Using Your Savings To Change Your Life
What would be on your bucket list? Whether it would include exciting experiences, far away travel destinations or something crazy different features on your list, it’s very likely finances will be needed to achieve them. Can your savings be used to tick a few of your life goals off?
You may be currently saving with specific goals in mind or just putting money to aside for the future. However, dipping into your savings can be something many people find very difficult. To have already built up a healthy savings pot, you must have developed good money habits and taking out of savings obviously goes against this. However, it could mean you miss out on opportunities to tick items off your bucket list, even if you’re in a strong financial position that allows you to do so.
As a result, it’s crucial you understand your savings and how taking cash out will affect your plans, giving you confidence to make those decisions.
If you have big plans for the future, whether helping your children get on to the property ladder to a once-in-a-lifetime trip, there are a number of things to consider. Your savings will likely be spread across various products, how will you know the best product to take the money from and when should you actually do it? Among the many areas to consider are:
- Accessibility: Whilst looking at various savings, the first step you should take is to see how easy to access they are. Are any of them in fixed term accounts? Or are any of them invested? If you are planning ahead for a couple of years’ time, accessibility isn’t as likely to be an issue, but if you want access to the money sooner, it could limit your options. Make sure to check that you won’t lose out on any of your savings, interest or returns by withdrawing money. Some accounts may have lower interest rates, in example, if you take cash out before a set date.
- Tax efficiency: Would accessing your savings pot affect your tax liability? There are a number of instances where by taking a lump sum from savings could mean a hefty tax bill. For example, you may decide to spend some of your pension after the age of 55 to kick-start the fun in your retirement. The initial 25% can usually be taken out tax-free, but, by taking out more than this may mean it is classed as income from a tax perspective. If you sell your stocks and shares, you could be liable for Capital Gains Tax on that too. Looking at the tax efficiency of your various options allows you to maximise your savings and pay less tax.
- Allowances: As you have been saving for your future, you may have used some of your allowances. Your ISA allowance means that you can save £20,000 each tax-year, efficiently. If you take money out of your ISA, you may not be allowed to return it without burning through the current year’s allowance, depending on who the provider is, which could limit you. In a few cases, allowances will likely have little impact on your choices, but in others they are much more important. This will depend on your personal circumstances and your plans.
- Potential for future growth: Which of your savings has the biggest potential for the most growth in the future? Accessing savings that are invested over a regular cash account with a standard low-interest rate may not be in your best financial interests when looking at the long term.
The Impact On Your Financial Security In The Long-Term
It is important to think about what impact using savings now can have on your long-term financial security. If you’re concerned about how withdrawing from your savings pot could affect future plans, this is an area a good financial adviser can help with.
People often find they’re in a better financial position to start withdrawing from their savings than they first think, but it’s quite normal to have concerns. Cashflow modelling could help you to visualise the short, medium and long term impact of using part of your savings. It can also show you how taking savings out of various savings products will be affected, allowing you to select the best option for you.