With self-isolation at home being the new reality for weeks to come, many of us will find ourselves with some extra time on our hands. As you spring clean your kitchen, and clear your wardrobe, why not “Marie Kondo” your money as well and start planning for the future?
This could be a great time to review your traditional spending patterns and look at where you may be able to put some money aside into a saving or investing product that will make your money work harder for you. Or why not track down an old pension pot you forgot you had?
Here are our top tips to get started, all from the comfort of your sofa:
1. Start small
There are many simple ways to make saving and investing part of your everyday life, even when you’re stuck at home. By starting with round ups on your weekly shop or home deliveries, you can save and invest without even thinking about it. The average Moneybox user saves £500 per year in round ups alone! A small change that could make a big difference by the end of the year.
2. Don’t miss out on free money
It’s worth spending some time researching the product that is right for you to make sure you don’t miss out on relevant tax relief or bonuses. It may sound too good to be true, but one ISA actually gives you free money! If you’re saving for your first home, you can get up to £1,000 every tax year from the government by paying into a Lifetime ISA (also known as a LISA). Introduced to help first time buyers get on the property ladder sooner, the LISA is available to those aged 18-39 and offers a government bonus of 25% on top of your tax-free savings. You can save up to £4,000 per tax year into your LISA, giving you a potential bonus of £1,000 each year you save! If you think the Lifetime ISA is right for you, check out the Moneybox Cash Lifetime ISA or our Stocks & Shares Lifetime ISA.
3. Start your relationship with compounding
If you are saving for a long-term goal, it’s worth considering investing and start to benefit from the magic of compounding. As the famous proverb states – the best time to plant a tree was 20 years ago, the second best time is now. Compounding is the return you get on your original investment and the return you get on your return. When you leave your returns to compound over time, your money can grow exponentially all by itself.
Here’s a two year example:
Suppose you invested £5,000 and it grew by 7% each year. At the end of the first year, you’d have £5,350.
At the end of the second year, you’d have £5,725 – that’s an additional £375 return – because you made gains on your original £5,000 and gains on your return from year one. That’s a compound return.
So when you leave your returns to compound over time, your money can grow exponentially all by itself. As a longer term example – if you were to invest a £1,000 lump sum earning a 7% return aged 40, you’d have £3,870 when you’re 60. Start ten years earlier, at 30 and you’d have £7,612 – almost twice as much. Remember, these figures do not provide guarantees of future performance and do not include costs and charges.
4. Pay into your pension and get a free top up
With a large government tax relief on your pension contributions available each year, not paying into your pension is like missing out on free money. If you’re a basic rate UK taxpayer you’ll be eligible for 20% tax relief on your contributions. There is a cap on it, though. If you’re paying income tax you can usually only get pension tax relief on contributions up to £40,000 (annual allowance) or the level of your earnings if they are less than £40,000.
Did you know the Moneybox Personal Pension allows you to consolidate all of your old workplace pensions, track your progress, and make contributions directly into one pot – all from your mobile phone? Check out the benefits of the Moneybox Personal Pension.
Please remember, tax treatment depends on your individual circumstances and may be subject to change in the future. Moneybox cannot accept a pension you’re currently paying into, or any old pensions that provide guaranteed benefits when you retire.
All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest.