Voices in Finance » Saving

Should you choose an ISA or a regular savings account?

Mike — Thu, 15 Mar 2012 09:33:12 +0000

It’s a debate that many of us have at some time or another in our lives: should we take the plunge and go for a stocks and shares ISA, or look around for the best regular savings account we can find? It can be a hard choice, particularly if you can only afford to save a small amount of money and so want to make the most of it to maximise your chances of good returns.

Let’s take a look at the key points of the shares ISA and ordinary savings accounts so you can decide which would be best for you.

The savings account

As you no doubt know, an ordinary savings account is very simple: once you have opened it, you can deposit money into it and you earn interest on that money. You have to pay tax on the interest you earn and the interest rate can vary depending on the account you have chosen, who your provider is and the Bank of England base rate. You can typically access your money whenever you want with a regular savings account.

The share ISA

By contrast, with a share ISA, you do not have to pay any tax on the dividends you earn. However, this type of account differs dramatically to an ordinary savings account because it is effectively a form of investment. This means that the money you put into it is invested in the stock market and the performance of the ISA is dependent on the performance of the market. Therefore, there is a risk attached to investment ISAs, as well as an annual investment limit, but there is also the potential for good tax-free returns.

Which should you choose?

Now we come to the question of which you should choose: the ISA or the ordinary savings account. A lot of this choice comes down to whether you are willing to take the risk on a share ISA as there is a potential for your investment to fall as well as grow. However, the best stocks and shares ISAs are very careful about where they invest your money and typically take steps to spread the risk, as happens with the FTSE all-share ISA.

This means your money has the best possible chance to grow, and when your ISA is performing well, you can typically expect benefits that outstrip the typical rates of interest you will find on a standard savings account. You might also like to consider the amount you will be saving every year: this is important because of the annual ISA limit. The limit for the 2011/2012 tax year is £10680, which is a significant amount that should be plenty for most people. If you want to save more than this, though, you might need to look at other options, too.

Overall, both ISAs and savings accounts have much to recommend them and so you simply need to choose the one that suits you best. Don’t forget, though, that you could decide to have one of each so you can spread your money – it’s all about making sure you’ve got the right savings products for you and ensuring that you are getting as much as you can out of the money you’re saving for the future.

How to stick to your savings plan

Mike — Tue, 13 Sep 2011 05:29:45 +0000

Having savings accounts is not just a nice safety net in times of economic uncertainty; it is an essential. However, religiously putting money aside can sometimes be difficult when finances are stretched.

While squirreling money away in savings accounts is nowhere near as exciting as a splurge in the stores, it is important for everyone to have some funds to fall back on, should the worst happen.

Many people describe themselves as poorly motivated to save and despite the best of intentions end up spending the money earmarked for their savings accounts.

The best way to save is to get into a habit and where possible, arrange for money to be stashed away before you can get the dollars into your hands. This makes spending the money that is planned for saving far harder to do.

A good way to do this is to set up an arrangement with your bank to transfer money from your checking account into a savings account as soon as you get paid, taking away the temptation to spend before you have a chance to save.

Economizing in household spending is another way to free up cash to put away for a rainy day. Even if you don’t have much spare money to put into your savings account, it is surprising how quickly small amounts can add up.

Shopping around for the best deal rather than always going to the same grocery store out of habit can bring a bagful of discounts and shopping online and saving on the gas can be a cost-efficient alternative.

Some people find that having a list helps to stop the temptation to buy things that aren’t really needed, as there is less inclination to browse when the mind is focused on finding the items written down.

For families or couples trying to save, a good way to get everyone motivated to join in is by having a pin-up board that shows all the money spent each week. Every time a purchase is made, the receipt is kept and pinned up on the board for all to see, which is a good deterrent for when the urge comes to blow the budget!

Another tactic some people employ to try and stop them from overspending is by implementing the 24 hour rule. If you see something you are desperate to buy, walk away and leave it for 24 hours. If, after that time, you still want to spend your hard-earned cash on the item, go ahead. The delay can dampen the enthusiasm for spending money.

It can be difficult to keep saving without an end goal so rather than have all the money together, some people prefer to have different savings accounts for different reasons.

It helps to have different goals for the short, medium and long term. By having something specific to aim for, it is far easier to see how you are progressing towards your target and this acts as a powerful incentive.

