Saving, the first step to wealth creation

Saving is essential part of wealth creation, however many people don’t do it properly. What do I mean exactly? Well the most common mistakes about saving is that people tend to save whatever left after spending. That’s wrong, first you have to create a budget as previously mentioned at another article, you just have to track your income and expenses by using the aforementioned Spending app for example.

Now you got a clear picture about your spending habit and you can see on realistically how much money you can save on monthly basis. I definitely would recommend to set up a standing order for the amount you intend to save right for the day you tend to receive your salary and you can place it into a savings account or directly invest it elsewhere, so the key is to save first (pay yourself) before you pay for anything else.

Before you start to save, make sure you got rid off all of your debt, I would recommend to start with the highest interest one. Get rid off your chains, debts lock you up, get rid off them.

It’s ain’t no fun being in debt…

In most cases I wouldn’t advise to start to pay off above the minimum amount (9% over £25,000 gross salary in the UK) the student loans in the United Kingdom as it is rare that you earn that much to make it worth pay off earlier, you can find about Student Finance an article when is worth to pay it off early here.

Save 6 months of your salary to build an emergency fund and place this amount into a high interest bank account, to find the best option just click here.

Once you managed to save your emergency fund, the question is more like what are you planning to do with your savings. Saving is simply not enough, you have to make your money working for you and when I say working for you, I do not mean high interest current accounts. The best way is to invest your hard earn money on monthly basis into something that enables you to create a passive income source for example; shares which pay dividend, corporate/government bonds, ETF, accumulative index trackers etc.

What kind of investment options are available for you in the United Kingdom? Well there’s a wide choice of online brokers, most of the banks have trading platforms also, but bigger asset managers like Vanguard, Blackrock, have great option to invest into passive index tracker funds with them for very low management fees or if you are more experienced and would like to invest into particular shares you sign up with an online broker platform such as Interactive Investor, Hargreaves Lansdown, IG or Degiro just to name the well known ones.

Investing is essential in wealth creation, you don’t need to be more smart than most of the people but you definitely have to be more disciplined than them.

I personally use Interactive Investor as I have a substantial amount invested and I invest on their platform on regular basis. I am more than satisfied with their services, prices, the content they publish on regular basis, they also offer ISA and regular investment option, the customer service is always helpful.

I do not know much about Degiro and IG only that they are low cost and they are a great match for investors with lower amount invested. The rule of thumb is simple, calculate how does it worth the best for you especially if you invested lower amount (less than £50k) as might a broker with % commission charge is more suitable for you meanwhile if you have a higher amount available to invest you’re most probably better off with a fixed fee online broker.

Hargreaves Lansdown is a the most priciest option on the field of online brokers available in the United Kingdom, however their customer service, their platform, their content and research published on their site is outstanding. If you have a higher amount to invest and you believe a better organised website with regular quality content and outstanding customer service worth their fee, I am sure you won’t regret joining them.

In the United Kingdom as an investor you can also open an ISA - Individual Saving Account - there are a few types of it like Cash ISA - Stocks and Shares ISA - Innovative Finance ISA - Help to Buy ISA - Lifetime ISA.

I would like to talk more about the Stocks and Shares ISA in general as that’s the one you should go for, simply because this is the best way to invest your money. If you open an ISA it lets you invest £20,000 in 2018/19 tax year without paying any tax on their future capital gain or on the dividends received after the shares held in them, this amount is going to be tax free forever until it is held in an ISA wrapper. I don’t think I have to mention the importance of tax optimisation.

Of course if you have a higher amount to invest you still can optimise your taxation depending on the amount in multiple way and if you have more than £20,000 in this tax year you can still invest it into shares, in this case there’s a capital gain tax allowance of £11,700 and on top of that a dividend allowance of £2000.00 in the 2018/19 tax year. If you are lucky enough to managed to make more money than this, the rest of the capital gains and dividends taxable depending which tax bracket you are on.

I hope you found useful this little article about saving and investing.

Your Sincerely

To/Minimal