Yo-yo effect

Posted on July 3, 2014 by - News, Wealth Creation

Why so many of us are financially uncertain

Almost half (47%) of Britons are up and down when it comes to money, making shrewd savings one moment to justify overspending the next, according to research from Standard Life by YouGov Plc.

The survey finds that almost half of people in Great Britain take a 5:2 diet approach to their personal finances – they adopt shrewd money-saving tactics simply to offset overspending sprees.

People most likely to take this yo-yo approach are those aged 55 or over (51%) and 18–24 year olds (48%), while 25–34 year olds are least likely, although 43% of them still ‘yo-yo’ about. Notably, those with most control of their spending and saving are adults with three or more children living in their household (41%).

Controlled spending
Looking across Britain, people in Wales (57%) and the West Midlands (53%) are the most likely to yo-yo about with their money, while people in the North East are the least likely – but 42% of them still manage their finances like a 5:2 dieter.

Knowing that so many Britons are up and down when it comes to money is slightly worrying. But it’s also encouraging to know that these same people can be shrewd cost cutters when they want to be. They just need to channel that smart behaviour so they build up a savings pot, rather than just bankroll a spending spree – that way, they can enjoy controlled spending and don’t have to feel guilty or anxious. Families certainly seem to be doing their best to avoid the financial uncertainty of the up and down of the yo-yo approach.

Recognising the challenge of ‘saving smart’ for long-term savings, such as in a pension or ISA, is important. Here are some top tips:

1. Money sitting in a savings account is likely to be losing real value, so think about checking the rates you are getting on your savings, and if you’re not already doing so, you might consider an alternative tax-efficient option such as a Stocks & Shares ISA.

2. If you’re employed, you might be automatically enrolled into a workplace pension. If you’re tempted to opt out of this, think very carefully before missing out on ‘free money’ from your employer’s contributions and generous tax benefits from the Government too.

., If you are self-employed, then you need to make your own pension arrangements. That’s something to factor into your plans when starting your own business.

4. If you have several different pensions, you might want to consider bringing them together into one. It could make it all a lot easier, so you only have to deal with one company and can see more clearly how your pension is doing – it will be less paperwork too. However, it’s not right for everyone and doesn’t guarantee a better pension. For example, you could be giving up valuable guarantees.

5. The earlier you start investing for your future, the more chance your money has to grow. If you are concerned about locking your money into a pension until you reach age 55, then tax-efficient ISAs could be considered as an alternative in the meantime.

6. Use as much of your ISA allowance as possible each tax year. From 1 July 2014, new ISA (NISA) rules apply, and you now have the chance of greater tax-efficient growth over the longer term by being able to invest up to £15,000 in the 2014/15 tax year.

7. Consider holding some money in cash to cover your outgoings (such as your rent, mortgage, food and utilities) and in case of emergencies, before looking to invest for the longer term. But make sure you are getting the best interest rate on your cash, and be wary of holding lots more money in cash than you need to – you could be investing some of it instead and giving it the potential for long-term growth in the stock market.

8. If you are dipping your toe in the stock market for the first time, then you may want to seek guidance when it comes to choosing which funds to invest in.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.