Savings and investment tools for the new year

A survey by The Standard suggests that more than half of people (52%) believe January is the time of year that causes the most financial stress. So understandably it’s common for people to review their financial situation as the new year comes around. In this blog we’re going to look at the tools available to you for saving and investing but most importantly, what’s the difference between the two and how do you decide which route to take? 

" A recommended practice is to set aside 10% of monthly wages, distributing it among various objectives and opting for different financial products including saving through pension contributions, setting aside money for vacations, and investing in a house deposit through an ISA. "

Why is it important to have savings and investments?  
Establishing savings and investments is crucial for both financial freedom and security. It provides the flexibility to enjoy activities like holidays without the fear of accumulating debt, whilst also serving as a safety net for unforeseen circumstances such as a broken boiler. Financial experts suggest having at least three to six months' worth of living expenses available, ensuring a buffer in case of job loss or illness.  

Beyond emergency funds, allocating spare cash for future goals like weddings or holidays is recommended. The decision to save or invest depends on the nature and timeline of these goals, as well as how comfortable you are with taking risks. 

A recommended practice is to set aside 10% of monthly wages, distributing it among various objectives and opting for different financial products including saving through pension contributions, setting aside money for vacations, and investing in a house deposit through an ISA.  

What is the difference between saving and investing?  
Saving and investing are both ways of trying to make your money work harder, but there are important differences. 

Savings 
Saving involves trusting your money to a bank or building society, and in return, they reward you with interest. For example, a bank may agree to pay you 5% of your deposited amount each year. The interest terms are typically predetermined and may be either fixed or variable. With a fixed rate, you know exactly what you'll earn throughout the year, while variable interest can change, influenced by factors like the Bank of England altering its base rate. 

Although your initial savings amount is secure when you save, it’s not common to find accounts that beat inflation rates. This implies that as the cost of goods rises faster than your savings, your purchasing power diminishes over time. To achieve your financial goals, it becomes necessary to save more than initially anticipated. 

Investing  
Various investment options exist including: 
-Stocks & Shares ISAs 
-Pensions 
-Bonds 
-Funds 
-Property  
-Emerging businesses  

When you invest, you're basically buying a piece of something, like a share of a company or a building. The idea is that these investments will grow in value over time, so when you sell them, you make a profit. Sometimes, these investments also pay you a share of their profits, which is called dividends, especially with stocks. Some strategies focus on making money from these dividends. But, keep in mind that the things you invest in might not always go up in value. If you sell when the value has dropped, you might get back less than you put in. 

To reduce this risk, many people don't just invest in one thing. They spread their money across different types of investments, this helps protect their money from going up and down too much in the financial market. Some companies can help you do this by picking a mix of investments or copying financial indexes. 

While investing has its risks, especially in the short term, having a diverse investment strategy usually works better than just saving money in the long run. It helps keep your money safe from rising prices over time. That's why many people, especially through pension schemes, choose to have some form of investment. 

When to save and when to invest  
Deciding whether to save or invest depends on what you want to achieve when you want to achieve it, and how comfortable you are with taking risks. 

Firstly, consider the time frame of your goals—whether they are short, medium, or long-term. If your goal is something happening soon, like a holiday next year, it's better to save. Financial experts suggest investing only if you can wait at least five years before needing the money. This time allows your investments to recover from any ups and downs in the stock market. 

On the other hand, if your goal is very long-term, like saving for retirement, it's a good idea to consider investing. All workplace pension schemes in the UK involve investments, providing the best opportunity to use compound interest to grow your money and outpace inflation. 

For medium-term goals, like buying a house in ten years, the choice between saving and investing depends mainly on how much risk you are willing to take. 

If you would like more information on the pros and cons, please do contact us for more information at Giant Finance+