The new tax year started on April 6th, and with it, most UK residents can get a new Individual Savings Account allowance. For the 2019/2020 tax year, that allowance is set at £20,000.
What it means is you can invest up to £20,000 in cash, stocks, shares or alternative finance such as peer to peer or even in a gold and precious metals mining investment , and all your capital gains will be tax free for as long as you shall keep said investments in your ISA.
Think of it as a shield from the tax man. ISAs are one of the best ways to reduce your tax burden legally. So how to you save as much as possible? Here are a few tips to increase your savings rate and max out your ISA.
1. Make more
That sounds easier said than done, but when you try to save money, the easiest way to do so is to increase your income. Because if you make £2,000 per month and are used to spending £2,000, making an extra £200 would be almost a 10% savings rate without affecting your lifestyle.
There are plenty of ideas on this site on how to make more money, from tutoring to getting a promotion at work or helping your neighbours with odd jobs.
The key is to keep living on your current income and put 100% of the extra money into savings.
Have a money audit
Compile three months of bank and credit card statements, and see where you can cut some fat. A lot of spending is often mindless, due to lack of organisation or a need for convenience.
Are you ordering take out twice a week because you are too tired after work? Prepare a meal plan and make bigger portions over the weekend to freeze and have ready faster than that unhealthy 30 minute pizza.
Get a coffee machine with a timer to avoid having to stop at a coffee shop on your way to work.
These little amounts add up faster than you think!
3. Reduce waste
Be it food you throw weekly, clothes you have never worn, gym you have not gone to in months or magazine subscriptions you stopped reading, is there any line in your budget that you are not getting full value of?
Most households in the UK do not eat all the food they buy each week. It just takes a few tweaks to optimise your grocery shopping, freeze the excess and postpone a restaurant if you have food in the fridge.
4. Save regularly
It is much easier to save £20 a week than £80 a month, or £240 at the end of the quarter. And it is much easier to make the money automatically disappear into your ISA as soon as you get paid, with a recurring BACS transfer, than to hope you will have enough at the end of the month to meet your saving goals.
With the money away from your current account, temptation to spend it will be removed and your savings will grow fast.