I can manage to save between £450 to £500 each month. How should I divide my monthly investments?

11 March 2021

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Question by Junaid

Hi, I am 31 years old with no loan, no debts. I have no dependents. I am self employed for few years. I can manage to save between £450 to £500 each month. I am new to investing. I never had any ISA, any private pension. Could you please guide how and where I can divide my monthly investments. Thank you.


Answered by Carly Dunningham

Hi Junaid,

Firstly, with regard to your regular saving budget, I would suggest making sure you have an emergency pot established. So, unless you already have any cash reserves, it’s a good idea to save an amount into a cash savings pot until you have at least 3 months worth of expenditure saved. Cash interest rates are poor at the moment, but this at least gives you a safety pot to dip into for any short term emergency needs.

After this, you might want to consider a regular Lifetime ISA (LISA) and Personal Pension Contributions. If you’ve not yet bought your first home and you intend to at some point, a LISA is a good idea. You can contribute up to £4,000 a year into a LISA and you get a government bonus added of up to £1,000 a year. Proceeds are tax free when withdrawn and used towards your first home purchase. But please note, penalties apply if you withdraw for any other reason than first property purchase. Further info below:

https://www.boringmoney.co.uk/learn/investing-guides/product-guides/lifetime-isa/

So, this could be a good start for some of your monthly budget but you might also want to direct some of your budget to a personal pension plan. This is more long term planning as you can’t access the pension benefit until age 57 at the earliest. However, your contributions would benefit from basic rate tax relief (20%) giving an uplift to the amount you contribute and if you happen to be a higher rate tax payer you can claim further tax relief through your tax code or self assessment.

https://www.boringmoney.co.uk/learn/investing-guides/product-guides/private-pension/

I hope you find this useful. Without knowing more specifics about your situation, I’d say a combination of the above strategies might be useful, but it depends on things like, if you want to buy a home and how soon that might be, amongst other things. There’s a compare tool on the Boring Money website where you can view and compare providers for both LISAs and Pensions.

Thanks

Answered by

Carly Dunningham

Chartered Financial Planner & Director

Originally from Derbyshire, I came to Liverpool in 1998 where I graduated from Liverpool John Moores University alongside my now husband and we have never left the city. I got straight into Financial Planning after leaving university and I love working closely with clients to really understand their life goals and what’s important to them. When I’m not creating financial plans for clients, I’ll be spending time with my 6-year old daughter, walking the dog or doing yoga!