Examples of short and medium term goals might be Christmas presents, a vacation, an expensive personal item such as a games console or MP3 player, or a wedding. Long-term savings goals may include a retirement pot or funds for when the children grow up and go to college.

However, it can feel like a real drag having to save money and constantly economize in the meantime. It is therefore a great idea to set some reward points at regular intervals.

Once your savings reach the level you have pre-agreed, you are officially allowed to go and treat yourself to a small reward with a clear conscience.

It is possible for everyone to save money, no matter how squeezed their finances may feel and as the immortal saying goes – a little goes a long way.

You May Not Be Able To Retire If You Do Not Save Your Money Now

J. Hamilton Fraser — Sat, 04 Jun 2011 22:18:10 +0000

Today many people are finding that they can not retire, or retire they way they had wished to because they have not made the necessary savings they would need. The amount of money it takes to retire is reportedly rising each year, that means that for a young adult to retire it will take more than their grandparents. But these reports may be misleading and as long as you take a few steps then you should be on the right track to a good retirement.

The most important thing to have during retirement is money, and most likely you do not want to keep working for that money. Having a fund in which you place your extra money and letting it gain interest would be the best plan. One plan of action could be a Roth IRA or an annuity depending on your financial status. But even before you have a retirement fund in place you will need a retirement plan in place.

Planning out how much money you will need during retirement is an essential part to being prepared. You need to plan for housing depending on if you will own your own home or not as well as other expenses. Medications, food, transportation, insurance, and utilities are among the bills you will need to forecast into your calculations. Sometimes the best thing you can do for retirement is to make sure all your mortgages are paid off as well as loans.

If you do not have any mortgages or loans to pay on when you are ready to retire then the amount of money you will need will be significantly less. Taking steps such as planting your own garden and or raising your own cows can cut your food costs as well as having your house and car already paid off. The expense reported to retire may be accurate if you are totally dependent on everyone else and have non of your loans paid off, but if you are prepared for retirement then it will take a lot less money.

Cut Down on Your Shopping Bills

Louise — Mon, 11 Apr 2011 11:41:41 +0000

Some people enjoy shopping, others hate it, but shopping is just one of those things that we have to do on a regular basis to keep our homes ticking over.

If you’re trying to improve your personal finance situation or just save some extra cash then cutting down on your shopping bills can really help, after all you don’t want to have to dip into your savings! Click here for more.

People spend thousands on shopping each and every year on everyday household goods and here are some great tips on how you can cut down on your shopping bills and save some extra cash.

Use a loyalty card – Many supermarkets will offer loyalty cards that you can use either in-store or online whenever you shop. Using your card you can build up reward points whenever you spend that you can then redeem when you need them. Also, using a loyalty card can sometimes entitle you to special offers that you wouldn’t otherwise be able to take advantage of.
Keep your eye out for vouchers and coupons – Many of the main high street supermarkets will offer special offers in the form of vouchers and coupons. These are sometimes available online or in newspapers and magazines and they can be a great way to save some extra cash.
Use cashback websites – Cashback websites are a great way to save some money online. The method is simple; you get some cashback on your purchases when you use the cashback websites to click through to online retailers. Before you sign up for a cashback website, do your research to make sure you are getting the best deal.
Make sure you’re getting a good deal – When you spend money on your shopping you should always make sure that you’re getting a good deal for your money. The best way to do this is to compare prices online using a price comparison website, they do all the hard work for you so you can simply enter a product and be told where the cheapest available price is. Great for online shopping.
Spend wisely by using a list – Before you go shopping, grab a pen and piece of paper and write down all of the items you need that you feel are necessities. Take this list with you when you go shopping and stick to it; this way you’ll avoid all unnecessary impulse purchases that ramp up the cost of your overall bill.
Don’t be fooled by special offers that aren’t what they seem – When you see special offers that say buy one get one free, try to remember what the original price of the product was to work out if the offer is really worth your money. Also, ask yourself do you really need that second product or will it be a waste of money?

Benefits of Following Ways to Save Money

J. Hamilton Fraser — Tue, 15 Feb 2011 17:19:09 +0000

Have you decided to tighten your purse? If so, you may benefit from several ways to save money. This task is not easy especially if you don’t know the first step to take. What you should do first is to set how much you can afford to save. By doing this, you can orient yourself not to overspend and not to buy things that are not important.

