Research shows many Britons are worried about their financial security. For example, a 2019 Close Brothers study found that 94% of UK employees suffer money worries, while only four out of 10 employees are confident they’ll be able to retire at the age they want to. Meanwhile, another recent study by Aegon found that 41% of UK employees are concerned that their savings won’t last throughout retirement.
If you’re worried about financial security, the key is to take charge of your finances sooner rather than later. With that in mind, here’s a look at four smart moves that could put you in a better position financially and reduce your related stress.
Pay off debt
One of the first things to do is to pay off high-interest-rate debt (such as credit card debt) as soon as possible. This kind of debt can really set you back and prevent you from achieving your financial goals. Paying it off won’t only put you in a stronger position financially but it’ll also take a huge weight off your shoulders.
Build an emergency fund
Once your debt is sorted, the next thing to do is to build up an emergency savings fund. This is a stash of money designed to protect you against financial shocks, such as losing your job or being hit with a large unexpected medical bill. Aim to build up enough money to cover at least three months’ worth of expenses – this will ensure you’ll have a financial buffer and provide peace of mind.
Save within tax-efficient accounts
The next smart move I’d recommend making is taking advantage of tax-free savings allowances and incentives the government has put in place for those willing to save for retirement. A good place to start could be a Stocks and Shares ISA. Here, you can put away up to £20,000 per year, completely tax-free.
Alternatively, if you’re saving for retirement, you could contribute to a Self-Invested Personal Pension (SIPP) account. The advantage of saving into this type of account is that the government tops up your contributions. These government top-ups could help boost your pension savings and reduce stress in relation to retirement.
Invest your money
Finally, the most important step if you want to be financially secure, is to get your money working for you. This means investing it, as opposed to just saving it.
One of the most effective ways to grow your money is by investing it in the stock market. While stocks can be volatile in the short term, they tend to produce fantastic returns over the long run. For example, since 1984, the main UK stock market index, the FTSE 100, has returned around 9% per year on average. Meanwhile, the main US stock market index, the S&P 500, has returned around 10% per year since 1926.
That kind of return could make a huge difference to your wealth over time. For example, save £5,000 per year and earn 9% on your money, and you could be looking at savings of over £250,000 after 20 years. Add in the government SIPP bonuses (20% tax relief for basic-rate taxpayers) and you could be looking at retirement savings of roughly £320,000.
Having that amount of money available for retirement is likely to ease your financial worries significantly.