There are very few personal benefits to being in lockdown over the last 12 months, but spending less money is certainly one of them. With holiday plans cancelled, limited car journeys to take, no fancy coffees and certainly no nights out – many of us have found that we have extra money building up each month. In fact, Nationwide Building Society estimated that savers have put away an average of £1,085.90 since last March, based on a survey of Britons’ financial health during the pandemic and beyond.
Now that lockdown restrictions are easing, it’s important to use our lockdown savings wisely to help look after our longer term financial goals.
We’ve put together five ways to use lockdown savings to help get your financial health on the right track:
If you have any credit cards, now is the time to clear any balances so that you’re not charged unnecessary interest. Debts usually cost more than savings earn and by paying off your credit card balance, it could free up any monthly minimum payments that you are making and will certainly save you paying interest.
Investing a lump sum into your pension
Increasing your monthly pension contributions or paying a lump sum into your pension will help boost your pension savings. You can put any lump sum into your pension at any time which is a tax efficient way of utilising your savings. In fact, the sooner you can invest more into your pension, the more time it will have to grow, potentially giving you more income in retirement.
Use tax allowances
Making full use of tax allowances will help to reduce the amount of tax you pay. This applies to both ISA’s and pension. For example:
You can pay your whole allowance of £20,000 into a Stocks and shares ISA, or into a Cash ISA or any combination of these and you won’t pay income tax on the interest, and any profits from these investments are also free of Capital Gains Tax.
You can also earn tax relief on your pension. Tax relief is paid on your pension contributions at the highest rate of income tax you pay.
Build an emergency fund
It’s important to give yourself a ‘financial cushion’ to help support you through time that you may not be able to work or earn income, or also for any large emergency items that you may not otherwise have budgeted for such as a new boiler, roof or car. A general rule of them is to save between 3-6 months of your salary into a savings account that you can access quickly and easily.
Speak to an expert
Finally, to make the most of any lockdown savings, reduce your tax bill and save enough for your future, we strongly advise you speak to an expert. Contact our team today.
The value of a pension will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.