Normally when people talk about being frugal, they offer lots of tips about how to cut back on spending, how to make the most of leftover food and other ways you can tighten your belt to save cash. This is all really helpful, but there are also other options that you could utilize. It might sound like a slightly odd option, but making clever choices when it comes to deciding how to invest your money could be a very good way to go.
Of course, we should be up front when we say that with any investment, there also comes a risk because you’re investing your money in something – usually the stock market – that can go both up and down. So you need to be aware of this, and investments might not be for everyone, but once you’ve decided to take that step, which kind of investment should you go for?
There are loads of different products out there, but the investment ISA is probably one of the most popular options of all. One of the main reasons for this is that ISAs offer you tax efficient savings. This means that when you earn dividends on a shares ISA (or interest on cash ISAs), you don’t have to pay any tax on them in the same way that you would have to pay tax on other forms of savings and investments.
Therefore, you get as much as possible out of your investment, and making the commitment to save a little bit each month can certainly add up in the long run. Also, even though the stock market can be shaky from time to time as you’ve no doubt seen plenty of times on the news, it is generally more likely to rise in the long term, so as long as you’re able to make a time commitment to your shares ISA, there’s every chance it will serve you well.
ISAs have been around for just over a decade now and their popularity has grown hugely over time. Something else that has grown is the annual limit, which is the amount you are able to invest in the best stocks and shares ISA each year. For the 2012/2013 tax year, that amount is £11280 (you can save up to half of that in a cash ISA if you want to). The annual limit is also linked to inflation, which means that it rises every year and ensures that the value of your money is not affected by a change in inflation.
This makes it a pretty savvy way to save and a good way to invest as it is very tax efficient. There’s also a wide range of ISAs to choose from so if you are worried about the risk involved, you can go for one with a lower risk attached such as an ISA that invests in government gilts. Overall, they make for a very good way to invest your money and the ideal first step for anyone who is looking to make the most of what they’ve got while simultaneously looking to make the move into investments.
written by: Monique Rowe