Which popular savings methods work best?

With many of us feeling the financial pinch after Christmas, social media has become awash with influencers and so-called experts giving their opinions on the best way to save.

James Marston, financial planner at Quilter, looks at some of these suggestions and their pros and cons.

1. The 50:30:20 rule

• Good for: those who could benefit from a savings framework

• Bad for: those whose lifestyles don’t fit the percentages

The 50:30:20 rule (spending 50% on needs, 30% on wants, and 20% on savings or debt) is a simple and balanced approach to budgeting, effectively dividing income into clear segments – needs, wants, and savings. This makes it an appealing strategy for those new to personal finance, encouraging savings without completely sacrificing leisure spending.

However, its rigidity can be a drawback, as it doesn't flexibly accommodate different income levels, financial situations, or personal priorities. Individuals with varying financial goals or those living in high-cost areas might find this rule too constraining or impractical. However, as social media trends go, this is probably on the more sensible end of the spectrum.

4. Soft saving

• Good for: spending more mindfully

• Bad for: saving for less palatable life events

Soft saving encourages living in the moment, which can be beneficial for mental health and overall life satisfaction, but the reality is anyone with prudent money saving habits knows that you need to have an emergency fund at the very least.

It focuses on enjoying current experiences rather than constantly deferring gratification for future security.

The significant drawback is the potential risk of underfunding important long-term goals like retirement savings, leading to financial vulnerability later in life. In life you need to have some balance between living for the here and now and planning for the future.

5. FIRE (financial independence, retire early)

• Good for: working for as few years as possible

• Bad for: making the most of life in your younger years

At the other end of the spectrum, the FIRE movement is ambitious, promoting an extremely high savings rate to achieve early financial independence and retirement. This can lead to financial security at a relatively young age and instils disciplined spending and aggressive investing habits.

However, the feasibility of this approach is limited, particularly for those with average or low incomes. The lifestyle sacrifices required can be significant and might not align with everyone's values or life circumstances.

Sadly, we don’t all live forever and if you are living a miserable life due to very high savings and missing out on enjoying life while you are younger you could end up not even being able to take advantage of your savings in later life.