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Anita Brook is founder of Accounts Assist a growing firm of Chartered Accountants. She’s been advising small business, sole traders and consultants for 12 years.
Saving for a rainy day
Do you have money put aside for a rainy day? According to a new survey nearly a third of Britons don’t.
This week HSBC issued findings from a survey, which showed that most of us only have the equivalent of five days of the average salary saved. Three out of 10 people have less than £249 to see them through an emergency and a third of this group have no savings at all.
Financial advisors suggest three months’ wages is a reasonable safety net, so the state of Britain’s bank accounts is a scary one – particularly in-light of the fragile job market.
Only one in five people asked said they would be able to continue paying their mortgage, rent or other bills, if they found themselves unemployed. And, striking a blow to female independence, women are in a worse position than men, with 20 per cent having no savings at all compared with 17 per cent of men. Women were also twice as likely to say that they would rely on their partner’s earnings if they could not work.
If you’re reading this and feel it’s time to take action, or if you have savings already but want to make sure they’re in the right place, ISAs still remain one of the best ways to save money; here’s an overview of options:
ISAs: Despite the low interest rates we’ve experienced in recent years, ISAs are still a good option and the great news is that they’re tax-free. Since April this year, the amount of cash you can save before you have to pay tax has risen from £3,600 to £5,100.
There are two types; cash ISAs (basically a savings account) or stocks and shares ISAs – a fund that will pick shares, property or bonds on your behalf.
Cash ISAs: These are ordinary savings account, with the interest you accumulate free from tax. In the past cash ISAs were locked away taking days to get hold of, but now, thanks to internet banking, many give you instant access to your money (which may or may not be a good thing).
Rates vary and some ISA provider allows you to transfer money between them, meaning you can take advantage of the best deal, without affecting your yearly allowance. FMWF’s sister site This is money provides a daily update of the different ISA rates: http://www.thisismoney.co.uk/bestsavingsrates
Share ISAs: This is an investment account where you hold shares and funds. As with a cash ISA, the investments held are allowed to grow tax free. In addition, you can have Corporate Bonds and GILTS (government bonds) in an ISA account. Bonds pay a fixed rate of interest, potentially giving money back on a pre-agreed date. Any interest paid is exempt from income tax.
To make this way of saving successful you need to pick funds, and/or individual shares and bonds that are likely to deliver a high return for the lowest risk. For anyone 18 or over you may currently invest £10,200 into a share ISA, with up to £5,100 as cash – the full amount can be stocks and shares if you wish.
In order to make the best share or bond choices, it is a good idea to seek the help of a financial advisor. You will be charged, but it may prevent you from making a risky investment.
Wherever you put your cash, it’s important that you save some – you never know what might happen.
For the self-employed, being without a safety net could result in complete financial disaster – if people pay late, or can’t pay, you’ve got nothing to fall back on.
Buck the trend highlighted by HSBC’s survey and make sure you start saving for a rainy day.
Tags: Anita Brook, Family Finances, redundancy, saving, self-employment
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