Savings
As a nation we are now putting away less money as a proportion of our income than at any other time since the 1950s, according to alarming new figures which show savings levels have plummeted in the past few months. But with an economic downturn looming, it is more important than ever to have a financial safety net.
The latest numbers from the Office for National Statistics show we are turning our backs on saving, with the amount put aside every quarter down by two-thirds in just three months. Households in the UK saved just 1.1 per cent of their disposable income in the first quarter of 2008, a huge drop from 3 per cent in the fourth quarter of 2007 and 6.3 per cent in the middle of 2006.
But we are hardly spending the difference frivolously. Food prices are rising at a rate of 9 per cent year on year, according to economic analysts the Alliance Trust Research Centre, but in the case of some basic food groups, such as dairy products, annual inflation is as high as 17 per cent. Utility prices are also on the rise again, with gas price inflation currently at 7 per cent on last year and electricity running at almost 10 per cent. And at the petrol pumps, an annual rise of almost 20 per cent is hitting everyone hard.
We certainly aspire to save more. A survey from the government-backed savings provider National Savings & Investments (NS&I) shows that the amount Britons would like to save each month has never been so high, but these aspirations are not being reflected in what people are actually managing to put away. In spring 2007, we were hoping to save £178 a month. A year later that had gone up to £195. But the average amount actually saved barely rose from £78 to £82 per month.
New graduates usually have expensive debts left over from their student years before embarking on a savings regime. Interest rates on credit cards, for example, can easily be 20 or 25 per cent.
"Once those debts are cleared you could put away a little every month in a regular savings account, and you should always take advantage of the tax-free savings an individual savings account (ISA) can offer," says Mr McGahan. "The best ISA rates include Barclays, HSBC and Icesave at 6.25 per cent per annum."
Those in full-time jobs should aim to set up a rainy-day fund; IFAs usually recommend putting aside three to six months' salary in a high-interest instant-access account.
But the best earnings vehicle for your cash at this time of your life is without doubt a pension. You may not be able to get at it yet, but it is precisely because it has a long time to grow that you will get so much out of it.
By this time, many people are established in their own home. Your mortgage should be taking a smaller proportion of your income, and your cashflow should be more predictable.
"At this age you are likely to have your largest percentage of disposable income," says Mr Pegley. "Now may be the best time to look at equity-based investments over the longer term, particularly if you are considering helping your children through university or on to the property ladder. A diversified investment portfolio in equities should allow you to enjoy relatively steady growth over several years."
Your pension should be reviewed every two or three years to keep you on track for a comfortable retirement.
The above article was taken from The Independent - Read More
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