What should I do with my spare money at the end of the month?
If you are fortunate enough to have spare cash left at the end of the month you may wish to commit to putting aside a regular amount each month. There is a good argument that, if you are thinking about this, you should commit to setting the money aside first to instil the discipline required to build wealth. For this reason, it is best to make your monthly commitment to an account that collects via Direct Debit rather than relying on yourself sending a payment. It also helps if the account that the payments initially goes to is ‘difficult’ to access. This doesn’t mean a restricted access account, your first line of savings should always be available without restriction, but rather an account that creates a barrier to just dipping in whenever you are short.
National Savings & Investments are a good option for this, the money is accessible but takes 3-5 days to be returned to your current account meaning it can help out if you need a new boiler but would arrive too late to fund that last orders round at the pub quiz.
Makes sure you start with a surplus before investing
If you haven’t already got the equivalent of 3-6 months of your net income available in an accessible savings account, then this should be your first target. It’s important that you can survive in the event of unforeseen circumstances, an area which has become increasingly overlooked in the UK since the Credit Crisis.
If you need help in creating a surplus you may want to think about budget planning and pot segmentation.
Monzo, a digital bank is a great way to start allowing you set up ‘pots’ within the same account some of which can be locked by date.
Once you have a sufficient cushion, you may wish to consider investing some of your surplus income into market linked investments via an ISA or other wrapper, depending on your tax rate and wider circumstances. Your investment timescale and your attitude to risk will determine what mix of assets you should hold in the investment.
By making regular payments into an investment you will naturally spread your risk and this pound cost averaging may mean it is suitable to take slightly more risk with a regular investment than with a capital lump sum being invested.