As well as health, improving finances is often one of our New Year resolutions, particularly improving the saving and investing habit. Investing can seem daunting at first, but here are ten tips for investing success in 2021 — some simple habits to help you gain confidence and build a better financial future for you and your family.
1 Rainy day savings
Make sure you have enough money set aside for a rainy day. Having at three to six months of your living costs set aside in savings means that you can cope with any nasty surprises like losing your job. You should set aside enough to pay your mortgage or rent, bills and food etc. If you have children, you should set aside a bit more. Having a rainy-day fund gives you security and a bit more elbow room when things don’t go to plan.
2 Sunny day savings
Once you’ve got the rainy days sorted out and have enough cash to cover at least three months of expenses, you can think about sunny days. Investing now for sunny days a long time in the future should be your focus, but it’s also nice to squirrel away cash for holidays and other luxuries you might want to enjoy in the next year or two without having to resort to a credit card. For short-term savings, it’s best to stick to savings accounts.
3 Spend wisely, save wisely
It’s all too easy to fritter away money on coffees, lunches and the like and then find that there’s nothing left to save, or put towards the item you really want to buy. All saving is good saving — it doesn’t matter if you’re saving towards car, a house, a holiday or a pair of louboutin shoes. Take the time to review your everyday expenditure and cut down on some of your coffees, lunches, Deliveroos and the like and use the money to save for those rainy days, sunny days, that camera, those Louboutins or the Tesla.
4 Pay yourself first
Before you start investing, be clear about your financials goals and how you’re going to achieve them, then pay yourself a percentage of your salary. Decide the amount and set up a standing order to come out on payday — you’re far less likely to miss it or notice it that way. If you’re lucky enough to get a pay rise, invest that — and consider upping your percentage!
5 Think long term
Keep an open mind. Short-term shocks like Brexit, the US Election and, of course, the pandemic will always cause the stock markets to rise and fall. While that can be stressful, it’s important to remember that over the long term, and despite plenty of highs and lows, the stock market has been the best place for long-term investors to build wealth.
6 Don’t trust your instinct
When it comes to investing, it’s best not to trust your instincts. We can end up doing exactly the wrong thing at the wrong time because fear or greed has kicked in. We all want to buy low and sell high, but when we panic our emotions can lead us to sell when markets are in free fall and buy when they’re rising. Keep a level head by focusing on the long-term goal and ignoring short-term factors.
7 Buy little and often
One way to keep a level head and emotion out of your decisions is to invest the same amount each week or month, no matter how the market is behaving. It will teach you a non-emotional approach as you’ll buy when markets are low, high and everything in between. Remember that investing in the stock market has historically generated a good return on your money. If you’d invested some money in the UK stock market 50 years ago, you would have made 20 times your money by today – try doing that in a savings account!
8 Cash is king. However…
2020 saw a record number of people holding their savings in cash. Whilst this makes sense for emergencies and shorter-term needs, cash is a poor investment in the long term as inflation erodes away its purchasing power, particularly when interest rates are low as they are in today. It’s impossible to predict the future, but over the long term the stock market delivers better returns than cash. Here’s a link to an 18-year long experiment that demonstrates the significant difference between cash and stock-market investments.
9 Every day and penny counts
Whatever you’re saving or investing for, no matter how big or small, start today. You’ll feel better and crucially you’ll benefit from compound interest. For example, if you save £1 a day (so £365 over the year) at 7%, after 10 years you’ll have doubled your money, but after 20 years, your £365 would have grown to over £1412 — every day counts. If you invest in the stock market, the returns would be even better as demonstrated by the Rupert article.
10 Find the right platform
Whether you’re a seasoned investor or a novice, our platform calculator can help you find the right platform for your needs, giving you information on pricing and resources like recommended fund lists and portfolios. If even that is too much for you to get your head round, check out the robo calculator which will direct you towards robos that can make the investing decisions for you. Still totally confused? Take a look at our guides to learn more about saving and investing.