Times are tough in the UK. The Office for national statistics publishes figures about the savings ratio. This is the amount of disposable income left for savings after tax has been paid. This figure is at one of its lowest ever points with just 4.1% of income left for potential savings. This is since 1963 when records began and compares to 14.7% in the high times of the 1990’s.
There is no denying that saving is harder, and times are so tough meaning that saving is not priority. Many of us are living beyond our means and the thought of saving feels impossible.
Start Saving Even if its small amounts
But I want to encourage people to start saving, even if its small. Getting into the saving mindset is a good place to be. To get used to that amount of money going into savings every week or every month and getting used to it. Watching your balance grow and grow.
The first type of savings that everyone should have is an emergency fund. There are many different guides on how much you should have, but £1000 is great aim. £1000 should be enough to cover emergencies such as car repairs or needing a new washing machine or a new boiler. Another good guide is that this emergency fund is at least three months’ worth of essential expenses.
I use Chip to build up this emergency fund. This is an app-based saving account that analyses my bank account spending and moves small amounts of savings over to a savings pot when appropriate. This week it has moved over £42. The money is held in a Barclays account and is earning 3% interest. The money is easy to access if needed via the app. I almost don’t realise this money is going so its always a nice surprise when I check the balance and see how much I have got saved there.
The most important impact of having an emergency fund I find is the psychological impact. The worry weight lifted when having that money set aside is huge. Knowing its there to cover any emergencies is so reassuring.
Do you have debt?
Paying off debt is a priority with spare cash and I strongly advise you to do this, particularly if you have debt with interest being charged. Here are a few posts to read on my early debt repayment days when I had cards with big chunks of monthly interest being charged.
Or maybe you have debt sat on 0% interest free cards? I have a debt being paid off now all sat at 0% interest. This debt is not costing me anything but of course does need to be paid off. I am paying off a set amount of £300 per month and then I pay off extra if I have had a lucrative month with business turnover.
Paying into an ISA
I also pay into an ISA. I personally believe that right now is the right time to invest in an ISA. BUT only because my debt is interest free! I have money in an emergency fund, my debt is being reduced and I also pay a small amount into an ISA. And I always have.
Since the age of 22 I have always paid a small amount every month into an ISA. For 14 years I paid £25 a month into a stocks and shares ISA and used this money to help pay for a house extension in 2013. I now pay £50 a month into a stocks and shares ISA. The intension is for it to stay in there until retirement. Money set aside to ride the markets up and downs and to hopefully get a great return. To date I have had my ISA for 6 months and have already seen a 5.5% return on my investments.
Priority 1 – Build an emergency fund
Priority 2 – Pay off any debt with interest being charged
Priority 3 – If debt is 0% interest pay it off as well as save in an ISA
To answer my initial question in the title of this blog, when is the right time to invest in an ISA – now! For more information on ISA’s hop on over to read more, in particular this article on the amount of ISA’s an individual can have.
This is a collaborative post.