Making Your Money Work Harder
It’s easy to forget about money when it’s tucked away in a current account or savings plan, sitting there until you need to use it. However, this safe, tried and tested way of managing your money could be working against you every year. Savings accounts are no longer accruing money the way they used to, which means entrusting your savings to those alone isn’t good enough.
Remember, “cash” is not an investment.
You work hard for your money, so start making it work for you and discipline to make smart every-day financial decisions. There are many different avenues to go down in order to get more back. Some solutions are as simple as switching accounts, and others may require forward planning. From contributing to a pension, to finding the best ISA to grow your funds, all the information you need is available, it’s just a case of implementing it.
Brilliant Budgeting
When it comes to money, it’s important to always think long term. Managing your money over a lifetime can seem like a daunting task, but if you stick to a budget, it will pay off in the future.
Budgeting is an easy way to stay in control of your money, and with many interactive tools and personal finance software available online, it needn’t take much time to create one either. Laying out all of your outgoings and income will allow you to make changes where necessary. Maybe you’ll need to cut down on spending – or you might find out you have more left at the end of the month than expected.
Make goals, but be realistic with them. If you know that you can’t save an extra £500 a month – don’t plan for it! Create short, medium and long term targets, and do regular reviews so you can make suitable adjustments.
Get debt free
In an economic climate where savings accounts have very low interest rates, it may be costing you more to let your savings sit in an account, rather than using them for something else. If you have outstanding debts to pay off, use your savings to help clear them. You can see whether this is the case for you by comparing the interest rates of your debts and those of your savings accounts. It’s very possible that the interest rates on your debts are higher, meaning the money sat in a savings account is doing very little while you’re still accumulating fees to pay.
If you aren’t saving towards a goal, check which of your loans has the highest interest, and start there. Use the saved money to pay off all or some of you debts. However, some loans will penalize you for doing this, so check the terms and conditions before you make any large payments.
Don’t let your savings sit still
If you’ve had the same savings account all your life, now is the time to make a change. With interest rates changing regularly, it’s important to know exactly where your money is and how much it’s making for you. Conduct a review of all the accounts you hold and shop around for better deals.
Highlight the accounts that are falling behind and start making plans to move the money elsewhere. Some fixed term accounts may require a notice period, so the earlier you can do this, the better. Regularly check your savings accounts, and don’t let the money get stagnant. Banks offer great deals throughout the year, so make sure you can switch when needed.
Investigate Cash ISAs
If you want your money to do even more, you’d be well advised to check out cash ISAs. These accounts protect your savings from tax, ensuring you’re making as much as you can. All other accounts are taxed before you reap the gains, meaning you lose out before you’ve got anything.
With a cash ISA like this, you could previously bank up to a specific annual limit in any given year (2013/14 = £5,760 ; 2014/15 = £5,940). From July 2014, this is going to change to a maximum of £15,000 in a NISA, which is due to changes from the 2014 budget. For FAQs on the new ISA rules, the HMRC website has a good thorough explanation.
To get the most return on savings in an ISA, it’s ideal to deposit the full allowance in your account at the beginning of the tax year. This means you will be earning the maximum possible interest over the year. It’s then advisable to shop around for better deals when the term on your current cash ISA comes to an end.
Remember, the maximum allowance for the current tax year is the total you can deposit in a year – not the maximum you can have in the account at any one time. So the most efficient way to use the account is to deposit what you have and then avoid making withdrawals until you really need to – for example when you reach your savings goal.
For more information on how to invest your ISA, see:
- Maximise your annual ISA contribution – how to use your full ISA
- Investing my ISA allowance. Should I invest it all at once?
Make Your Mortgage Get a Move-on
As one of the largest financial investments you’re likely to make in your life, a mortgage is not only going to be with you for many years, but is also going to cost you a large amount in interest.
By using your savings to overpay on your mortgage, you could save time off the repayment period. A large, lump sum payment taken directly from your savings could mean that you’ll be living mortgage-free much earlier than you thought!
However, many mortgage providers put a restriction on how much you can overpay by, and some don’t allow these extra payments at all, so read your terms and conditions carefully, else you could incur an early repayment charge. Don’t make the same mistake I did…
There are plenty of ways to make your money work for you, and whichever route you pick, just remember to review as often as you can, and stick to your budget. Soon you’ll see it all pay off.
I see people make the mistake of keeping a huge cash pile and only paying the minimum on their credit cards. They don’t realize that the debt is costing them more than they are earning in their savings accounts. With interest rates so low now, almost all debt you have is costing you more than you are making.
So true – hopefully many of these folks get a wake-up call and change their ways!
We really attacked our mortgage in the past several years, putting any and all extra money we could find towards it. Happy to say it’s now gone and the feeling of having that burden off our back is tremendous. Now it’s just a matter of figuring out where all that new found monthly budget money is going to go.
Brian,
I was in that boat, but after learning so much about investing I’ve decided to take more risk and put all extra money into investments vs. paying off the mortgage. Hopefully the extra risk will payoff down the road and we’ll be in better financial shape.
I applaud you for making the decision to get serious about the mortgage debt and attack it until it was dead!
Very good article. If there’s one thing I wish I could have done better, it’s making better and more efficient use of my money. I’ve always been good at saving and such, but I could have done better over the years with the money once I brought it in.
I stash most of my extra cash into a mutual fund that earns a much better return than a savings account. Sure, I still have some savings accounts with easy access to extra cash, but they hardly earn anything. The interest rates on savings accounts are so darn low it’s almost the same as stashing cash in your mattress!
Thought-provoking article that is well written and it got me deeply considering what to do with the little savings I have sitting in the bank earning more dust than interest. I will have to learn more about investments though because this very little I have, I might jeopardize.