Instead, your focus will be on making more money by exploring part time jobs and other sources which can help you in increasing your finances. You also need to adjust your lifestyle so that you will not make any unnecessary spending.
You should also update yourself about your bank balance and avoid over draft fees. Additionally, you are discouraged to use credit cards because it can be one reason for the adding up of your debts. To save on spending, it is advised that you reuse items, wear clothes longer and reduce food costs. You should be patient and should be able to restraint yourself from impulsive buying.

Money problems can be difficult to solve as these require money, which you obviously don’t have. So, to start addressing these problems, list down your debts and compute them. After that, you look for ways on how to pay them off by focusing on saving.

Despite the need to pay off debts, don’t forget paying bills as delay in paying these can add another headache because it would mean that you will have to pay the interest. Set your financial goals and do anything to achieve it. Exercise self-discipline by not buying things that you don’t need.

Despite the many money problems you may encounter, there are techniques that you can use to tackle them. One such technique is the use of ways to save money, which you really need to avoid future problems about your finances.

Financial Planning: When Parents Pay for Their Child’s Wedding

J. Hamilton Fraser — Wed, 09 Feb 2011 12:08:03 +0000

Many people are waiting until they are well settled into their careers to get married and therefore often pay for their weddings themselves, this is still not always the case. And probably most parents should give some forethought to the issue before the time comes. Even if your children do pay for much of their wedding costs themselves, you may still wish to help out some and maybe even give them a special surprise.

When children are very young, it is hard to imagine them being all grown up and getting married. But the years do go by fast and the time will come. It’s better to be prepared than not.

Here are three areas for you think about as you plan for the future.

One, how much money will you give your child for their wedding? Some parents who want their children to have the best of everything for the most important day of their lives will give them blank checks. While no doubt son or daughter would love the sound of that, it might not be the best thing. Better probably to set a limit.

You can still give your child a lot of flexibility in what they decide to do with the money. In fact, that is the whole idea. Making decisions regarding finances and budgeting is something that they will have to do all their married lives. This could provide a good opportunity for them to get some practice before they say their I do’s.

Two, if you are planning on contributing generously to your child’s wedding, you will want to think about how you will go about saving money for the event. There are many different kinds of investment instruments to choose from designed to fit the time frame you are looking at.

It would be a good idea to talk to a financial advisor to find what some of the alternatives are, including the option of transferring the assets into the child’s name in order to have the monies taxed at their tax rate rather than yours. This could be a big money saver.

Three, you will need to decide when to give the money to the child. Probably best to wait until time to begin paying for the wedding, but there may be tax considerations for doing it earlier. Again, this is where a good financial planner could be helpful.

A wedding is a wonderful event for the whole family to celebrate. Where there can be little glitches in pulling off the event, having enough money doesn’t need to be an issue with advance planning.

Find more helpful information about weddings including the cost benefit of having a Nashville garden wedding or even a Nashville park wedding location.

Is An Early Roth IRA Withdrawal Right For You?

J. Hamilton Fraser — Mon, 07 Jun 2010 01:56:54 +0000

So you want to take an early withdrawal from your Roth IRA, and you’re wondering what, if any, IRA penalties you will incur because of this. Chances are, it’s a bit more than you want to pay. Let’s take a look at how and why you can avoid some of these penalties.

A Roth IRA early withdrawal is described as an early removal of funds before the age of 59 ½, or before a 5 tax year time frame. You have funded your Roth IRA with after tax funds so you will never have to pay income tax on the money you placed in the fund, only on the gains that occurred.

One of the exceptions to the 10% early withdrawal penalty is the use of funds for higher education. This can be for yourself, a child or grandchild. You will likely still have to pay income tax on the money so be sure this is the right choice.

Another exception to the early penalty charge is if you or the people you will be lending the money to are first time home buyers. This exception has a limit though as well of $10,000. Though, if you and a future spouse or a child each have a Roth IRA you both can withdraw this amount of money to be used as a down payment on the home.

The 5 year rule comes into play as well here. You cannot open a Roth IRA when you are 58 and then decide to remove funds at 59 ½ without incurring penalties as well. The fund needs to have been open for 5 tax years.

As you can see, there are ways to use your Roth IRA as an additional savings account as long as you are aware of the penalties that could potentially go along with using the funds for something other than retirement.

Insurance Funding Techniques With Immediate Fixed Annuities

J. Hamilton Fraser — Fri, 04 Jun 2010 09:05:50 +0000

Used correctly, immediate fixed annuities are a good tool for planning your finances. Though some financial planners give such products a negative review, overcoming their limitations can be accomplished with proper planning and education. Immediate annuities provide a fixed income to their owners for a designated time period.

