With inflation rising and the cost of living increases biting, everyone needs to do as much as possible to make the most of their money.
Fortunately, internet sites and online apps make it easier than ever to save, invest and even trade without leaving the house.
New figures this week from RCI Bank showed that while, on average, UK households have more than £35,000 in savings, one in seven have nothing at all, and 14 per cent are already dipping into the savings that they have in order to pay for day-to-day living.
‘Those who were making longer-term life plans are perhaps having to deal more urgently with the here and now, and as a result are accessing savings earmarked for their future,’ says Tafari Smith, head of savings at RCI Bank.
‘The financial climate we are living in demonstrates more than ever that it’s important to save where possible – it means there is something to fall back on when things are stretched.’
Everybody’s financial circumstances are different, so your plan to become financially resilient using savings and investments will depend on your life stage, how much you can put away, and your financial goals for the future.
Here’s how to get started, whatever your circumstances.
1. Your current account
Those of us who do not have savings probably already have a current account where they keep the money that they spend day-to-day. This account may earn you some interest if you are in credit, but it is unlikely to be very high. Meanwhile, if you go into your overdraft you will probably end up paying a high price for using credit, so it pays to get a current account that suits you.
Start your journey towards better money management by switching your bank account or ensuring your current one is right for you.
At present you can earn £200 for switching your current account to Nationwide’s FlexDirect account, which offers you five per cent interest and an interest-free overdraft for 12 months.
If you aren’t eligible for the Nationwide offer, you can also receive £175 for switching to a First Direct Account or the same amount for switching to NatWest Select.
Another possibility is to open a Chase account, which gives you one per cent back on debit card spending for a year, as well as a linked savings account at 2.1 per cent.
You can hold this account in addition to another and still get the bonuses so in theory you could switch to Nationwide, get £200 and then open a Chase account, transfer money into it and spend from there to get the one per cent cashback.
2. Rainy day savings
Once you’ve got the right current account, and a possible bonus to go with it, your next priority should be a savings account that you can call upon for a rainy day.
Rajan Lakhani, money expert from savings app Plum, suggests having a separate fund for this, and to keep paying into it, no matter what happens.
‘When things get tough, it is tempting to stop all payments to savings. However, even the smallest amounts add up in time, so it’s always better to reduce how much you are saving rather than stopping it completely,’ he advises.
A rainy day fund should be in an instant-access account so that you can get at it easily, even if that means that you do not get the best possible rate for it.
Rosie Hooper, financial planner at Quilter, recommends having several months’ worth of outgoings in an instant-access rainy day fund, in case of emergencies such as ‘a broken boiler or car repairs’.
She adds: ‘Aim to have three to six months of expenses in this pot, and be sure to top it up should you need to dip into it.’
Many bank current accounts have linked savings accounts that can be used for this purpose. Nationwide’s account comes with a linked savings account paying two per cent, which could get you started on a savings pot, while the Chase account pays 2.1 per cent on linked savings.
Chase also has a Round-Up feature, which means that you can choose to ‘round up’ all of your spending to the nearest pound and then put the extra into an account paying five per cent interest, which you can access whenever you like.
If your current account does not have a linked account, then try Moneyfacts, to find the best rates on instant access savings.
Marcus, part of Goldman Sachs, currently offers a 2.5 per cent instant access account. Higher rates may be available soon after the Bank of England’s recent rate rises.
3. Maximise your saving rates
Once you have a rainy day fund in place, you can start to think about how to put away money for the longer term. This should be money you won’t need immediately, which means you need to be wary about how inflation will erode away the value of your money over time.
The risk-averse can stick with long-term savings deals, which have improved hugely when it comes to interest rates, as long as you don’t mind locking up your money for a while.
For example, the Bank of London and The Middle East pays five per cent to those who don’t want to access their money for two years, while Gatehouse Bank pays 5.1 per cent on money locked away for five years, through Raisin UK.
These are both Sharia-compliant banks, which means that your returns would be described as profit rather than interest, but the result is the same and your money is protected by the UK financial regulator up to £85,000 per person.
With rates far higher than they have been in recent years, many customers may want to think about their Isa allowance again, since more savers are likely to end up paying tax on their interest if they do not shelter their money in these tax-efficient accounts.
Higher-rate taxpayers can earn £500 in interest in a financial year (£1,000 for basic rate taxpayers) before they pay tax on it.
Everyone can put £20,000 into Isas in a year, splitting it between cash and investments if they would like, and any interest earned in these Isas does not attract tax.
Leeds Building Society offers a two-year cash Isa paying 4.31 per cent, while Marcus’ Easy Access Isa pays 2.5 per cent.
4. Ready to invest
While saving money is a good way to become financially resilient, even these high rates won’t ensure your money isn’t eroded by inflation over time.
