Do you plan to dive right back into pre-pandemic spending or will you play the savings long game?
For months now those of us with a temptation to spend have enjoyed little in the way of retail therapy. It’s true, online shopping has always been an option but it's hard to press the buy button on those Jimmy Choos without being there in person to try them on for size or to pick your perfect new sofa without giving the cushions a good squeeze.
The net result of this reduced spending is that many of us have built up a cash surplus that is burning a hole in our proverbial pockets. After months of abstatainment I am sure no one would be begrudge a bit of frivolous spending but perhaps the 'new normal' will see many of us placing more importance on growing our wealth, as we appreciate more than ever before, that you never know what's around the corner.
So below are some targeted planning tips for the generations!
With trips to sun drenched shores likely off the agenda for another year what better time to boost some cash savings. Add to a pot of money for a future house purchase or for a trip of a lifetime next year. Perhaps kick off of a monthly investment scheme.
Don’t let the tax man eat into the returns. Instead look to maximise the benefits of Individual Savings Accounts. According to the last published statistics from Gov.co.uk, which relate to the 2017-18 tax year, 793,000 under 25s subscribed to an ISA compared to almost double that figure,1,428,000 in the 35-44 category.
Give John Lewis a wide berth and cast your mind to the future. For those with a young family university may well feel like a long way off but as your parents never tire of telling you 'time flies in the blink of eye'. Seriously building up a fund to keep your littles one out of debt could be the best thing you ever do. What better way to give them the best possible start to life?
If feasible, consider a small lump into a pension arrangement. Government tax relief on private pensions means a boost of at least 20% on such contributions or for those in the higher-rate tax bracket that jumps to a very attractive 40%. There is never a better offer than free money so use it just in case you lose it in the future. According to data from HMRC, last updated in October 2019, gross pension tax relief in 2017-18 is projected to be £37.8 billion.
Middle age is almost upon you so before the crisis hits get your spare money tucked away. Women who have perhaps neglected their finances are well advised to use this time as the springboard to taking more interest and making sure their own arrangements are place, be that pensions or general investments. Research conducted by the Wisdom Council in 2019 found that 59% of non-investing women had never thought of investing as an option
At this stage it is all about checking things are on track and plugging any gaps; maximise ISA allowances, increase pension contributions, top up university savings plans and don't overlook the easily forgotten emergency cash pot.
Now you should be hitting your maximum earning potential and the focus is on final planning for retirement. Pensions must therefore be the big focus. Are you maximising the allowable contributions?
The aforementioned data from HMRC reveals the annual average contributions per individual decreased to £2,700 in 2017-18.
If not can you use past allowances, not fully utilised, in order to make bigger payments today. The devil is in the detail and circumstances can vary significantly so professional advice is critical.
At this point your needs might be more straightforward. Perhaps thoughts are turning to retirement or at least cutting back on work. If so it’s a great moment to check that your investments are properly aligned to your risk tolerance and time horizon. Chances are you might be want to be a bit more cautious in your later years.
It could also be a time when you thinking about sharing some of your wealth with family members. Gifting is one of a number of strategies that can help reduce the value of an estate for Inheritance Tax purposes meaning you really can 'keep it in the family'.
The contents of this article are for information purposes only and do not constitute advice or a personal recommendation. Investors are advised to seek professional advice before entering into any investment decisions. Please also note the value of investments and the income you get from them may fall as well as rise and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance.