Today is the last Friday of the month which, for many people across the UK, means one thing – payday. With that in mind, here are four top money moves you could make if you’re getting paid today.
Pay yourself first
If your goal is to build up your wealth, one of the smartest things you can do whenever you get paid is ‘pay yourself first.’ This is the process of redirecting a proportion of your salary into a savings or investment account as soon as you receive it, before you pay all your bills and other expenses. By paying yourself first, you remove the temptation to spend all your money and it becomes much easier to save.Â
Invest your moneyÂ
If you’re working towards a long-term financial goal, it could be a good idea to invest your money, as opposed to just saving it. The problem savers face right now is that the interest rates offered by savings accounts are abysmally low. For example, the best rate you can pick up is around 1.5%, which is actually below the rate of inflation. This means that money held in a savings account is actually losing its purchasing power over time.
By investing your money in assets such as shares and funds, you could potentially generate returns that are much higher than this over the long run. For example, the most popular investment fund in the UK, Fundsmith, has returned around 150% over the last five years, although past performance is no guarantee of future performance.Â
Create a passive income
Another smart idea if you have money to invest is to start building up a passive income. The ‘Holy Grail’ of personal finance, passive income is cash flow that’s generated without having to actively work for it. Build up enough of it and you could potentially quit your job.
These days, investors are spoilt for choice when it comes to assets that can generate passive income. For example, there are many stocks in the FTSE 100 offering dividend yields of 6% or more right now. There are also plenty of investment trusts that have high yields and could be used to generate passive income.Â
Protect your money from the taxman
Finally, consider investing through a Stocks & Shares ISA. The advantage of this account is that all gains and income from investments are sheltered from the taxman. So, for example, the passive income I mentioned above could be completely tax-free for you. Additionally, it’s a flexible account that allows you to access your money at any time. Currently, every adult in the UK can contribute up to £20,000 per year into a Stocks & Shares ISA.
Those aged 18-40 may also want to consider the Lifetime ISA. Like the Stocks & Shares ISA, all gains and income within this type of account are tax-free. The added advantage here though is that all contributions come with a 25% bonus from the government. For example, contribute £1,000 into the account and the government will give you an extra £250. There are restrictions here, unfortunately – you can’t touch the money until your turn 60 or buy your first house, and you can only put in £4,000 per year. However, overall, it’s a super deal.