Starting with a paid, lump sum premium amount into the annuity, beneficiaries receive regular monthly payments. This varies by the amount, number of payouts and contract length. The account owner can decide whom their beneficiaries are, often naming themselves. Spouses are also common designated persons.

One main drawback to fixed annuities is the expensive fee charged for leaving a contract early. Expect to pay a steep service charge if you decide that you need your money earlier than the determined schedule for payment. Another problem is the suitability of the product for various situations.

You can increase the benefits of an annuity by understanding how the product works and what you may encounter by opting out early. A general use for immediate annuity contracts is funding insurance premiums. Receiving regular payments lets the policy owner get a determined amount of funds over a set time frame. At the same time, payments into an insurance policy are also predictable and consistent. When designed for this purpose, a smart way to use the annuity is for making these insurance payments.

Before implementing such a plan, carefully consider all of the parts and implications. Look at the variables including, penalties, fees and tax consequences. If you have any questions, be sure to consult a professional. They will be able to fill in the gaps of understanding, and allow you to make an educated and informed decision. It never hurts taking advice when it comes to your hard-earned money. You worked hard to earn, you should work hard to keep it.

Is Early Retirement Remotely Possible?

J. Hamilton Fraser — Sat, 08 May 2010 00:48:07 +0000

Traditional retirement is a thing of the past for most Americans. The days of one person getting a job and working there until the day they retire are long gone. Furthermore, we have experienced market crashes where many have seen their investments plummet, we’ve had record foreclosures, double digit unemployment, underfunded 401k and a bankrupt social security. With all the ugly economic factors and the idea of traditional retirement seems to be out of reach is an early retirement remotely possible?

Photo by chairman monekoAnything is possible, it just means that you will have to use a different investment strategy now than in the past if you plan to retire early. For example, two things that you’ll need to rethink are pension plans and social security. As mentioned earlier these two vehicles are not going to be available for the majority of Americans. Thus, some new strategies may be investing in a self-directed IRA, frugal living, and hard work.

What Is Early Retirement?

Traditionally we have defined an early retirement as lying in a hammock on the beach, playing golf all day or traveling abroad. Today, many people are redefining what it means to retire. Retiring early is evolving to getting up every day and doing what you want out passion and desire rather than necessity and obligation. It’s not as much about having a million dollars in the bank as it is about creating financial freedom to fund a particular lifestyle. Everything else is just icing on the cake.

Most people today would be happy just to escape the rat race of a 9-5 job and start their own home based business. An early retirement can also show up in the form of downsizing and extreme frugality. What people are seeking is what early retirement can give them which is more freedom, mobility and flexibility. Early retirement doesn’t mean not working anymore.

Conclusion

Early retirement is an alternative strategy compared to working until your 65 at a traditional 9-5 job. Even in today’s economy its still possible to retire early as long as you have a written plan and start early. In a nutshell you are giving yourself options about your retirement that few workers seriously consider.

Saving For Later Makes Things Better

J. Hamilton Fraser — Thu, 06 May 2010 04:52:43 +0000

If you are aware of the benefits of the 401k, then hopefully you have been keeping yours well funded before you decide to cash it out. You will want to make sure that you take full advantage of your employer’s matching funds if they offer them. You will also want to keep your money in the 401k as long as possible in order to let the money in it to grow. However, at some point you will need to withdrawal this money (hopefully when you are ready to retire).

If you are in a situation where you are not retiring, and do not want to rollover your money, but rather cashing out your 401k for any other reason, then you will probably want to place that money in some other type of investment. The worst thing that you can do is cash out and then let your money sit around in the bank and get eaten away by inflation. If you are not using the money for retirement, then you should look into your options to rollover the money into another 401k or Roth IRA plan.

Photo by robertrazrblogAssuming that you are ready to cash out your 401k though, you will need to know how quickly you will be able to do this. The speed at which you will be able to get your money out will depend on how much you have in the account. If you have a large amount (hopefully you do), then it may actually take a little longer to get your money. This is because your broker will want to get the best price for you rather than unload so much stock at one time. Your money will get to you, it will just be a more gradual process. Remember, do not cash out your money from your 401k until you absolutely need to. If possible leave it where it is or do a 401k rollover to a new employer.