Let’s face it, we’re a nation of procrastinators. From DIY to housework, there are some things we just love not doing.
Now, I’m as guilty as the next person when it comes to putting certain chores at the bottom of my ‘to do’ list. But while a wonky shelf or a dusty mantelpiece aren’t really going to do you any lasting damage if you don’t get round to doing them for another day, or month, or year (or possibly never), continually putting off dealing with your finances is quite different.
Here are three things you must tackle, right now.
1. Don’t put off investing a moment longer
Take two very different people. First there’s Investor A, let’s call them, who diligently invests a lump sum at the start of every tax year. Then there’s Investor B, who is your typical ‘last minute merchant’, leaving it to the eleventh hour to invest just before the tax year ends. Who do you think fares best? Does it, in fact, make any difference at all?
The answer to that is yes, it makes a huge difference when you invest. Figures from Fidelity show that there’s a more than £8,000 difference between the fortunes of Investor A, who invests at the start of the tax year, and Investor B, who leaves it until the last minute1.
Of course, not everyone will have a lump sum at hand to invest at the beginning of each tax year, but it’s worth noting that Investor C, who we haven’t met before, but who invests a regular monthly sum into their ISA, is still over £6,000 better off than Investor B who leaves it to the last minute.
The trick is to start investing now. You don’t need huge sums to get started. You can save as little as £50 a month in hundreds of funds, including our preferred Select 50 funds.
Building a diversified portfolio, including everything from US smaller companies to FTSE 100 giants, gold to bonds and property to emerging markets, means that you can easily spread the risk and increase your chances of better returns, whatever happens.
Make sure you use your ISA allowance as well and shield your gains from the tax man. In the current tax year you can invest up to £15,240 within an ISA.
2. Tidy up your pensions
If you’ve worked for a number of employers over your career, chances are that you’ll have accumulated several pension pots. Having all these pots in one place makes it easier to monitor and manage your pension savings.
While checking your pension might not be a task you exactly relish, at least you can make it a little easier byconsolidating all your pension plans into one pot. Sometimes ‘tidying up’ your pensions can also help you to better focus on your retirement goals.
Make sure you read the small print though as there can be costs involved when moving a pension. Some policies charge you a penalty if you want to access the money before your chosen retirement age.
3. If you haven’t got a pension, start one now
You are never too young to start putting something away for your ‘twilight years’. While that may be decades away, that’s all the more reason to start saving now. The longer your investments have to grow, the better. So start small, but start now.
The government’s auto-enrolment initiative is making joining your company scheme easier. And joining is a no-brainer, especially if your employer contributes to your pension pot. That’s tantamount to a pay rise. You might not be able to get your hands on the money until you’re 55 at the earliest, but your future self will thank you when you do.
If you’re self-employed or not eligible to join a company scheme then opening a personal pension or a SIPP is a good way of utilising the valuable tax perks that come when you save into a pension. HM Revenue & Customs will top-up your contributions at your basic rate of tax. This means you only have to make contributions of £2,880 a year to have a total of £3,600 added to your pension pot. Higher rate taxpayers can claim additional tax back through their self-assessment tax return.
1 Fidelity International, April 2016, based on the full ISA allowance being used each year since the 2005/6 tax year.
The value of investments and the income from them can go down as well as up and investors may not get back the amount invested. Eligibility to invest into an ISA or a SIPP and the value of tax savings depends on personal circumstances and all tax rules may change. You will not be able to withdraw money until you reach age 55 with a SIPP. The Select 50 is not a recommendation to buy or sell a fund. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment. Fidelity Personal Investing does not give personal recommendations. If you are unsure about the suitability of an investment, you should speak to an authorised financial adviser.