# Smart Strategies for Investing in 2023: Maximizing Your Income
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Chapter 1: Setting Financial Goals
At the beginning of this year, I made several resolutions, one of which focused on enhancing my financial well-being. Understanding how to manage finances can be quite challenging, a skill I didn't fully grasp until my 30s. However, I'm committed to building a solid financial foundation, embracing the idea that it’s never too late to start saving and investing.
This article aims to share my personal strategies for managing money, not to boast or undermine the difficulties of saving. My hope is to demystify financial management for those working a 9-to-5 job who wish to improve their financial standing. Everyone is on their own journey, and it’s crucial to remember that your only competition is yourself.
Here are some of my investment strategies for 2023/24, designed to prepare for significant life events.
Section 1.1: Individual Savings Account (ISA)
In the UK, the government allows us to invest up to £20,000 annually into a tax-free ISA. This tax year runs from April 6 to April 5 of the following year. You can deposit up to £20,000 into an ISA each year, whether through investments or fixed savings, without incurring taxes on the earnings.
I allocate my ISA allowance as follows: £4,000 into a Lifetime ISA (LISA) and up to £16,000 into a stocks and shares ISA. For my ISA investments, I utilize a robo-investing platform called Wealthify. Robo-investing involves automated management of funds, allowing me to invest in a diverse range of stocks and bonds, which ideally yields higher returns compared to traditional savings accounts. While it may not be the most efficient investment method, I appreciate the convenience of contributing monthly while a professional manages my portfolio. You can start with just £1, and I've noticed steady growth in my investments since I began. If you're interested, you can use my referral code for Wealthify to receive a free £50.
Although I can’t invest the full £16,000 annually, I challenge myself to come as close as possible each year. I believe this fund will help me purchase a home or move closer to early retirement. Watching this account grow year after year serves as a strong motivation, and I often wish I had started investing in an ISA in my 20s.
Section 1.2: Lifetime Individual Savings Account (LISA)
LISAs are relatively new, and I’ve observed that few of my friends or family take advantage of them, even though they seem like an excellent opportunity for beginners.
Starting at age 18, individuals can contribute up to £4,000 each year until they turn 50. The government adds a 25% bonus to these savings, capping at £1,000 annually. The LISA contribution counts towards the overall ISA limit of £20,000 for the 2023-2024 tax year.
You can choose to hold cash or stocks and shares within your Lifetime ISA or a combination of both. Once you reach 50, contributions cease, and you won’t earn the government bonus anymore. However, the account remains open, allowing your savings to continue growing until you turn 60, when you can access the funds as desired.
I started contributing to my LISA when I was 36. Essentially, I put in the maximum of £4,000 each year, and with the government’s contribution, a total of £5,000 is added to my LISA annually. I plan to maintain this contribution until I’m 50, investing through a Hargreaves & Lansdown account that tracks various funds, primarily the S&P500.
When the account matures, I anticipate it will yield around £280,000 by age 60 to assist with my retirement. If you are in a partnership, both you and your partner can have separate accounts, allowing for a total of £8,000 in contributions and £2,000 from the government each year.
Chapter 2: Saving for the Next Generation
Having children motivated me to be more proactive about financial planning for their futures. I grew up without any savings or financial safety nets, and I want to change that for my kids.
There are two primary ways to save for children: a Junior ISA (up to £9,000 annually, similar to an ISA or LISA) or children’s savings accounts. I’ve opted for the latter, as I prefer to ensure the funds can be accessed by the children during their youth. The downside to a Junior ISA is that the funds are locked until they turn 18, at which point everything transfers to them automatically.
Both my wife and I contribute a small monthly amount to our children's savings accounts, supplemented by occasional contributions from grandparents and birthday or holiday gifts. The interest rates on children’s accounts are impressive, and our eldest child currently earns about £20 monthly from the bank. It's remarkable how substantial the total becomes when you save regularly, even in small amounts.
We opened accounts for both children at birth, with plans to contribute until they turn 18. This should provide them with enough funds for university, starting a business, traveling, or even a small deposit on their first home. We haven’t mentioned the savings to them yet, so I hope it will be a pleasant surprise when they’re older.
Section 2.1: Establishing a Christmas Fund
About four years ago, my wife and I decided we wanted to enjoy the holiday season more without feeling guilty about our spending. We now save £100 each month, totaling £2,400 by December. This proactive approach allows us to enjoy the festivities guilt-free. Any leftover funds each year are redirected toward vacations or extra payments on our mortgage. This strategy can be beneficial for managing larger expenses, reducing stress during the holiday season.
Section 2.2: Managing the Mortgage
My greatest financial achievement is undoubtedly owning my home. I plan to upgrade my living situation over the next 30 years, significantly increasing my overall wealth. The main consideration for me right now is whether to make additional payments on my mortgage. It’s essential to understand the advantages of overpaying; the savings on interest payments often outweigh potential returns from savings accounts.
We choose to pay a bit extra each month on our fixed-rate mortgage. Fortunately, we secured a five-year fixed rate before the interest rates in the UK surged in 2022, making our mortgage manageable. Our overpayments have significantly lowered our monthly repayments, and I aim to pay off the mortgage to save even more each month, which will allow me to consider moving in the next two years.
Chapter 3: Building a Financial Safety Net
Section 3.1: Creating a Rainy Day Fund
One of the silver linings of the global recession and rising inflation is the attractive offers from banks for high-interest accounts. I recently opened a “Rainy Day” account with my bank, which offers a 5.12% annual return on balances up to £5,000. This means I could potentially earn up to £256 annually (£21.33 monthly) simply by keeping that money in the bank, which is certainly appealing.
I plan to increase my contributions to this account this year, aiming to reach the £5,000 limit. This not only allows me to earn good returns but also provides a lump sum to invest in other high-interest accounts in 2024 if needed.
Section 3.2: Establishing a Savings Buffer
There’s a lot of advice on how much savings one should have by a certain age. Personally, I’ve often ignored that guidance and haven’t maintained a significant emergency fund. My goal is to finish the year with £10,000 in savings for emergencies. For some, that may seem excessive, while for others it might not be enough. For me, it represents a healthy buffer for unexpected expenses or opportunities. I intend to keep this money liquid, avoiding high-return investments for this particular fund.
Once I achieve this savings goal, I hope the habit of saving monthly will continue, allowing me to allocate surplus funds elsewhere.
Chapter 4: General Principles for Financial Success
The underlying principle guiding my financial journey this year is to be gentle with myself. Not every investment will perform as anticipated due to global market conditions, and unexpected expenses will undoubtedly arise. Some months may require higher spending or reduced savings, and that’s perfectly acceptable.
I share these ambitions with the understanding that even saving a single pound is better than saving nothing at all. So far, I’m on track with my financial goals four months into the year, and I hope this trend continues.
If you have any advice to share or experiences—positive or negative—I’d love to hear from you in the comments. I’m eager to learn and grow from real stories and insights.
Thank you for reading! Please note that the financial advice provided here reflects my personal experiences and views. I hope it helps you explore your own financial options.