Updated 13 March 2018
The problem with chocolate eggs is that they never last long. So with springtime bringing the new tax year, there’s no better time to hatch some long-term plans for making your savings grow.
Here’s a little-known fact: the UK is unique among the major nations in having an April-to-April tax year. Apparently it’s something to do with the mix-up over the Gregorian and Julian calendars, coupled with the Treasury’s famous fear of losing even a penny of tax revenue. But it would be nice to pretend that it’s all to do with the joys of spring and making new savings plans.
In that upbeat spirit, we bring you a few of our best tips for growing those green shoots of prosperity. Take it away, financial Easter Bunny:
There’s still time this year to use up your ISA limits if you haven’t done so already – you can invest up to £15,240 this tax year. Don’t believe the naysayers who claim that ISAs are history. Cash ISAs still have other advantages over ordinary tax-free interest, and stocks & shares ISAs remain a unique way to invest.
You can save up to £40,000 a year into a pension if you earn less than £150,000. This is useful to remember if you run a business and have fluctuating earnings. Some years you might not afford any contributions, so you’ll want to make up for any omissions. Remember you can carry over unused allowance from up to three previous tax years.
There is little point in saving if you are paying down debt at a higher rate of interest. Clear the debts first, then put money into savings. The exceptions might be if you have a lower rate of debt interest in exchange for a longer repayment term, in which case early repayment may not be an advantage.
Make sure you know what each saving and investment is for. Obviously your pension is for your retirement, but what about this ISA? If you decide that’s for retirement too, you might want to move it into your pension. If not, consider when you’ll need to money and fix your strategy accordingly.
If a direct debit into your savings feels too rigid, adopt this more flexible approach. Decide how much you need as a minimum in your current account. Then at the end of each month, move anything over this minimum into your savings – like putting spare change into a jar.
If you invest, choose a good spread of different asset classes so as to spread the risk. Similarly, if you invest in shares, go for a mixture of large and small companies. The fortunes of large and small enterprises often diverge (one kind does well while the other struggles) so having both creates a good balance.
Forget trying to time the market – buying low and selling high – it’s very difficult to do consistently. Rather, accept that the markets are volatile and develop a portfolio designed to ride out those bumps. Also remember that you can afford to take far more risks as a younger investor, unless you know you’re going to need the returns imminently. Again, have your goal firmly in mind.
We don’t just mean patience – though that’s important too. Just think: you get paid to do your job because you’re giving up your time for it. So why would you expect to succeed at investing without putting in the hours? If you’re serious about making your money work harder, you have to work harder at it. Consider devoting at least an hour a week to reading up on financial topics and learning the ropes. It’s all knowledge that will pay off in the long term.
Also don’t forget that you can have your investment questions answered by an IFA for free on our MoneyFlex page.