How to save 5k in a year in the UK: 6 achievable steps

Why should you aim to save £5k in a year?

For many people, saving £5,000 in one year is a good way to build a nest egg without seeming like an insurmountable challenge. This does depend on your circumstances, and saving this amount may require adjustments depending on your income and current expenses. 

However, if you have the funds available or can generate them via additional income streams, it can go a long way towards providing financial security. 

In this article, we will look at ways to save £5k in a year by cutting expenses and increasing your income. 

What are the steps I should take to save £5k in a year?

You should use these steps to help you save £5k in a year:

1. Break down your savings goal

Saving £5k in a year might seem like a large sum, but if you break it down into smaller, more achievable targets, you will find it easier to stay on track.

Instead of focusing on the overall amount you need to save, consider the amount in monthly or weekly targets. To achieve your goal, you only need to save around £417 monthly, or roughly £96 a week. 

Visualising your savings journey in these smaller increments can make a considerable difference while ticking off weekly or monthly targets helps you stay motivated and build momentum. Consider using a budgeting app, spreadsheet, or notebook to track your progress.

2. Set up a budget

Out of all the ways to save £5k a year, having a budget that provides a clear overview of your finances and includes dedicated savings is one of the best. However, before you start allocating funds to your £5,000 target, there are two important factors to consider.

Start by paying off existing debts, especially those with high interest rates, as debt can impact your income and hinder your savings progress.

Next, ensure you have an emergency fund, which acts as a safety net for unexpected expenses such as car repairs. You’ll want to aim for three to six months' worth of expenses, including rental or mortgage costs, in an easy-access account to prevent you from dipping into your £5,000 savings pot when unexpected costs arise.

With those essentials covered, you can now focus on building a realistic budget that prioritises saving. A popular method is the 50/30/20 rule, where you allocate:

• 50% of your income to your needs: This includes essential expenses such as rent or mortgage payments, utilities, groceries, and transportation.
• 30% to your wants: This covers discretionary spending like dining out, entertainment, hobbies, and shopping.
• 20% to savings and debt repayment: This includes contributions to your £5,000 goal, any remaining debt payments, and additional savings goals.

The key to success is treating your savings as a fixed expense, similar to your rent or bills. In doing so, you’ll be more likely to set aside your savings amount every month.

3. Reduce monthly expenses

Looking for the best way to save £5k in a year? Reducing your expenses can help, which you can do so by:

• Cancelling unnecessary subscriptions: Identify any subscriptions you no longer use or need and cancel any services that do not provide value for money.
• Switch to meal planning and home cooking: Eating out or ordering takeout can quickly drain your budget. Instead, you should try planning your meals in advance, creating a shopping list, and cooking at home more often.
• Reducing energy and water consumption: Small changes can hugely affect utility bills. For example, you could turn off the lights when you leave a room, unplug devices when not in use, run your washing machine and dishwasher with full loads, and choose the eco-setting if possible. It’s also worth considering if you should fix your energy bill as you may save money, but do your research first.
• Rethink your commute: Could you walk or cycle to work instead of driving? If not, consider options such as carpooling with colleagues or using public transport for part of your journey.

4. Boost your income with a side hustle

Boosting your savings with extra income can make a significant difference when trying to save £5k in a year. Consider simple ways to earn extra cash, such as doing freelance work.

You could also declutter your home and sell unused items or rent out some assets, such as a parking space, bicycle, or spare room. However, it’s always worth checking if you have any tax liabilities when earning extra income so you can contact HMRC or seek expert advice if needed.

For UK residents, the Rent a Room scheme allows you to earn up to £7,500 tax-free annually by letting out a furnished room in your home, which can supplement your income and bring you closer to your savings goal.

5. Choose the right savings account

Setting up a separate savings account is a smart way to stay focused when trying to save £5k in a year. A dedicated account helps you track your progress and avoid dipping into funds for other expenses. 

You should choose an account with a competitive interest rate, such as a regular savings account or an individual savings account (ISA), to grow your savings faster.

Earning interest on your balance can make a noticeable difference over a year. For example, if you used an account with a 3.5% interest rate and deposited £417 monthly, you could earn around £95 in interest by the end of the year. 

You can also automate monthly transfers to ensure consistent contributions without the temptation to skip them. This approach creates a disciplined saving habit. Earning interest boosts your balance, bringing you closer to your financial target efficiently and effectively.

6. Regularly review your progress

It’s a good idea to regularly review your progress against your savings goal and adjust if your circumstances change. If you’re comfortable doing so, you could discuss your progress with trusted family and friends to help keep you motivated and on track. 

Get expert financial advice

Saving £5k in a year is an ambitious but achievable goal if you implement the right strategies. The best ways to save £5k in a year include breaking the amount down into smaller monthly or weekly milestones, creating a realistic budget, reducing your expenses, and increasing your income.

If you'd like personalised guidance on your savings journey, let Unbiased match you with an expert financial adviser who can help you meet your goals.