Pennies for a rainy day – Should I start saving today?

Pennies for a rainy day – Should I start saving today?
When is it best to start saving? I hear this a lot! I’m afraid there isn’t a definitive answer as it will depend on your individual circumstances, but as a rule of thumb, it’s best to start asap. The main thing is that you should only start saving after you’ve cleared your debt and are in control of your monthly expenditure. You can’t save if there is no money left over after your monthly costs have been paid!

When should I start saving?

You need to be able to say yes to all of these questions:

• I am in control of my monthly expenditure and pay my bills in total each month
• There is money left over at the end of each month
• I have paid off small debts and have started paying off larger debts

If you can say yes to ALL of these questions, then you can start saving from today.
If you have any debt on credit, pay off credit cards first as you will be paying more interest on these than you would be receiving on savings.

Set up your savings plan

This will be very individual to you and will depend on these factors:

• Your financial goals
• Your risk tolerance
• Your age
• How much money you have to invest

For saving to be successful it needs to be as automated as possible; otherwise, it’s easy to think I’ll start next month instead – every month! You can start with small amounts and build it up when you have more money available.

Tips on tax savings

Other benefits on savings could be that you get more for your buck as you may also get tax allowance.

There are various tax allowances regarding savings:

• £5k starting allowance for savings, but only if your other income is below £17,570. You’ll know if you’re at or above this level if you add all of your income together – employed income, dividends, interest, etc.

• Personal savings allowance – if you’re a basic rate taxpayer (income up to £37,700), you can earn £1k tax free, and £500 tax free if you’re a higher rate taxpayer (above £37,700).

Remember to use your Individual Savings Accounts (ISAs) – you have £20k per annum (mix of Cash ISA and Stocks and shares ISA). But you will lose your allowance if you don’t use it.

Where to save your money

When saving it’s a good idea to deposit your money into different saving accounts. Have your emergency fund – 3 months’ worth of expenses (6 months if you’re retired) – in an easy access savings account. Deposit the remainder into a fixed rate that will give you a higher rate as it doesn’t need to be available immediately.

When should I start saving for my pension?

Again, this is a question I hear a lot. It’s easy to put this off – especially if you are younger as retirement seems a long way off! But the sooner you start contributing to your pension, the better as your money is building then due to compounding.

Compounding: Earnings are reinvested back into your original investment to continue earning for you.

Saved £50 every month for 10 years = £6,000
Invested £50 every month for 10 years at 8% interest = £9,150
If you’re employed, investigate the best place to invest your money rather than just relying on your employer’s pension. However, if your employer offers a contribution to your pension each month, that can have a big impact over the period you are paying in. So do your research.

Pension savings

This is the most effective savings tool due to compound interest and tax relief
There is a lot of information here that you might find useful:

Pension Guides – MoneySavingExpert

The decision you need to take is whether to pay off a mortgage or pay more into a pension.
Have a look into this yourself or speak to a financial planner, who will guide you through all the options.

Saving for children

If you have children, then consider opening saving accounts for them, if you haven’t already. You’ll need to shop around for best interest rates and here is a good place to start: Savings Accounts – Which?

Pay into the savings account at Christmas and birthdays and ask family members to contribute instead of buying expensive presents. It all soon adds up over the years.
You could open a Junior ISA (allowance of £9,000 per annum).

It’s surprising how much better you feel when you start saving – even if these are only small amounts initially!
Remember to be successful at saving, keep a positive attitude and think long term!

If you’d like some help in organising your personal finances, why not book a call with me.

Anna Goodwin @2023 All Rights Reserved.