Rainy day savings
The old rule of thumb is to have the equivalent of three months' wages in your savings accounts. This is dependent on your circumstances however. If you have many large outgoings for example, you may decide you need more. If this sounds like too high a figure, just remember that you don’t need to save this money overnight, and that every penny you save will count towards your goal.
How much can I save every month?
It may sound very simple, but if you understand how much money you have coming in and going out every month, you’ll know how much you can comfortably afford to save. Begin with your monthly income, after tax, national insurance and any other deductions. Then work out your monthly outgoings. This will include the money you spend on:
• Running your home: rent or home finance payments, water rates, gas and electricity, council tax, landline, TV subscriptions etc
• Your family: food, transport, clothes etc
• Social costs: mobile phone, the money you spend socialising, cinema, hobbies etc
• Charitable donations and Zakat
• Big ticket items: these include holidays and other big purchases, like gadgets, white goods or furniture. Work out how much you spend on these a year and divide by 12 for a monthly average.
Next, see if you can reduce these outgoings without making a big impact. Could you get a better deal on your car insurance or energy bills, or your mobile phone? There are many switching web sites which could help you to reduce your costs.
Make savings a habit
Like most good habits, the hardest thing is to get started but once you do, you will soon see the benefits. You could make savings a habit by setting up a monthly standing order into a separate savings account.
What kind of account do I need?
As your ‘rainy-day’ account is for emergencies, you should consider an instant access account. Once you have reached the savings limit you set, you might wish to put future savings into a fixed term deposit account. This is because, generally, the longer you can leave your money in a bank, the higher the return will be.
Al Rayan Bank offers both Instant Access and Fixed Term Deposit accounts. In addition to a very competitive rate of expected profit, the Sharia compliant savings products let you profit from your savings while remaining true to ethical Islamic values. You can find out more here.