You have several pounds saved in a bank and you want a better return than the poor interest rate you are getting, so what do you do?
Investing is the answer – but you will face some bewildering choices when looking where to put the money.
Although you have decided to move from saving to investing, take some time to consider the steps you have to make.
Debt is the first issue. There’s no point investing if the return on your money is less than the interest you are paying out on debts.
It’s often better to pay down debt to a level you can cope with or to pay the credit card, loan or overdraft off.
Unexpected spending
Next is unexpected income blips. You may fall ill, lose your job or have an accident that means you cannot work but still have to pay your essential bills. Other spending problems may arise as well, such as big bills for home or car repairs.
Make sure you have cash in the bank which will cover your living costs for at least three months.
Other options are income protection insurance or critical illness cover.
You may have decades to go, but you also need to think about funding retirement. The state pension is handy but doesn’t go that far if you want an active retirement. Some of those savings need to go into a pension for those later years.
The earlier you start a pension, the bigger the retirement pot and the better lifestyle you will have once you give up work.
How much can you save?
If you have enough cash, you can pay up to £40,000 into your pension and £3,000 including tax relief into a partner’s pension as well.
Once all these bases are covered, look at investing. An ISA is a good place to start and allows you to squirrel away up to £20,000 a year that can buy stocks and shares. The fund grows tax-free and you do not pay tax when taking the money out.
If you have a partner, you can both save up to £20,000 a year into an ISA.
That covers £83,000 a year into tax-effective investments that should be enough for most new investors.
