While focusing on which shares and other investments to add to your portfolio is a sound way to maximise your returns, looking at things from a different perspective can also make a huge difference to your financial outlook. Here, I consider four ideas that, if implemented, could increase the amount of cash you have available to invest, thereby increasing the size of your portfolio and, potentially, your monetary returns.
Invest Through A SIPP
Cash is hard to come by and, after tax, living and other expenses, many of us have little spare through which to buy shares in listed companies. However, one way of increasing the amount available to invest is to buy shares in the most tax efficient way possible: through a self-invested personal pension, or SIPP.
The great thing about SIPPs is that they are relatively straightforward to open, with your share dealing provider likely to offer them. Furthermore, the costs of having a SIPP are not particularly high, with them often being bundled together with a standard share dealing account or ISA.
However, the best reason to open a SIPP is that every £1 you invest through a SIPP is from your before tax earnings. In other words, for every 80p you invest, the government will refund you 20p in tax if you are a basic rate taxpayer. Similarly, for every 60p you invest, the government will refund you 40p in tax if you are a higher rate taxpayer. Either way, the amount available to invest increases by 25% or 67%, thereby increasing the size of your available funds.
Set Up A Standing Order
The saying ‘you learn to spend what you earn’ is very accurate, with people tending to spend more as they earn more. While it is common to lack self-discipline when the money is in your bank account, creating a situation where it is not there in the first place is a sound move.
For example, if you set up a standing order so that as soon as your salary enters your bank account, a portion of it is immediately transferred to your share dealing account, then it stops you being able to spend it on non-share dealing items. And, the best thing is that the saying ‘you learn to spend what you earn’ really does work both ways, thereby meaning that you may miss the additional income a lot less than you thought.
Keep Commissions Low
It is surprising that so many investors are happy to pay sky-high commission rates to their share dealing providers. Certainly, the internet has made online share dealing far cheaper than having to call up a broker as was the case last century. However, even paying £12+ per trade is unnecessarily high, with aggregated orders making share dealing available for as little as £1.50 per trade.
Of course, you can only deal on specified days (usually once per week), but for long term investors whether you buy at this very moment, or later this week, doesn’t make too much difference to overall returns.
Budget Properly
Clearly, budgeting is difficult when the cost of housing, having a family and other items is seemingly never-ending. However, by sitting down and planning your monthly spend, you may be surprised at the things you can cut out.
While not wishing to sound patronising, things such as expensive gym memberships, the latest tech gadgets, as well as utility and shopping bills can all be cut back. In fact, in many cases, you may wonder why on earth you didn’t cut back sooner, with lower priced alternatives not necessarily being of a lower quality.
Furthermore, by cutting back, you could increase your cash available to invest, thereby providing the opportunity to grow your wealth at a faster pace than you otherwise would have done.