Saving should be part of every financial strategy. You can’t plan budget management without making sure you can put money aside. Indeed, your savings could keep your budget afloat in case of an emergency, whether it’s an unexpected bill or prolonged unemployment. There’s a reason it’s called savings. It’s because your savings can save you.
The typical 50/30/20 rule suggests that the household should spend 50% of the net income on essentials, 30% on non-essential purchases, and put the remaining 20% into the savings pot. Ideally, to make the 50/30/20 rule work, you need to monitor cash flow closely. Indeed, the best way to turn 20% of your income into savings is to reduce your essential and non-essential costs. Could you cut down your electricity bills by switching providers, for instance? How much can you save through meal preps that prevent food waste and takeaway expenses? The bottom line, if you’re going to make your savings work harder, you need to make saving money possible in the first place. Unfortunately, successfully grown savings come at a cost. You could pay taxes on your savings. Here are some ways to make savings more affordable.
Look out for options to cut unforeseen taxes
Less than 5% of tax-payers in the UK pay tax on their savings interest. The personal savings allowance (PSA) lets you earn up to £1,000 in interest without worrying about taxes. However, your income tax rate will determine the PSA. High-earners may not benefit from any allowance, which means that savings do cost money. Yet, there are still strategies that can cut down tax expenses. Retirement savings, for instance, as highlighted in a post on Mega Backdoor Roths can be subjected to financial strategies that maximise savings for high-earners. ISAs are also left tax-free for as long as you don’t take money from those accounts.
Invest it in a small business
Sometimes, your savings are going to work better for you if you keep investing them further. Investing in a small business, for instance, can cut down your tax expenses, and ensure that your savings can carry on working for you. When you join a small business as an investor, you ultimately build an investment path for your savings. While there is no guarantee that you’ll receive a return for every pound you invest, the idea is to select companies that are more likely to become successful.
Alternatively, you can consider investing in your own venture. This could be the opportunity to launch your side hustle and grow it.
Reach out to a financial advisor to create a portfolio
An investment portfolio is designed to bring your savings and finances to the next level. Unfortunately, unless you know what you are doing, it can be tricky to create the right portfolio for your budget. Financial advisors tend to recommend low to medium risk investments with the highest returns to their clients who are unfamiliar with risk management strategies. Typically, this would include a combination of safe bonds, real-estate crowdfunding, dividend-paying stocks, annuities, and even peer-to-peer lending.
Savings, and especially savings for high-earners, tend to come with a tax expense. This can make it tricky for individuals to build up an effective savings strategy. However, there are different tips to avoid the tax hassle while making your savings work harder for you. An investment portfolio, for instance, can make sense of your income, dividing it into actively invested savings, and savings kept into designated accounts.