Advantages of tax free investments and savings

Posted on: 03 April 2013 by Minesh Patel

Sensible saving and understanding the cost of your incomings and outgoings will reward you in the long term, says Minesh Patel

Saving sensiblyWe are in challenging economic times, rising inflation, low economic growth and low wage growth in many sectors. The first step one should take is to take control of your financial situation and begin planning for the future. One of the interesting points is that during recessions many successful businesses have started and flourished. As a private individual you should operate your finances as a small business does!

The first step for any household is to consider the generation of additional income, second jobs, turning hobbies into paid work and additional hours at work are examples - take control of income generation. 

A good way to create more income is to get better interest rates on savings, as soon as the fixed rate period finishes on a fixed rate bond move it. Interest rates are low and it is important to maximise the return on your money. Use your cash ISA allowance each year, one of the few tax free savings accounts. The interest you receive is then paid gross; this amounts to £11,280 in the current tax year for a husband and wife. Consider investing rather than saving in cash deposits - although more risk is attached to investing money, the failure of banks throughout the world has demonstrated that saving with banks is far from risk free. An Independent Financial Adviser will help you to construct a suitable investment portfolio with the objective of generating additional returns from your assets. Please remember that investing does carries investment risk.

The next step is to review expenditure record all expenses. Review big expenses such as your mortgage, can you change mortgage lender to reduce monthly mortgage payments. It is an excellent time to get a great mortgage deal with interest rates being so low and mortgage lenders now keen to lend once more.

A successful business invests in personnel and infrastructure to reap rewards in the future. I recommend consumers become their own architect for future prosperity. This can be achieved by setting goals and targets. After reviewing your income and expenditure, commit an affordable sum to saving for the future. It is inevitable that consumption now has to be sacrificed to deliver a prosperous future. Setting achievable targets creates a habit of saving. To become financially literate is easier than it sounds. In the first instance, you need to take an interest in finance and read around the subject.

Once you have committed to savings, take advantages of tax free investments and savings first - Individual Savings Accounts (ISA) for adults and Junior ISA for children. A work place pension scheme where your employer pays contribution money in is a sound foundation for retirement planning. As financial planners we often discuss risk with our clients to construct the most suitable investment or pension portfolio for their needs. Some level of risk is required to achieve returns in excess of inflation, so that the real value of your assets grows. With interest rates so low it has become more necessary to employ risk to get positive returns (returns that exceed inflation). To get the best out of your investments take a keen interest in where the money is being invested and review at least every six months.

In summary treat your personal finances like a small business, set specific targets and regularly review but remember you need to save and invest to enjoy a better financial future unless your retirement plan is based on winning the National Lottery at least once.

Minesh Patel

Chartered Financial Planner and Unbiased Media Services Independent Financial Adviser of the Year.

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