One thing that has always bothered me is why there are people out there who don’t have an ISA, be it cash or stocks and shares.
Whilst this has become less of a burning issue for me now that we have had the ISA allowance jump from £7,200 (when I first started saving) to £20,000 from next year, you never know what they will do in the future on this. It’s almost like not having a fridge (ok slightly extreme maybe, but…). Now I understand that some people really struggle to find any left over money for savings, but I do believe you can take almost any budget and find an area that could be trimmed back. I phrase this carefully – could. From what I have found in conversations and comments on blogs etc. a lot of people don’t want to. That’s not the same thing.
For me it is just a no brainer. It’s TAX FREE. Anything done in there means you don’t have to count it in your tax return regardless of performance (granted, you can’t take the losses on any stock sales against tax), and you can take any money from it tax free, it grows tax free, the taxman doesn’t even want to know about it (at the minute – whilst it may change, my personal view is that it’s unlikely in the near term at least). You can add money in or take it out at any time, no need to wait until you are 55 (or older).
Even if it’s only £10 a month you want to start with, shove it into something like a Vanguard LifeStrategy fund on a regular scheme. Now granted, that would buy you the equivalent of about 2p a month, at which point most people switch off (the fees take a disproportionate amount of the investment sum). Why bother for the effort of 2p a month? If you are in the position of only being able to save £10 a month, then 2p a month, going up by 2p a month will soon add up, especially with compounding. Think of it as buying yourself a pint in the future… every month… for the rest of your life… without having to do anything!
Everyone needs an emergency fund (unless your monthly passive income is so high you could buy a superyacht every month) of some sort. Whilst current cash ISAs pay an incredibly low level of interest compared to current accounts, I get why people may think it’s not worth it, but why open yourself up to that risk? If you work hard, get other income and increase your earnings you may well live to regret it in the future. Even if you put it in cash ISAs now because you can’t fill your S&S ISA – you may find in years to come you are in a position to fill the ISA, and all of a sudden also build a cash emergency fund outside of your ISA – you can then transfer your Cash ISA into your S&S ISA giving a further boost.
For me, it comes down to how willing people are to make sacrifices. I really do believe that *almost* anyone can find a spare £10, £20 or £50 a month in their budget – the question is if they are willing to make the sacrifice to get that. I hold my hands up – I know I could trim my expenses down by at least 10% of income and add that to savings, but I am not willing to – my choice, and that extra 10% will add years to my retirement date, but again, that’s my choice.
On the assumption that they do, then why not just get a direct debit setup into an S&S ISA – take a Vanguard LifeStrategy fund. If you want to be comfortable, go for the one that pays out, into the ISA, and use that to help build up further savings, or use the accumulation and watch it slowly grow. If you can squeeze say £100 a month, then you can always do both!
Yes it will take a little bit of hassle at first to set up the ISA and direct debit
In those famous words…. JFDI.