Personal Financial Plan: A Guide To Saving And Investing Money

Creating a monthly savings plan is the first step to financial freedom. You wouldn’t need to keep worrying about your mortgage repayments, paying those endless bills or whether you have enough money saved for retirement. That is the power of financial freedom.


In fact, you can start making choices for you and your family without being held back by the looming pound sign. We made this guide to provide simple answers to your financial questions, which will help you create a monthly savings plan.


Where should I save my money


Putting cash into visible pots or piggy banks is a technique that some people find useful. Yet, the ideal scenario is to make interest on your savings. For that reason, the best place to save your money is in a savings account that will generate interest and provide tax exemptions.


Should I save or invest the money?


When deciding whether to save or invest, you need to evaluate your savings goals. The answer will also depend on when you will need access to the money. If you want to generate more money for short term goals or an emergency fund, then savings is your best bet. However, putting your money into an investment is often more beneficial for long term goals.


Personal financial plan for short and long term goals


Use the personal financial plan below as a guide for your next steps:


One year personal financial plan: Put your money in a high yield savings account if you need access within one or two years. Be sure to compare savings accounts to get the best deal for you, whether it be through a Cash ISA, easy access account or fixed rate bond.


Two-year personal financial plan: Save As You Earn is a great three-to-five-year savings plan, with potential for risk-free profits. Merely sell your shares immediately at the 3 or 5 year vesting period to collect your full savings and any occurred profit. The risk begins when you don’t sell.


Three-to-five-year personal financial plan: Choose a low-risk investment, such as ISA Stock and Shares, if you don’t need to access the savings over the next five to ten years.


Ten plus year personal financial plan: With money that can be tied up for over ten years, higher risks can be taken on investments, generating a high ROI potential. It would be wise to consult an Independent Financial Adviser to review your options.


How much should I save a month?

Beginner’s monthly savings goal

Beginners should start by saving 1% to 5% every month. A recent study showed that half of UK respondents, at least occasionally, run out of money before payday. So you are not alone. However, if you want financial freedom it is critical to building up a buffer. Set aside an automated 1% to 5% into a separate savings account.

Intermediate’s monthly savings target

If you make an average British salary, you should be saving a little over £600 each month by following the 20/50/30 rule. Save at least 20% of your salary and overall income. Half of your income, a maximum of 50%, should go toward the essentials. The remaining 30% is left to cover any optional items.

Expert monthly savings aim

If you have already hit the 20% savings, and nailed it, start incrementally increasing your automated payments. Identify what you need to save for so that you can diversify your monthly savings strategy. For example, perhaps your emergency funds are on point but you could boost the retirement fund. In this case, consider increasing your investments.


How much emergency money should I have?


It is wise to build a buffer of six to nine months in case of an emergency. This fund is designed to cover you for all your necessities, all of your basic bills. So you do not have to have a full salary of six to nine months saved.


Is it better to pay off debt or save money?


In general, it is a good idea to save even if you have debt. However, you need to keep up with mortgage payments as it is a secured debt. It’s also important to pay off the monthly credit card repayments. You should calculate whether contributing to a savings account will give you a higher ROI than the interest from not paying off your other loans.


Be strategic about which debt you are tackling. You will want to clear off your debt with the highest interest rate first. Not all debt is bad. For instance, student debt contributions are relatively low and will be wiped clear after 30 years. With that in mind, you should keep up with your minimum repayments and focus your attention on your credit card debt, secured loans and your savings.


What should I be saving for and investing in every month?

1) Emergency fund

We all know that we should be setting aside an emergency fund. Yet, somehow, it easily neglected from our monthly savings due to low-income, high-living expenses and unexpected outgoings. While these are all very real scenarios, it is vital to save monthly contributions into a liquid (accessible) rainy day fund.

If you can’t afford an emergency fund, don’t worry! Later, we will cover how much you should be saving in an emergency fund and ways you can incrementally achieve this goal. Our money tips are for people at the top of their savings game or who are struggling to pay the bills.


2) Retirement

Retirement is another non-negotiable category to add to your monthly savings plan. Everyone will get old and many people will be unable to work in their final years. For some of us, retirement can feel like a long way off. Yet, time waits for no man.


3) Education

Saving for further education and professional development is a worthy investment. While you can ‘learn on the job’, there is value in gleaning information from short courses as well as higher education. Not only will you become more employable but you will become more credible to potential clients if you choose to start a business.


4) Investments

Investments should be included in your personal financial plan. Investing is very different from merely saving. You are putting the money away for years, enduring the volatility of the market, to create a profit. Simply put, investing is a long-term plan that is intended to generate a high ROI.

Make the most of tax exemptions by investing in either a managed or self-invested ISA allowance. If the investment is part of your retirement strategy, then you can choose from a SIPP or a personal pension plan. However, when investing, it is crucial to have a diverse portfolio.

There are plenty of investment options out there and sometimes it’s helpful to get a bit of help from an expert. We recommend seeking the help of a certified financial planner to find the best investment options for you. A financial adviser is particularly good when you are setting up a financial portfolio or making a significant life change.


5) A car

Saving for a car is certainly better than choosing to buy it on finance. You will not occur interest, be indebted or receive expensive monthly repayments. It is also a way of living within your means, a concept that is getting lost in the noise of financing everything.

With that said, life happens. Sometimes you need a car and waiting to have all of the money upfront is not an option. There are some bonuses to buying a car on finance. For instance, settling all of your repayments on time will create an excellent credit history!


6) Children

Kids are not cheap. It was estimated by CPAG that a child could cost you £155,142 from birth until their eighteenth birthday. Their food, clothing and education quickly add up. Yet, there are even more costs involved. If you envision having children in the future, then it’s never too early to start saving.

With that said, if you are not already a parent or expecting a baby, you could certainly hold off on saving for kids. For instance, if you are struggling with your bills, don’t have a rainy day fund or a healthy retirement plan. As the saying goes, put your own oxygen mask first. Only start saving for kids once your finances are in good stead.


7) Buying a home

Purchasing a house is a popular motive for savvy saving. When putting regular savings towards a home, one should also consider the cost of maintenance. We recommend boosting your emergency funds before committing to a secured loan, such as a mortgage. After all, the last thing you want is to incur mortgage arrears and eventually lose your home.

While your property is an asset for your future (and perhaps for your kids too), it shouldn’t be your sole retirement plan. It is vital to continue your monthly contributions toward your retirement. Create a diverse plan to ensure you are fully protected.


8) Taxes

If you are a freelancer then setting aside monthly savings for taxes is pivotal. Set aside 15% to 30% of your profits. The exact amount will depend on your business. However, the more cushion you can fund, the safer your company will be.


9) Parental care

With age expectancy on the rise, funding parental care has become a hot topic - and for good reason. The sandwich generation is now a very familiar term, with parents in their thirties and forties not only caring for their kids but their parents too. The truth is that while some people age well, others don’t.

The cost of elderly care can be burdensome for anyone, but particularly if you already have children. So it’s important to have the money conversation with your parents early, discuss what they already have in place. If necessary, you can add parental care to your monthly savings plan to sufficiently fill the gap.


10) Inheritance

When creating a monthly savings plan, it is wise to consider what you are leaving behind for your descendants. There are many avenues that will help you save toward your kids’ futures. We suggest speaking with a financial advisor or call citizen’s advice to avoid paying excessive fees on inheritance tax.


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