Financial security is a worry for us all and with research showing that over 50% of UK citizens feel out of depth when it comes to money management, it is essential that you look to buck the trend and start taking more control of your finances.
Are you ready to save or invest?
Before you look to start saving or investing there are two important questions you should ask yourself…
Do I have any debt? It’s important that you look to pay off any urgent or expensive debt that you may have. The interest that you are paying will usually cost more than what your savings or investments could earn.
- Do I have an emergency fund? It is a good idea to always have a certain amount of cash savings that will help to secure you against any immediate financial emergencies. Could you afford to have your car repaired if it were to breakdown? As a good rule of thumb, try to have at least three months essential outgoings available with easy access.
Getting into the savings routine
For those who don’t save at all, starting to get into a regular savings habit is far more important than the amount of money you put away. It can often be quite surprising how quickly your money can build up in just a short period of time.
Top tips to help you start to save;
- Eliminate unnecessary spending - Review your spending and see where you can make savings. Put a realistic monthly budget in place and stick to it. Check out our 8 top tips to help you save money!
- Save regularly on payday - Set up a standing order that takes your money on payday. It will help you keep to your savings plan.
Savings vs Investments – What’s the difference?
It’s quite important to understand the basic difference between saving and investing, the governments ‘Money Advice Service’ offers two definitions:
- Saving is putting money aside bit by bit in a savings account to make a lump sum, usually for a particular goal such as a holiday, a car or even a house.
- Investing is taking some of your money and with the aim of making it grow, by buying things that might increase in value, like stocks, property or shares in a fund.
Savings and investments are available in all shapes and sizes and their suitability to you is usually dependent on your financial position, overall goal and the length of time you are looking to save.
Should I Save or should I Invest?
In short, there is no right answer, if you are looking to invest you should do so once you have paid off any debt and have already gained some saving experience by paying towards an emergency fund.
Ultimately you need to decide on your financial goals and the length of time in which you wish to achieve them.
Savings accounts best suit those who are looking to accumulate money over a short period of time. They tend to offer instant access to your cash and come with no risk. For those looking to withdraw their money within the next 5 years, the preferred option, would be to save.
Investing is quite different to saving as it carries an element of risk that the value of your investment could go down as well as up. For this reason, investing isn’t for everyone as essentially this means that you could lose money. Over the medium to long term of between 5 and 10 years, investing has the potential to outperform cash savings and this is usually the main attraction.
It is quite difficult to imagine exactly what things will look like in 10 years and putting money aside for that length of time might seem quite daunting, especially with a risk that you could end up with less money than you have paid in, however, there are some good solutions out there.
What is the My Sovereign Investment ISA?
The My Sovereign ISA looks to alleviate the fear of losing your money within an investment product by providing the security that your money is guaranteed on the 10th anniversary, providing you have not made any withdrawals.
This means that you get the benefit of a higher potential growth rate of an investment whilst still keeping your money secure over the long term.