That is one reason people choose to invest their money in stocks and shares, which offer the possibility of more growth over time, although the value of your money can go down as well as up.
Studies such as the Barclays Equity Gilt Study, which looks at the performance of investments and savings over time, show that over longer time periods, investment gives better returns than saving.
It is also easier than ever to invest from home, using investment platforms, which allow you to buy and sell funds (collections of different assets in one package) and individual stocks and shares online.
You can even use these funds to buy and sell shares in either an Isa or a pension, which makes investing more tax efficient. When you put money into your pension, the government adds back the basic rate tax you paid on your contribution, so that you get an extra 20p for every 80p you put in. If you are a higher or additional rate taxpayer you can claim back the rest of the tax you paid on your tax form. The downside is you cannot take the money out until you reach 55 (expected to rise to 57 in 2028).
With an Isa you can take the money out whenever you like, but it will lose its ‘Isa status’.
Within the Isa wrapper the money can grow free of tax, and any dividends you are paid are free of tax as well.
Experts suggest getting started with investing by setting up a small, regular contribution into a pension or Isa, rather than by putting in a large lump sum at once. ‘The important thing is getting started, and the earlier you do, the more time your chosen investments have to grow,’ says Fairstone chartered financial planner Nicola Cornish.
She also suggests spreading your money in a number of areas, to ensure that you do not put all of your eggs in one basket.
‘The cornerstone of any investment portfolio should always be a diverse range of assets,’ she says.
‘Spreading your investments across different products and areas makes you less dependent on the performance of any one element and helps to smooth out returns over the longer term.’
Buying funds that track the performance of an index, such as the FTSE 100, is one way to diversify your portfolio. You may also want to have a mix of types of assets, including corporate and government bonds, as well as shares, to further diversify your investments.
Ready-made portfolios such as Vanguard’s LifeStrategy range, or BlackRock’s MyMap, which come in a range of different risk ratings, can help you to diversify your investments.
If you aren’t sure what to choose, then signing up with online robo-advisers – such as Nutmeg, Wealthify or Moneyfarm – can provide you with ready-made investment portfolios.
‘While markets may be in turmoil right now, investing is the best way to secure your long-term financial goals, such as an income in retirement,’ says Emma Wall, head of investment and savings at Hargreaves Lansdown.
However you choose to invest, ensure that you do not do it with money you will need in the short term, though.
The current volatility illustrates how much markets can fluctuate in the short term, so for financial security ensure that investment is only a part of your strategy.
Case study: ‘When you start seeing results, you put the gas on’
Sammie Ellard-King, 33, from Hampshire, ascribes his interest in DIY investing to a conversation he had in Vietnam eight years ago.
‘I was travelling in Vietnam with a group of friends and I was deep in debt at the time – around £20,000.
‘One of my friends was very successful at a young age and he said something to me one night that totally altered my thinking.
‘He asked me how much I spent a year and I replied roughly £30,000. He then asked me, “When do you want to retire?” I said, no later than 50. Lastly, he asked, “When do you want to pass away?” and I said 80-years-old. He then said, “This means you’d need £900,000 just to maintain your current lifestyle and I’m guessing you don’t have that?”
‘That’s when I knew I needed to change my relationship with money.’
Two years later Sammie, who is a sales and marketing expert, had cleared his debt and was on the way to becoming a successful investor.
He has learned everything he can about investing from books, podcasts and Audible courses. He says: ‘I am self-taught. I’ve read every single investing book I could find alongside thousands of hours listening to podcasts and audible courses. Technology has changed everything. There are apps you can download and you can sign up for saving or investment accounts within minutes on your phone and start from as little as £1.’
Sammie says he started by investing just £50 a month, but has since upped this.
‘When you start seeing results, you put the gas on,’ he explains.
‘My one tip is to always keep it simple. The ones who get caught up in the hype trading too often usually end up on the losing side. My investment strategy is long term and my portfolio is full of items I use every day.
‘This ranges from tech companies like Apple and Microsoft right through to household staples in companies like Johnson & Johnson and Unilever. I like to play the long game and it’s paid off for me so far.’
Sammie also recommends using tax-efficient wrappers like Isas and pensions for your investments.
‘I use Hargreaves Lansdown for my Stocks & Shares Isa and SIPP. They’re super-easy to use and have a direct debit feature, which I use to pay directly into my chosen funds. I also have a play account with eToro, and I put a small amount in each month to mess around with some more high-risk stocks.’
Sammie recently started his own investment website, Up The Gains, to help people to learn how to invest safely.
‘Financial literacy is almost non-existent in the UK and mostly you’re forced to learn along the way. Our schools still teach Pythagoras’ theorem over basic financial lessons,’ he says.
‘Our goal is to transform the money conversation into a positive one that helps your wallets grow.’