If you’re yet to turn 40, then lucky you! You’ve got the golden opportunity of receiving free cash for decades. However, it’s only possible if you’re able to rise to the savings challenge.
In this article about getting your finances in shape for a Lifetime Isa we shall discuss:
- Setting a budget and sticking to it
- Knowing which cutbacks to make
- How to do a proper audit on your bills
- Getting your debts under control
- Using your current account wisely
- Getting into the habit of saving money
- Venturing out of your comfort zone
What does the Lifetime Isa have to offer?
The Lifetime Isa (LISA) -announced in the last year’s budget and launched in April 2017- would offer you a 25% bonus (without investment interest or investment growth) when you’ll start saving towards your retirement or first house and all the interest would be tax free.
If you’re able to put in the maximum amount allowed each year-that is £4,000- you’ll be receiving £1,000 as an annual boost. Also if you succeed in saving the entire amount from age 18 to 50, then you’re bound to receive £32,000 in free money.
If you succeed in saving the entire amount from age 18 to 50, then you’re bound to receive £32,000 in free money.
You might have to wait until you turn 60 in order to access the money without incurring any penalty, unless you’re using it to buy your first house. But according to a savings expert, this attraction of a top-up from the government is a good opportunity to miss out on by the younger basic-rate taxpayers.
Of course, there is no doubt as to how hard it is to save in the initial stages of working life, but provided you actually stick to the rules of Isa you’ll definitely be glad that you invested.
Yes, LISA has already started a few months back, but as it’s said “it is never too late”; you can still get all your finances in shape and get fit for Lifetime Isa. Here is what you need to do.
Set a budget and stick to it
The most crucial thing is to be brutally honest, because there is really no use in taking a look at your expenditure through a rose-tinted glass. It’s also recommended to highlight your base income and then compare it with your expenditure for a month.
You must always rank your spending and whilst doing it your mortgage must come first, followed by your utilities and council tax. In the bottom of the pile comes your discretionary expenditure; your clothes and night outs are splurges, which you can easily cut down on.
There are several websites that will help you rank your spending. Some provide a colourful saving and spending graph that can help you in changing your spending behaviour, whereas some put expenditure in a different category so that you know where exactly your cash is going.
You’ll also come across some spending diary apps that’d remind you to keep it updated and also show if you can earn money on stuff you purchase.
The basics of setting a budget are to ask yourself these questions: How much do you actually spend on bills? How much would you like to invest? How much would you want to save and spend?
Once you have divided all your money in the above mentioned basic categories, you’ll have a pretty good base in order to build a specific budget.
Go for the easy kills
Do not even attempt to make ambitious cutbacks that too all at once. Bear in mind to always start with small luxuries, like those daily cups of coffee. Investment professionals recommend that people who are reluctant to save can try out an Isa Cappuccino Plan.
They reckon that £2.50 spent on a regular caffeine fix can be sidetracked to a stocks and shares Isa, which would give you £50 per month-that £600 per year-to play with. Not to mention, it would not just attract a £150 bonus in the LISA, but there are also possibilities that your total returns after 10 years could surpass £7,000, provided your investment grows at 5% per year.
The experts also say that making lunch every day and taking advantage of coupons would also help you save on food expenses.
Do a proper audit on your bills
If you have made it a habit to regularly shop around, switch accounts and budget carefully while studying in the university, you’ll be able to live on your student loan as well as grants without having the need to ask your parents for additional help.
As finances are limited, it’d be helpful to make use of budgeting apps to keep a track of how much you’re spending on a weekly basis. Say for instance, you’d set aside a figure of £50 and if you spend less, then whatever remains would be carried over to the next week. But if you happen to spend more, then the arrears would carry on to the coming week.
There are several sites out there, which could help you in earning additional money as well. When you earn several hundred pounds you can spend them the way you want to, which cannot be bad at least for minimal efforts.
You can even set up a Help to Buy Isa and put it towards a deposit. This is a no-brainer, as the government would top-up the final value with an extra 25%.
The most effective way to make sure that you’re getting the best prices is getting it from a supplier; as there are certain insurers who offer discount for the first year’s cover, but when it comes down to renewal the cost can be higher, thereby making switching important.
However, any millennial who switches his/her home, energy and car insurance every year has a better chance to gain more than £500, which would in turn give them around £5,082.40 to put into LISA over ten years.
Get your debts under control
If you have got a high-priced unsecured loan or credit card debt, then you should look to pay it off well before you start saving. Or else you could even switch to a much better deal.
You are in a market wherein a balance transfer credit is prevalent and you also get cards that come with no upfront charges and interest-free deals. However, before you take one of them, ensure that you’re checking for PPI. If you’ve already taken one then you could be mis-sold the policy and if that is the case, you must make a claim as the PPI Claims Deadline has been announced.
Use your current account wisely
You should not be paying any charges for your current account nor is it a wise decision to rack up those charges every time you utilise your overdraft. And when you have the seven-day switching service, it’s easier and faster than ever to shift your current account.
Individuals who do not wish to switch but are in the red, might like to consider a money transfer credit card. It works similar to balance-transfer credit cards, but it credits the current account rather than clearing the card debt.
You should not be paying any charges for your current account nor is it wise to rack up those charges every time you utilise your overdraft.
Finance experts recommend you to open two accounts, wherein one must have sufficient money so as to pay the monthly bills along with a float of £50. On the other hand, use the second account as your regular spending account. If you find that you’re still in debt, then you can try taking money out in the beginning of the week and avoid carrying your debit card with you.
Catch the savings habit
A savings initiative cultivated over a few months can turn into a easily manageable habit, which is why experts suggest most individuals should set up a standing order and simply forget about it. You can even create responsibility by telling a friend of yours and use positive peer pressure to assist you in staying on course.
You can set up a normal payment into the LISA the day after you’re paid; also keep a separate savings account that contains at least 3 months income for emergencies and other aims, like holidays.
Venture out of your comfort zone
Lifetime Isa would be a vehicle for stocks and shares investments and deposits. You could opt for latter to turbo-charge your returns. As per a chief investment officer, diversification is vital, as it’d be better to purchase funds instead of individual stocks.
Try picking a specific area of finance, which you’re interested in be it UK fashion brands or the environment. Do read about them, so that you can comprehend the sectors and later apply that knowledge on your investing.
There is no assurance that you’ll get back what you had put in. But, as a youngster you’ll be investing for the long term and will be able to ride out the frequent ups and downs of the market.