Jeremy Tauri: Save a little to save lots

Jeremy Tauri.

If you've decided 2016 is the year to make more money, it could be time to give some thought to saving, too. Saving your hard-earned money is not everyone's favourite topic but, if your income increases, it makes sense to put some aside to tide you over in leaner periods.

The first thing to do is to write a personal budget separate from the business budget. This will help you work out how much you need to keep your life running as normal. Anything extra is potential saving.

Once you work out how much you might be able to save each month, set it aside as soon as it comes in. Put it in a different bank account so that it is a bit harder to touch. There is no point waiting until the end of the month and seeing how much money you have left to save because you'll find it has all been whittled away. However, if you reach this point it's probably a good idea to recap where the spending holes are if your budgeted saving doesn't match the actual amount you've managed to save

A good rule of thumb is to try to save 10per cent of your income. That means, if your business strikes trouble or you are forced off work, you will have at least a month's worth of cash to tide you over in a year. You might not be able to reach that savings goal this year but set it as a target.

If your income has not increased much, you could use the start of the year to work out where you could save some extra money in your business, and transfer that into your budding emergency fund. If you go back through your books from last year, you may be surprised at where money was whittled away.

If you have any expensive debt, such as credit cards or personal loans, get rid of that before you start saving properly. Once you're settled in a good habitual savings plan you can also then use your extra earnings to pay down your mortgage more quickly. You might be surprised at how much a small extra payment can reduce the overall term of your loan.

- Jeremy Tauri is an associate at Plus Chartered Accountants.