Compound Interest Retirement Contributions – 7 Things You Should Know About Money Personal Finances | Finance
Compound Interest Pension Contributions – The Money Topic Is Wide
In September 2014, financial education became a compulsory part of the national curriculum in England. However, for many there is still a lot to learn when it comes to finances. Jamie Jenkins, Global Savings Policy Manager at Standard Life, spoke to Express.co.uk about what he thinks are the seven most important lessons about money. So, from saving money on daily expenses to maximizing savings, what does he think people should be aware of?
1. Budgeting 101
According to Jenkins, tracking expenses could be very important.
âPutting money aside for the future as soon as possible means being aware of your current expenses and learning how to budget as efficiently as possible,â he said.
âWhen it comes to budgeting, there are two main considerations. First, how much money do you need to cover your regular expenses?
âThere is no clear answer to that because it is different for everyone. Calculating a budget for your top spending habits (including everything from mortgage or rent payments and bills, to grocery stores, travel, and socializing) will help you figure out how much you need. to live.
âSee how much money you have left at the end of each month and consider setting up a standing order to put it into a savings account.
âThen you have to ask yourself if it is possible to reduce your main spending habits. It might be easier said than done, but there are plenty of ways to do it.
“Shop around for the best deals on bills and use money saving apps to track your spending.”
2. The low point on bank rates and inflation
Whether it’s borrowing loans or earning interest through savings accounts, interest rates can have an impact on a person’s finances.
But how are they evolving and what does this mean in terms of personal finances?
Mr Jenkins explained: âThe Bank of England (BoE) is the central bank of the United Kingdom. It makes decisions on the UK discount rate, more commonly known as the “base rate”. But what does this mean to you?
âThe base rate has an impact on the rates that banks charge us to borrow money or put into our savings. It currently sits at 0.75%, which is low by historical standards. This means that it’s usually easier to borrow money, but the interest you get on your savings is also low.
âIf interest rates were to rise, it would be more expensive for households and businesses to borrow, but it can become more rewarding to save.
âAnother thing you’ll hear a lot about in the news is ‘inflation.’ In short, it is the rising cost of the everyday goods and services that we buy.
âIf your savings are paid an interest rate lower than the rate of inflation, then the real value of your money goes down.
âFor example, if you had Â£ 100 in a bank for a year with an interest rate of 1%, you would have Â£ 101. However, if inflation were 2%, the cost of Â£ 100 of daily consumer goods would have risen to Â£ 102. “
3. Tax rules applicable to savings
When it comes to saving money, the Personal Savings Allowance (PSA) – introduced April 6, 2016, means the majority of UK savers don’t have to pay tax on the income from their savings.
Nonetheless, some people will still opt for the tax exempt option of an ISA.
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âIndividual savings accounts, or ‘ISAs’, are very popular because they allow you to save your money tax-free and generally allow access to it when you need it,â Mr. Jenkins said.
âYou can save in a Cash ISA and earn interest, or invest in a Stocks and Shares ISA – both allow you to contribute up to Â£ 20,000 efficiently each fiscal year. But remember that with a Stocks & Shares ISA, your money is invested so that its value can go down as well as up.
“There are different types to meet different needs, whether it is a Purchase Assistance ISA or a Lifetime ISA, so it is important to use one that fits your needs.” . “
READ MORE: What is the ISA cash limit for 2019/20? Savings allowance in an annual ISA explained
Some people may wonder if it is better to get an ISA in cash than to save money in a regular savings account.
Mr Jenkins said: “Cash ISAs may offer higher interest rates than regular bank accounts and are not subject to the ups and downs of investing, but they still may not beat inflation. , or they may require you to tie up your money for a year or more to qualify for the higher interest rate.
4. How to make your money work harder
While investing isn’t for everyone, it might be something some choose to consider.
Mr. Jenkins said, âWhen you invest your money, you give it a chance to rise in value. There is no guide to tell us how much and when to invest our money. If you choose to invest, generally the earlier you start, the longer your chance to grow your money.
âThe final value of your investments will depend on three main factors: the amount you pay, the return on your investments and the length of your investment.
âGenerally speaking, the more you pay, the longer you can keep your money invested, the more likely you are to get back in the end.
âYour investments can fall in value as well as increase, especially in the short term, and they could be worth less than those originally invested. This is why the longer you leave your money invested, the more likely you are to see it increase in value.
5. The wonder of compound interest
âIt might sound boring, but the effect of compound interest on your money is very powerful,â Mr. Jenkins said.
âLet’s say you save Â£ 100. The interest you get will be added to that Â£ 100. And the following year, the interest you get is added to your original Â£ 100, plus any previous growth.
âIf you let your savings grow, it happens year after year – it’s the ‘snowball’ effect. Growth may be low over a year, but over time compounding can potentially increase the value of your savings significantly.
âSo if your goal is to save for a big final amount, compound interest will help you over time. In the case of a savings account, the interest is compounded daily, monthly or quarterly, and you will earn interest on the interest.
âIn an interest deposit account, cash is generally secure. The impact of capitalization can also apply to investments, but investments are not secure. Their value can go down as well as up, and could be worth less than the initial investment.
Compound Interest Pension Contributions: Knowing About The Money Is Important To Many People
Put simply, a modern and flexible pension is a long-term savings plan and a tax-efficient way to save money during your working life.
6. Pension plans
Retirement may seem far away to some people, but you shouldn’t forget to plan for your later years, Jenkins warned.
He said: âAs soon as you enter the world of work you are probably contributing to a pension, so it’s important to know what it is and why you should take it seriously.
âPut simply, a modern and flexible pension is a long-term savings plan and a tax-efficient way to save money during your working life.
âYou contribute, and if you have an employer pension, your employer also contributes. This money is then invested and has the chance to grow over time.
âThe amount you will receive when you are ready to draw your pension – you are currently eligible for it from age 55 – will depend on how much you invest, the performance of your retirement investments and how long you are invested. “
7. Know your history
A credit score is something that most adults will have, and it can impact the rates offered to a borrower.
âIn addition to thinking about saving, it’s important to understand how financial providers see you,â Jenkins said.
âWhen you apply for most financial products, such as mortgages, credit cards, and overdrafts, lenders normally do a credit check to calculate the risk of lending you money.
âIf your application is denied it negatively impacts your credit score, so it is wise to make decisions carefully and not make a lot of unnecessary requests.
âA good credit rating is important. Whether it’s helping you qualify for the best interest rates and terms on a mortgage or influencing your chances of a new phone deal, it will affect you in more ways than you can. never imagined.
So how do you look for a healthier looking credit score?
“Some ways to improve your credit score are to pay all of your bills on time, pay off your debts, and only apply for new credit accounts when needed,” Jenkins suggested.
“Registering to vote also makes a big difference as election details are recorded and this data helps lenders confirm your name and address, so your score will increase accordingly.”
The Standard Lift team added that tax laws and rules may change and the value of tax benefits will depend on individual circumstances.
âThe information here is based on our understanding as of August 2019 and should not be taken as financial advice,â they added. âThe value of investments can go down as well as up, and could be worth less than that initially invested. “