How to invest your savings wisely

Savings are freedom. It is that simple. If you have access to ready cash you have many more options in life. You have the freedom to turn down that awful job or to leave a situation that you are not happy in. You also have the freedom to follow your dreams when opportunity knocks.

In my own case, coming into a small lump sum that could sit in my savings account as a buffer, gave me the option and opportunity to start my own business. I wish I had had that freedom earlier!  I wish I had known how to make money work for me more quickly. Again, it’s not complicated, but too many of us keep our heads stuck in the sand rather than take a few simple steps to plan for a better future.

So if you are ready to start getting your money in order to secure more freedom in your life, here are a few basic principles to get you started.

1. Spend less

To state the obvious: the less you spend, the more you can save and invest.

Do an audit of all your expenditure pots. See if you can reduce outgoings on significant bills by shopping around. Use comparison sites when renewals come around, you will be amazed at the degree of savings you can make on things like phone contracts, broadband, insurances, utility bills etc. Many companies are open to negotiation and will match better quotes to maintain your loyalty. I saved several thousand pounds a year doing this, with very little effort.

Then look at your disposable income. Track and analyse your various spending pots with a financial planning app like Money Dashboard. You can set monthly budgets for different items and it will motivate you to stay on track.

2. Make it a habit

If saving is something you mean to get around to, or that you do when you have something left over at the end of the month – face it, it’s not a priority.

If you are serious, you need to make saving a habit. You need to set up that saving or investment account right away and pay into it automatically by direct debit. Treat it like an essential bill, not as an option.

If you have debts, then do pay those off first, as the interest you pay on debt is usually more than you will earn from savings. But increase your repayments if you can and, as soon as the debts are repaid, keep transferring the monthly payment amount into your new savings or investment vehicles.

3. Diversify

Don’t put all your savings into one basket. You need to balance risks. Saving is when you put your money into an institution and get it all back, plus interest. Investing is riskier but there’s a chance your money will grow more quickly.

Start with saving an emergency or freedom fund. It should amount to 3 to 6 months’ living expenses. And remember, it is for emergencies, not luxuries. When you have the emergency fund in place you can think about more sophisticated savings accounts or investments. All investments have some degree of risk and you should be aware that past performance is not an indication of future results. Investment in stocks and shares includes ISAs and tracker funds or investing directly via a trading platform or app. Or if you want a rollercoaster level of risk then you could invest in cryptocurrency.

It is worth bearing in mind that in the UK your savings are protected by the Government up to the value of £85,000 with each regulated financial institution you save with. Investments are not protected in the same way as performance can go up or down. Anything you invest in with an unregulated institution is not protected at all.

Investment also includes property investment and starting your own business. And when it comes to starting your own business there is also a range of risks to assess. For example, at the low-risk end, you can start a business in your spare time on top of a day job. For many types of spare-time business start-up costs are low and you can use any business income to accelerate your savings.

You’ve read this far. Which means you are really interested in the idea of saving or investing. So why not start now? The sooner you start, the more chance you have of benefiting from the power of compound interest. This introduces a multiplier effect into long-term savings which means that early savings are worth much, much more than delayed savings. The sooner you start, the sooner your money will start to work for you, rather than you working for money. You know it makes sense.