If you believed everything you read in the papers, we are all going to financial hell in a debt-fuelled handbag. We spend too much, save too little and will end up starving as pensioners rather than relaxing in retirement.
Much as I love a sensational headline, I’m beginning to think that scare stories aren’t helpful. It makes you want to block your ears and not think about it. A real-life example is a coffee morning I went to the other week. I mentioned the word ‘pension’ and managed to kill the conversation stone dead before someone moved us swiftly on to their latest trip to Italy.
Money matters are inevitably mired in jargon and even the most savvy of us can get lost in the details. But it isn’t as complicated as it looks. At SMM, we’re keen to cut through the money maze and today’s blog drills down to the absolute minimum anyone needs to do to get on top of their day-to-day finances.
1. Emergency back-up
You should have at least three month’s worth (ideally six) of your salary saved in cash in case of a rainy day. You should consider some kind of life insurance for the main breadwinner too so the family is protected if the worst happens.
2. Control spending and pay off your debts
Always look for the best deal: there’s a zillion ways to save on utility bills and shopping. And while it’s impossible not to have a credit card these days, use it sparingly and pay it off as soon as possible. All of this applies to mortgages too. See if you can overpay without penalty or move to get the best rate.
3. Save into a pension
Not contributing to a pension is just silly because the government gives you the tax back on your savings: it’s essentially free money. You can save into a pension even if you don’t work (see our guide to SIPPs here). If you are employed, sign up to whatever scheme your employer provides. They have to contribute towards your pension too – again, free money.
4. Save little and save regularly
If you’ve got anything left after all of the above, set up a regular saving plan. Even if it’s only £5 a month, it’s better than nothing. If it goes out of your account at the beginning of the month, you might not even notice it’s gone. Over the long term, it does build up.
5. Use your tax allowances
You can save up to £20,000 a year into an Individual Savings Account (Isa). Any gains or income on that money (as cash or in stocks and shares) are then tax-free. If you get lucky on the next Apple or Google, you can keep all the profits to yourself.
6. Consider moving cash into shares
Most savings accounts now pay less than the rate of inflation (the increase in the cost of living) so you’re effectively losing money in a cash account. Everyone needs some readies but large amounts in cash isn’t sensible. Shares, over the long term, could be a more profitable home.
It really is that simple! There’s more help with our SMM quick guides here.