Financial worry is a common symptom shared by members of the modern workforce. Despite career dedication and consistent work habits, it isn’t as easy as it once was for UK families to get ahead. Climbing on the property ladder is increasingly difficult, and basic living costs take a heavy toll on earnings. For many young UK workers, there isn’t much money to go around, after the rent’s been paid and minimum monthly credit card payments met.
Overcoming realities like rising costs and stagnant earnings requires financial understanding, helping you navigate unfamiliar waters and reconcile whatever life has in store for your pocketbook. Express recently shared insight from a Standard Life executive, outlining a number of valuable financial lessons that can help boost your finance IQ and keep your money in order.
Understand Interest’s Impacts
Interest rates impact your finances in multiple ways. Whether you reach for plastic, borrow money at the bank, or take out alternative loans online, creditors charge interest for the convenience of accessing quick cash. The amount of interest is not set in stone – each lender decides what to charge, but rates are based upon a credit standard. The ‘base rate’ is set by the Bank of England, impacting how much interest you’ll pay on loans and credit products.
In addition to affecting your interest payments, the base rate also affects how much interest is paid to your savings account. The current base rate is historically low, lending itself to affordable finance opportunities. However, the low rate base also means lower returns on your personal savings. Should the rate rise, interest on savings would increase, whilst access to low-interest loans would likely diminish.
Often discussed relative to interest rates, ‘inflation‘ describes the rate at which consumer prices rise. When interest rates are low, providing paltry returns for savings, and the inflation rate is high, consumers may find themselves earning less on their money than the rate of inflation. Under these upside-down conditions, the value of your money actually decreases, rather than making gains.
Do a Budget
You can’t underestimate the value of budgeting. The process creates accountability for your personal cash flow, causing you to reflect on the money moving through your hands. Compared to winging it without a grasp on your finances, budgeting provides greater stability, financial security, and opportunities to plan for your financial future.
A basic budget starts with a close look at monthly outgoings, accounting for your rent or mortgage, household bills, food, and other compulsory repeat spending. With a sense of your bottom-line figure – the minimum amount of money required to cover basic bills, you can begin to examine where the rest of your money goes each month. The precise spending breakdown highlights opportunities to change your spending habits, for savings.
Invest for Success
Your State Pension may not be enough to provide for your future, so additional investments are in order, supplementing your retirement resources. Though you may not be a broker at heart, fundamental investment savvy will take you a long way, providing for your financial future.
The sooner you begin investing, the better your returns. Investing early in life gives your money more opportunity to grow with time. Short-term volatility can cause investments to lose ground early on, so you may have to weather the storm, before realizing worthwhile returns. Though the risk isn’t for everyone, investing your money can produce higher returns than relying on simple savings to create personal wealth.
Consider Tax Rules
Tax matters can have a substantial impact on your finances, so staying abreast of changes can help you avoid overpaying. The way you save for the future can impact tax obligations. The Personal Savings Allowance (PSA) permits UK savers to put by some of their income without paying tax on savings income. Individual Savings Accounts (ISAs) can also help you grow your money without a tax burden. Various ISAs are available, so it’s important to match your needs.
Financial education is now compulsory, guaranteeing UK students exposure to finance basics. The measure strengthens efforts to prepare young people for real-world finance obstacles. If you have some catching up to do, these and other basic financial lessons pave a problem-free pathway to financial understanding you can lean on for a lifetime.