National Savings, now renamed National Savings & Investments. National Savings offers a number of products where you can put your money away for a set time, ranging from one to five years, and more flexible accounts are available as well. The rates are rarely chart-topping, but you have the security of the UK Treasury and Exchequer backing your decision. And for anyone who went through the misery of bust banks in 2008, that’s a great comfort blanket.
Almost everyone can save some money without sacrificing too much lifestyle. Even small amounts each day can soon mount up. Here are some initial ideas – and how much you can save each week:
✔ Give up smoking. A person who smokes 20 cigarettes a day will save £60 a week.
✔ Buy milk at the supermarket instead of using home delivery. You’ll save £6 a week.
✔ Take a sandwich from home instead of buying one at work. You’ll save up to £15 a week.
✔ Go shopping with a list and stick rigidly to it. You’ll save at least £10 a week – and probably avoid some fattening snacks as well.
✔ Ditch pricey cable or satellite TV stations you hardly ever watch. You’ll save £3 to £10 a week. Freeview has more channels than you can watch.
✔ Put every £2 coin you receive into a box. When you have £50, put the money into a special bank or building society account. I did this when I was saving for my bike. I put away over £800 without noticing it.
✔ Buy a copy of Sorting Out Your Finances For Dummies (published by Wiley). You’ll save yet another fortune each week!
Think about your lifestyle and then make your own additions to the list, from saving on transportation (walk? cycle?) to checking the market for gas, electricity, mobile phones, landlines and broadband, and always using a comparison website for insurance policies. You can create big savings with some discipline – it’s the same style of discipline you need to be a winning investor.
Pennies really can turn into pounds and pounds into thousands. And they can grow even faster thanks to compound interest, which is interest on interest.
Suppose, for example, that you manage to save £10 a week and put it in the bank. That’s more than £40 a month and £520 a year. These sums can start you on an investment habit.
Here’s how much various weekly savings would be worth after five years with a modest 2.5 per cent interest paid each year.
✔ £10 a week: £2,733
✔ £15 a week: £4,099
✔ £20 a week: £5,466
✔ £30 a week: £8,199
✔ £40 a week: £10,932
✔ £50 a week: £13,665
None of us knows how much time we have left on this planet. The good news is that your chances of living longer have never been better. Most people nowadays are likely to live to around 77 to 82 years of age. The bad news? You can never forecast when you’re going to be hit by a bus or succumb to a mystery virus.
So you should always make sure you have sufficient life insurance and cover to replace at least some of your income if you succumb to a serious illness or worse. Life insurance won’t replace you, but it will replace your money-earning capacity.
Always shop around for all insurance. Look at any comparison site. You can easily pay twice as much for life cover of exactly the same amount with one company as with another. What’s the difference? Nothing. You have to die to get a payout with both, so the conditions are identical. No one wants to buy insurance – it’s not fun – but if you have to then don’t waste your cash.
As well as life cover, you can purchase critical illness policies that pay out a lump sum if you have a serious illness, such as a heart attack or cancer, and survive for a month. A huge range of prices exist for policies with standard terms, so never, ever go for the first quote you get and be careful of exclusions. Knowing what’s covered can be a minefield so taking expert advice first is worthwhile.
Some policies, known as income protection plans, promise to pay a monthly sum until your normal retirement age or for a shorter set period if you can’t work due to illness or injury. These policies can be expensive. Also be aware that although some policies pay out if you’re unable to do your own job due to illness, less generous ones only pay out if you can’t do any job at all.
Your pension plan is an investment for your future but with tax relief in the here and now. This means that, if you’re a basic-rate taxpayer, you pay £80 for each £100 that you get in investment going into the plan – a pretty good deal. If you’re a 40 per cent taxpayer then the setup is even better because you only have to pay in £60 to get £100 into your account, thanks to government tax rebates.
Those with larger sums and a do-it-yourself attitude to investment can opt for a self-invested personal pension (SIPP) where the holder gets to choose what goes in. You can start a SIPP with anything from £5,000, although £50,000 is a more normal minimum. However, on the downside, the costs can be high and if your strategy goes wrong, you have only yourself to blame.
Chapter 14 contains loads of hints and tips on how to deal with your pension, whatever the level of involvement you want.
The roof over your head is probably your biggest monthly outlay, whether you rent or buy. And it’s also likely to be your biggest investment if you own your own home. So don’t begrudge what you spend on it. In the long run, your home should build up to be a worthwhile asset. (At the very worst, it’ll shelter you from the elements!)
