Amid long hours and the disruption of adapting to new ways of working during the pandemic, tasks like managing your personal finances can easily fall to the bottom of the to-do list.
Here are five key things to keep in mind when it comes to your savings habits.
- Think about your goals
The very first step in any savings strategy is to think about your financial goals and the reasons why you’d like to put money aside.
This will naturally differ from person-to-person, and it’s possible that you’ll have multiple goals at once, each with differing time spans. For example, an immediate, shorter-term goal might be to save for home improvements or to buy a new car. Over the longer-term, however, it might be to get your foot on the property ladder, or to move a rung up.
Ultimately, the nature of your goals, along with your personal circumstances, will inform your overall savings strategy.
- Set savings targets
Once you’ve set your targets, the next step will be to consider how much you can afford to put aside.
Carefully review your income and your cost of living – for example, your monthly utility repayments, food bills and rent or mortgage repayments.
Alongside your regular overheads, it’s essential to think about building an emergency fund of savings for a rainy day. As a starting point around three months’ worth of net household income is a good buffer.
Once you’ve accounted for your regular outgoings and any contributions towards your emergency fund, you can then think about putting the extra funds towards your savings goals.
- Remember retirement
For some, retirement might seem like a long way off, but it’s important to plan for the day you step back from law.
As with saving in general, it’s important to consider your retirement goals – thinking about factors such as when you’d like to retire, and what retirement will look like to you. From here, you can understand how much income you will need at different stages of your retirement, and how you can start or grow your pension pot.
A financial adviser can support you with this process. As well as helping you calculate the financial implications of choices such as taking a phased retirement or working past your retirement date, they can also help you to understand your possible income streams – including any current savings you have, or future access to the State Pension – including when you can start to withdraw funds from your pension.
- Consider investing
With interest rates currently lower than inflation, simply keeping cash in the bank means that the value of your savings effectively falls over time.
Investing can offer ways to grow your wealth by helping to beat low-interest rates, outperform inflation and build new income streams. When it comes to investing, it’s important to consider how much risk you are willing to take as the value of your investment can go down as well as up.
Each asset you can invest in – whether it’s property, bonds, cash or stocks – each comes with its own level of risk, as well as its own degree of reward. Diversifying your investment portfolio by spreading investments across asset classes can offer a degree of protection against a single asset’s poor performance.
An easy way to do this is to put your money in an investment fund that covers many different types of assets, spreading the overall risk. Each fund has a risk rating that you can use to see if it’s a good fit for your appetite. Actively managed funds are controlled by a fund manager, and one of the benefits that come with that is it drastically reduces the time you need to put into managing your investments.
- Maximise your tax-free savings allowance
When you’re saving, every little helps, and using your tax-free savings allowance can help to get the most out of the money you’ve set aside.
You can save up to £20,000 tax-free into an Individual Savings Account (ISA) with no tax charged on any interest earned. There is a range of ISA types you can use. For example, a cash ISA allows you to save money in cash, meanwhile, a ‘stocks & shares’ ISA – such as Wesleyan’s With Profits ISA – allows you to make investments with your money in assets like funds, bonds or individual stocks.
Our With Profits Fund was recently ranked 1st place* for its five-year net return of 7.31% by independent actuarial services provider Barnett Waddingham. And because it’s an ISA, our customers didn’t pay tax on any interest they had earned.
At Wesleyan, we understand the unique financial needs of lawyers. Our specialist financial consultants available who can offer advice at every stage of your savings journey, from setting targets through to reviewing your pension savings.
For more information visit: www.wesleyan.co.uk/lawyers
*https://www.barnett-waddingham.co.uk/comment-insight/research/uk-with-profits-funds-investment-performance-and-strategy-2020/#form-uk-with-profits-funds-2020-download.
