In this article we explore the third level of the Money Framework: savings management.
The first level, Building Your Money Framework: Career, Income and Financial Autonomy, focuses on understanding your income sources. The second, How to Manage Household Expenses and Build Better Saving Habits, highlights a key rule: save first and spend what remains.
Once these steps are in place, it is time to manage your savings effectively, balancing three essential priorities: liquidity, security and income.
Start by Getting Rid of Debt
Credit often costs more than savings products generate. Paying off outstanding debt can therefore be an important first step towards improving your financial situation.
Develop a repayment plan, prioritising smaller debts or those with higher repayments. If several loans continue to put pressure on your budget, consider negotiating better terms with your lenders. Compare alternatives carefully before consolidating debts, taking into account the total cost and repayment period.
Automate Your Savings
One of the simplest ways to build savings is to set aside a fixed percentage of your income as soon as you receive it.
A standing order can automatically transfer money from your current account to a savings account or another suitable financial product. Start with an affordable amount and increase it when your financial circumstances allow.
Build an Emergency Fund
An emergency fund helps cover unexpected expenses, such as home or car repairs, unemployment or other unforeseen difficulties.
Ideally, aim to save enough to cover six to twelve months of essential expenses, adjusting the target to your income and circumstances. Building this reserve may take time, but it can provide greater financial security when unexpected events arise.
Make Your Savings Work for You
Keeping money in a bank account may offer security and easy access, but low interest rates can reduce its purchasing power when inflation is higher than the return earned.
Before choosing a savings product, consider three important points:
- Inflation: Compare the interest earned with inflation to understand how your purchasing power may change.
- Protection: Check which deposit guarantee scheme applies to your bank and the limits of its protection.
- Product characteristics: Understand the risks, costs, access conditions and guarantees before committing your money.
Financial knowledge is essential when comparing options. Bank employees can provide useful information, but their recommendations may be limited to products offered by their institution. Compare offers from different providers and negotiate when appropriate.
Depending on your circumstances and risk tolerance, government savings instruments or capital-protected insurance products may also be worth considering.
Euroconsumers Invest recognises that effective savings management involves considering different strategies and financial solutions according to individual objectives, time horizons and risk tolerance. Personal Retirement Savings Plans (PPRs) are one of the solutions available for medium- to long-term savings. The PPR DECO PROteste, developed through a partnership between DECO PROTESTE and Golden SGF, follows a diversified investment approach and has a recommended minimum investment horizon of five years. Savers may make regular contributions over time and the product can be subscribed to online.
For more information, please visit: https://goldensgf.pt/ppr/deco-proteste/
Create a Savings Plan for Each Goal
Once you have started building your emergency fund, consider setting aside money for other short- and medium-term goals, such as buying a car, replacing a computer or planning a trip.
Estimate the cost of each goal, establish a realistic budget and save regularly. Keeping these savings separate from your emergency fund helps you stay on track without compromising your financial safety net.
Remember to include retirement planning among your long-term objectives.
Take Control of Your Financial Future
Effective savings management builds on three steps: understanding your income, managing your budget and setting clear savings priorities. Consistency and planning can help you make better financial decisions and work towards your goals.
Sharing financial knowledge can also support wider financial wellbeing. Employers interested in helping their employees improve their financial knowledge and confidence can learn more about Euroconsumers Invest’s financial advisory services.