals on your mobile phone, broadband and energy bills.
Of course you’ll need to take into account any exit fees if you currently have a contract with a provider.
“A lot of these organisations are relying on you not taking any action and just simply renewing.
“And actually, it really, really does pay to have a look, compare the markets, compare the different prices,” Rajan says.
“If you really want to stay with your provider, there’s no harm in giving them a call and saying ‘look I found this deal, I might switch to it, what’s the best offer that you can give me’.”
You should also do a sweep of your subscriptions to make sure you aren’t signed up to anything you’re not using.
Another option to save money is to sign up to as many loyalty schemes as you can – if you’re happy with shops using your data.
You can often get cheaper prices or build up points to spend in stores when you sign up to shopping loyalty schemes, such as Tesco’s ClubCard or the Boots Advantage Card.
Check if you can get any benefits
You could give your income a boost by taking advantage of any benefits you’re eligible for from the Government.
For example, lots of parents are unaware of the benefits available to them such as 30 hours of free childcare, Child Benefit, and extra Universal Credit payments.
If you’re married, you can get Marriage Tax Allowance which could help you reduce the amount of tax you pay.
By cutting your outgoings and boosting your income, that can give you more breathing space to save extra.
Have an emergency fund in place
If you’re earning around £25,000, it’s really important to have an emergency fund to fall back on in case you have an unexpected big expense or you lose your job.
Experts typically recommend you have about three to six months worth of your salary set aside.
So if you’re on £25,000, this would work out at between £5,316 to £10,632 after tax.
This emergency fund should be in an easy access savings account so you can get it quickly if you need to.
Rajan says it’s better to have this money in cash savings rather than invested as you want your money to be secure in case you need to dip into it.
He recommends looking for savings accounts that have interest rates above 4% currently as these will give you a decent return on your savings.
How much should you aim to save?
Exactly how much you can save will depend on factors like your outgoings, your lifestyle and whether you have children or not.
Rajan says a ballpark figure you can use is the 50-30-20 rule.
This means spending 50% on your “needs” like housing costs and bills, 30% on your “wants” like clothes and entertainment, and 20% on your savings.
So if your take-home pay is £1,772.58 per month, you can expect to spend £886.29 on your “needs”.
Then you would spend £590.86 on your “wants” and save away £354.52 per month.
However, Rajan says saving 20% of your salary can seem like a “large figure” and whether that’s possible depends on your circumstances.
For example, households have seen expenses like rent, energy bills, council tax and water bills increase recently.
“For a lot of people, 20% will be very difficult to put aside.
“Having that 20% ambition can encourage you to save more but it depends on your circumstances and what works for you,” he says.
“The key thing is just to start giving saving a go and you may be surprised by how much you are able to set aside.”
Small ways you can save
If you’re not sure how to start saving, Rajan recommends using apps to automate setting money aside for you.
Plum has a round-up feature that rounds up every purchase you make to the nearest pound and then saves away the extra money.
So if you’ve bought something for £1.60, the app will automatically save 40p for you.
Another feature you can try is the rainy day rule, which sets money aside whenever there’s a day it rains in the UK.
Or there’s the 1p Challenge, which starts off by saving 1p on your first day and then sets aside a penny more every day.
It means you’ll save up to £667.95 over the course of a year.
SAVING ACCOUNT TYPES
THERE are four types of savings accounts: fixed, notice, easy access, and regular savers.
Separately, there are ISAs or individual savings accounts which allow individuals to save up to £20,000 a year tax-free.
But we’ve rounded up the main types of conventional savings accounts below.
FIXED-RATE
A fixed-rate savings account or fixed-rate bond offers some of the highest interest rates but comes at the cost of being unable to withdraw your cash within the agreed term.
This means that your money is locked in, so even if interest rates increase you are unable to move your money and switch to a better account.
Some providers give the option to withdraw, but it comes with a hefty fee.
NOTICE
Notice accounts offer slightly lower rates in exchange for more flexibility when accessing your cash.
These accounts don’t lock your cash away for as long as a typical fixed bond account.
You’ll need to give advance notice to your bank – up to 180 days in some cases – before you can make a withdrawal or you’ll lose the interest.
EASY-ACCESS
An easy-access account does what it says on the tin and usually allows unlimited cash withdrawals.
These accounts tend to offer lower returns, but they are a good option if you want the freedom to move your money without being charged a penalty fee.
REGULAR SAVER
These accounts pay some of the best returns as long as you pay in a set amount each month.
You’ll usually need to hold a current account with providers to access the best rates.
However, if you have a lot of money to save, these accounts often come with monthly deposit limits.
How to put your savings to work
Once you’ve started saving, you should make sure you get the most out of your money.
That means helping it grow by either putting it in a savings account where you are receiving interest above the rate of inflation, or investing it.
For reference, the current inflation rate is 3.5%.
Rajan says you can get better interest rates by putting your money into a fixed-term savings account – but you should make sure you have an emergency fund set aside first for any immediate expenses.
If you lock away your money into a fixed account, your interest rate will typically be higher than with an easy access account.
You should also shop around for the best rates.
Often online-only banks offer higher rates as they have fewer costs, but you should check they are registered with the Financial Conduct Authority and that your money would be protected by the Financial Services Compensation Scheme.
Rajan also recommends looking at ISA accounts as you’ll be able to earn interest on your savings tax-free up to £20,000 per tax year.
Plus, the interest rates on Cash ISAs are some of the highest available right now.
Another option is to invest your money.
Rajan says investments have typically outperformed cash savings over the years – but there are things you should consider.
Firstly, you’ll need to be willing to put your money away for a longer period of time – at least five years – because markets can fluctuate and it will give your money a better chance of growing if you keep it invested for longer.
You should be aware that you can lose money by investing and be prepared to take that risk.
Because of this, it’s crucial to still have an emergency fund in case you have any unexpected expenses.
Rajan says: “The most important thing for you is, is this something that I’m happy to do? Is this something that I’m comfortable doing?
“When it comes to your savings it’s really important to make sure that you are comfortable with the choices you make.”
How to get the best savings rates
Consumer reporter Sam Walker offers some top tips for getting the best savings rates in 2025.
Use comparison sites – use comparison sites like MoneySavingExpert.com, MoneySupermarket and Go Compare to compare the best deals on the market within a specific sector.
Depending on the site, they will let you know about any minimum pay ins, when interest is paid and how to open the chosen account.
Make sure the account matches your needs – different savings accounts offer different perks so choose the one that suits your needs best.
For example, easy-access savings accounts tend to offer lower interest rates, but more flexibility if you need to withdraw money on a regular basis.
Meanwhile, cash ISAs are ideal if you have a bigger pot of money you want to stash away as any interest earned is tax-free.
Look beyond high street banks – sometimes smaller banks and building societies will offer you better rates than the bigger, more notable names.
Last year, Which? warned that the biggest banks were offering “meagre rates compared to digital banks and building societies.
Read the fine print – make sure you read all the terms and conditions before opening an account so you’re aware of any drawbacks.
Some banks penalise you by dropping your interest rate if you withdraw money from your savings account over a certain amount of times.
Others only start offering you a certain interest rate when you have deposited a minimum amount too.
Keep up-to-date – savings rates change all the time so it pays to stay informed of what banks and building societies are offering.
You can do this by visiting price comparison websites like MoneySavingExpert and MoneySupermarket.
