Saving is fashionable again

Saving used to be for dullards. Slow, dependable folk, who calculated that they probably wouldn't be run over by a bus tomorrow, and sensibly insisted on saving for the future instead. But now, saving is fashionable again...

Politicians are competing with each other to talk tough about cutting spending, but the public has got there first.

Britons are now saving 5.6% of their monthly income, the highest level for six years. We now save a greater proportion of our earnings than the traditionally thrifty Japanese, for the first time in 30 years.

This marks a massive shift since the peak of the boom, when we borrowed more than we saved.

Well that's something at least, especially when you consider how rising unemployment has hit many people's saving power. It suggests the nation has been heeding calls by lovemoney.com scribes (and one or two others) to bank our savings from falling mortgage rates, rather than blowing the windfall.

So hooray for traditional virtues. But this is no time to take your foot off the savings accelerator, because you will need every penny you can save in the troubled years to come.

The state we're in

Unfortunately, while we have been saving instead of spending, the Government has been doing the reverse.

As Cliff D'Arcy points out in his cheery piece Look forward to painful tax increases, the country is currently running a budget deficit of at least £175 billion - and possibly £200 billion. The national debt is an indigestible £803 billion.

This means that the Government is spending £4 each £3 it receives in tax revenue. So while the public savings ratio is 5.6%, the state's ratio is effectively -25%. There is no question over who the government will be tapping up to cover this shortfall. You and me.

Debts first, then savings

Saving money isn't enough on its own, you also have to use it wisely. That means using it to clear your most expensive debts first, a method known as snowballing.

Start with that store card charging 30%, then your credit card at 18%, your unsecured loan at 10%, and finally your mortgage, although that may be so low you can leave it for a bit.

But you should still keep some powder dry for your home loan, because base rates won't lay low forever, and when they finally begin to stir, they could fly swiftly upwards.

How refreshingly smug you would feel, if at that point, you shot your monthly repayments back to earth with a blast of cash.

And don't stop at that. There are at least Five ways to destroy your debt. And plenty more you can do to Slash the cost of your mortgage payments.

Saving is for life

Financial advisers have long suggested that people keep an emergency cash reserve equal to at least three months' income.

But why stop there? Aim for six months, one year, two, three... because if you do lose your job, you don't know how long it will take to get a new one.

Then keep saving, and direct the surplus into, say, a deposit on a house, or the stock market. Then save some more.

Even if you are on benefits or a low income, there are Ways to save when you've got no money.

Don't forget to use your tax-efficient Isa allowance. Politicians are now looking to scrape every possible tax penny out of your purse, you need to fight back with every weapon to hand.

And remember to check your savings rates regularly, to make sure you are getting the best deal. Most people still don't. Four out of five savers with under £5,000, and three out of five with over £50,000, don't check their savings regularly, according to Chelsea building society.

You should look to earn at least 5% on your savings, and watch out for savings accounts to avoid.

The savings halo

Doesn't it feel good, to be saving again? Doesn't it? For years, credit was free and easy, a shortcut to fun, friendship and all that stuff that was once the preserve of the well-heeled, such as posh clothes, zappy gadgets, continental breaks, designer kitchens and racy cocktails.

Saving was for dullards. Slow, dependable folk, who calculated that they probably wouldn't be run over by a bus tomorrow, and sensibly insisted on saving for the future instead.

But guess who won? Yes, tortoise trounces hare again. Debt seemed daring for a while, but it isn't quite as sexy when you're creeping out the back door because the bailiffs are lining up at the front.

Others spend, so you don't have to

You might think I'm talking at cross purposes here. If everybody saved more, rather than blowing it on the high street, the economy would take a right shoeing, and we would all be the losers.

But seriously, that's not going to happen. Too many people are still addicted to spending. All you can do is look to your own pockets. Boost your personal savings ratio, let others binge themselves into oblivion.

Don't stop!

We can clap ourselves on the back for getting our savings ratio up, but there is still a long way to go. Collectively, we still owe £1.457 trillion.

As anybody who has been on a binge knows, you can't reverse the effects in a single month. And there is always the danger of slipping back into our unhealthy habits. This is only the beginning.

Soon the Government will be forced to improve its own savings ratio, and then you will need every penny you have saved.

Compare savings accounts at lovemoney.com