Why Savings and Investment Plans Are Important: A Different Type of Insurance
UK residents often don’t think of insurance in terms of savings or investment. Of course, we all know how important it is to stash money away for a rainy day. Investing, in particular, is exciting for those who like to watch their money turn into even more money. Nowadays there are countless savings plans to ensure that you have money when you need it most – but there are also a few tips you should follow to do this effectively.
Savings and Investment: Let It Become a Habit
With savings and investment, it is important to let it become a habit. You should set things up in a way that you automatically add a small amount each month to your savings. The reason is simple: there will be no need to remember to add money to your account and you won’t skip a month. In a short amount of time, you will have a considerable sum of money. For example, an efficient way of saving taxes is through a Cash ISA.
Saving can be done quite simply. All you do is set up a regular payment (standing order) from your current account to a savings account of your choice.
Stash That Cash on Pay Day
Pay day is obviously the best time to put that chunk of money aside. To do this, set up a standing order from your current to your savings account either on or just after the day you get paid. Alternatively, you could ask your workplace if they have a savings scheme. If they do, consider joining. Overall, it makes saving even easier. The money will come out of your pay immediately in the same way National Insurance and tax contributions do.
Earning Interest on Interest
Thanks to interest, your savings will grow even faster. This is the case even if you are paying the same amount every month. Why? Because every time your money earns interest and it appears in your account, that interest also starts to earn interest. This is what is known as compound interest. Long term, this makes a massive difference to how much your savings are worth.
Savings and Investment: Just How Much Can You Afford?
While this may seem difficult to answer, it is quite simple. You may already have money left over at the end of each month. If this is the case, then you’re at a good starting point. At the very least you’ll be able to save this amount although you probably could save more.
Having nothing left doesn’t necessarily mean you won’t be able to save or invest in anything, however. While changing how much money comes in is a bit trickier, it is possible to change how much goes out.
Saving and Investing in the UK
According to the UK government, saving means putting money aside without risk. Usually, this also involves the chance to earn interest. Investing involves putting money into what is known as an investment vehicle – all with the hopes of creating financial gain. In this sense, investing is different from saving since there exists a higher level of risk. Plus, there isn’t even a guarantee that you’ll get the money back.
Regular payments into investment products can be as small as £25 a month. These include things such as Stocks and Shares ISA or Unite Trust Investment Funds. Generally, investment products are long-term and are best if you’ve already got cash savings that will keep you afloat for the next three to six months if necessary.
Overall, investments normally outperform cash savings when you look at them long-term. However, value can rise and fall so anyone interested in this must be prepared to take on a bit of risk. Anyone who can take on risk and doesn’t need easy access to their cash may want to consider investing.