If you have a spare £300 this month, that’s great news, but what is the best way to spend this windfall?
Today I’m going to outline my three smart money moves for £300 that can help you get your finances under control no matter what your situation.
Reduce debt
My first tip is to use this money to reduce debt. Paying off debt is by far the most sensible financial decision most people can make. Debt is far too easy to accumulate, but it is difficult to pay down. Therefore, I believe savers should take the opportunity to pay down debt whenever they get the chance.
I think it is particularly important to pay down high-cost debt, such as credit card borrowing, as credit cards usually charge rates of interest of 30% or more, which can mean debts quickly spiral out of control.
If you have a clean slate with lenders, then my next smart money move is to open a Lifetime ISA (LISA).
Start saving
A really good way to make the most of a £300 windfall is to move this money into a LISA. The great thing about a LISA is that the government will add a 25% bonus to any money you contribute so the £300 you deposit will instantly become £375.
However, there are some limits to what you can do with this money. Any funds saved within a LISA must be used for one of two things, funding a first home or retirement. Withdrawals for other reasons will incur a penalty of 25%. What’s more, LISAs can only be opened by savers between the ages of 18 and 39, and you can only put away a total of £4,000 each year.
Still, if you fall into the above age bracket and are saving for your first home, this is a great tool to use, and it can be made even better by investing your funds.
Start investing
One of the best ways to grow your money for the long term is to invest it. This applies to funds both in and outside a LISA. If you can’t open a LISA, a Stocks and Shares ISA is a good alternative. The only difference is ISAs do not offer the 25% government top-up.
Investing does not have to be time-consuming or complicated, and you can get started with just £300 today. I think the best way to get started with this amount is to buy a low-cost FTSE 100 tracker fund.
A FTSE 100 tracker will give you exposure to the top 100 public companies listed in the UK at the click of a button. Also, at the time of writing, the index supports a dividend yield of 4.3%, three times higher than the rate of interest offered by most high-street savings accounts on the market right now.
And thanks to the power of compound interest, the FTSE 100 could turn your £300 into £2,300 over three decades with no extra effort on your part (assuming an average annual return of 7%).