Are you saving wisely?

As the cost of living crisis bites, several new studies have revealed that many people have a worryingly small amount of money saved up.

With another rise to the energy price cap due to be implemented on 1st April, it may have you wondering about the future, and make you question how much money you have in your savings account, or how long your head would stay above water if you lost your main source of income.

Whilst daunting, these are important questions to think about. Research has shown that only 9% of the U.K have £100 or less in savings, while 17% have nothing put away at all, highlighting that saving is not a priority for most due to simply not being able to afford to.

The pressure to save amongst the current climate can have a huge impact on your wellbeing, but shouldn’t be something that is forgotten about. For some expert advice, we’ve asked Paul Darley, Managing Director to share his thoughts on what should be a priority when it comes to saving, and how to deal with any financial stress head on.

Over to Paul…

The rising cost of living means that most don’t feel like they can afford to pay energy bills, let alone save for an unforeseen circumstance. Due to only spending where necessary, a huge number of people are relying on just minimal savings to be able to cope with the soaring inflation. It’s put into perspective that many don’t have enough to get by, should disaster strike and someone get made redundant.

Perhaps unsurprisingly, this has led to an increased amount of people turning to credit instead, only adding to the worry of the amount owed. Similarly, the use of lending products has also grown, with many apprehensive about how many different lending products they have.

Despite the current climate we live in, there are a few circumstances where if possible, I highly recommend saving for. I’ve outlined these below:

Unforeseen circumstances:

Unfortunately, life can sometimes be inevitable, and there can be life-changing events that happen. If you have other financial responsibilities such as mortgage you may feel that you are unable to save in order to prepare for any unwelcomed surprises. The first step to take when it comes to saving for unforeseen circumstances is to change your mindset- its best to act as if an unexpected event will happen, instead of thinking it’s just a possibility. That way, it can be a priority when it comes to managing your savings and help you be better prepared, just in case.

You can save for unanticipated measures by building it up slowly but regularly. Putting away smaller amounts of money often is more effective than putting aside a larger sum every now and then, due to other financial commitments. It might be worth having a dedicated savings account for emergencies only, so you aren’t tempted to use the money committed for this circumstance for anything else.

Saving for retirement:

Although it may be a while off, it’s always a idea to start planning for the future now. Saving into a pension is the best starting point. Pensions have many benefits that will help your savings to grow quicker. It’s essentially a long-term savings plan with tax relief, with contributions made from both yourself and your employer. As there is no tax, all of the money contributed goes straight into your pension pot.

You can normally take up to 25% of your pension savings as a tax free lump sum. Once you reach the age of 55, you can then access the rest of your pension and use it how you choose, however the age that you are able to access your pension will rise to 57 in 2028.

You can also save for retirement alongside a pension which will give you greater comfort later of in life.

There are several choices of investment products available that can help you invest for retirement, including tax-free options such as a stocks and shares ISA or Lifetime ISA (LISA). If you are aged 18 to 39, you can open a Lifetime ISA and invest up to £4,000 a year into a stocks and shares LISA. You will then benefit from a government bonus of 25%. LISAs however do come with restrictions – including restricted access – so make sure to check the best option for you before committing when saving for your retirement.

Saving for your children:

Being able to save for your children is a great way to give them with a better future.

Providing them with a financial safety net if possible can help to kick start their adulthood, whether that be to contribute to educational funds such as university, or a deposit for a house to get them on the property ladder.

Here are some saving options you can look at when it comes to saving for your children:

You can open their own savings account for just a £1 for any child up to the age of 18. You can then gradually add to this account over the years, and it can also help to teach your children the importance of saving for later on in life.

A Junior ISA is another way to save money for your child which they can then access once they turn 18. Once they reach 18, they will be able to manage the account and it will change to an adult cash ISA. A benefit of a Junior ISA is that it’s tax free, so 100% of the money put into the account will still be accessible.

Dealing with financial worries head on:

You may be worried that you haven’t thought about some of the points above. It might put into perspective what you want to start planning for and you may be worried that you are only just thinking about the future, causing fiscal pressure.

Financial stress can be devastating for a person’s mental health, so it’s extremely important that you take critical action as soon as problems start to appear and seek help and advice from a professional.

Many admit they avoid going to seek financial help because they’re afraid of; being judged, feeling ashamed or embarrassed, or are scared of burdening others.

But an uncomfortable conversation about your own financial situation will only be for a few hours, the mental relief and weight lifted will last, as you get help formulating a plan of action.

Wealth Experts are here for you

At Wealth Experts we listen deeper and help you to plan further to make your wealth matter. If you have any questions about how to manage your money, please don’t hesitate to get in touch with us and we’ll be happy to help. To speak to one of our specialist team, please call 01782 345100