News details
The benefits of sensible saving
5/10/2010
Alok explains why sensible saving should be a financial priority in this uncertain economic climate.
The uncertainty surrounding the economic climate over the past year has taught us all a harsh lesson - nobody knows when they may suddenly be in need of money. So many businesses have failed and countless employees have lost their jobs, proving that everyone should have a savings plan in place. Nobody should be completely at the mercy of our fragile economy.
The recession has not only caused unemployment problems, but has also caused even greater difficulty for first-time buyers trying to get their first step on the housing ladder. Someone earning £18,000 per year, wanting to purchase a property for £150,000, will need to find a staggering £30,000 for their deposit. Such expense means that it is never too early to start saving.
Just think for a moment about how much you could save if you automatically put 10% of your salary every month into some form of savings policy. This would provide peace of mind should an unexpected bill land on your doorstep, or if there was a wedding to plan for, or your children’s education to fund.
There are many high and low risk savings options to choose from. Cash ISAs, for example, are very attractive for those who don’t want to take any risks with their savings. Anyone over 18 can pay up to £5,100 into a Cash ISA.
Parents will know that they should plan for their children’s university education as early as possible. There are many helpful schemes available, such as Friendly Societies Savings Plans. These offer a great opportunity to save small sums of money. You can invest a maximum of £25 per month or £270 per year, and the plan must run for a minimum term of 10 years, providing you with a nice tax-free nest egg.
Other schemes on offer include the government’s no risk National Savings and Investments. This presents an opportunity for wary investors who don’t want to incur any risk with their money. Savers who take part are protected by the Treasury’s unlimited guarantee, ensuring a secure investment and providing an attractive route for the non-risk takers.
This safety net does mean that banks and building societies, with their limited £50,000 guarantee, find it difficult to compete. Moreover, in a National Savings Account, the maximum investment which can be made is a healthy £1million, so this no risk guaranteed product can reap many rewards. However, it is important to be aware that with this type of scheme, inflation can quickly erode your money, as the rates of return are very low. Make sure you seek the advice of an Independent Financial Adviser to discern the best option for your circumstances.
Other plans readily available on the market are Maximum Investment Plans (MIPs). These are particularly useful for higher rate taxpayers. A MIP is a tax-efficient savings plan which requires regular payments for at least 10 years. Its performance is related to funds of your choice, and it provides a lump sum at the end of the savings term, free of any personal tax liability. You can choose to extend the contract beyond the 10 years and take a flexible, regular, tax-free income while still investing contributions. These plans are ideal for 50% taxpayers.
Also, grandparents who have money at their disposal should seek guidance from an IFA, who can advise them on collective investments such as unit trusts, open-ended investment trusts and exchange traded funds, as these can also be a great opportunity to save for their grandchildren.
Those wanting to take slightly more of a risk with their money can also consider investing in stocks and shares ISAs, corporate bonds and equity income funds. Similarly, the more adventurous of you with a higher risk appetite can pursue a greater risk strategy, investing in Emerging Markets such as Brazil, Russia, India and China (BRIC).
It is important to remember that although these investments have the potential for a much greater growth rate, they can usually be volatile as well - remember that values can go down as well as up. With the help of an IFA and a carefully sought-out risk profile questionnaire, you can work out the best investment option to pursue.
For further information on how Alok can help you with your personal or business planning needs, contact Dhanda Financial, 52 Dean Street, Newcastle upon Tyne, NE1 1PG, telephone 0191 255 8960, or email alok@dhandafinancial.com.
