Author: Jordan Gibson

Should I Invest or Save?

When we are lucky enough to have a chunk of money then we might have a dilemma as to whether we want to save or invest it. This is actually quite a difficult decision at times, but it is worth having an idea of what the moan differences are between them so that you can make the right decision.

Saving

When you save money you will generally put it into an account with a bank or building society. You will be paid some interest on it. The amount of interest you get tends to be quite low compared with the return that you can potentially get on an investment.

The money is usually safe though and there are even laws to protect your money so even if the financial institution collapses you will be able to get all or some of the money back, depending on how much you have in there. You can also use accounts that will pay a higher interest rate. These tend to be accounts where you money has to stay in the account for a period of time. This might be a year or maybe up to five years. As the provider knows that the money will be there for a long time they will be able to invest it and therefore get a decent return which they will repay to you in higher interest. There are also accounts where you have to give notice to make a withdrawal; perhaps a month or so and these will also pay a bit more interest than an instant access account when you can withdraw the money at any time. Savers tend not to get a huge amount of interest for their money but they do get the peace of mind that they will be able to get their money back.

Investing

An investment is different because there is always a possibility that you will not get back all or any of the money that you put into it. This is because with an investment, in simple terms you are buying something with the money that you hope will increase in value. However, you have to sell it again at a time when the value is high. The problem with this is that if the value of the item goes down or it becomes worthless then you lose your money. For example, let’s say you buy a piece of artwork from a young artist who you hope will become famous later. If they do, then you could have something which is worth a fortune on your hands. However, if they do not, then you could have a canvas which is just worth the value of the canvas to someone who wants to paint over it.

Obviously, most examples are not this extreme, but there is always a risk that you may lose some of all of the money invested. However, in return for the risk, it could be possible to make a larger return compared with savings. It can be quite a difficult decision to make, especially as the chances of making a higher return are increased if you keep your money invested for longer. Therefore, you may need to tie it up for ten years at least. The is because values of investments will naturally fluctuate and to allow for this you need to keep the money in for a long time. You may also find that you can only invest in certain things if you have a large sum of money. For example, you will not be able to buy a house to invest in if you only have a small amount of money (although of course you may be able to get a buy to let mortgage which will help). You will not be able to invest in a piece of art by one of the old masters with a small amount of money but you might be able to put a small amount into shares each month.

Which Current Account is The Best?

Most of us have a current account. This is where we tend to see most of our transactions take place. We are likely to see our pay go into our current account and have direct debits and standing orders goings out as well. We may also use it to borrow money by way of an overdraft. It can be a useful account that we use for our day to day banking. Many of us will have had the same current account provider for many years. We might think that it will be too much of a hassle to swap but there are some big advantages of doing so.

Lower Costs

If we use the overdraft facility on our current account then we will find that we will be charged. There tends to be an interest rate with these which can be around 40%. This is pretty high. This means that if you look at other financial institutions then you may find that have a lower rate. Some are 35% for example and therefore this could make a significant difference if you use the overdraft facility a lot. There are also other costs with current accounts too at times, things like having extra statements printed off and if you use these then you may want to compare these costs as well.

Better Return

Some current accounts offer a little amount of interest. They used to all pay interest but this has changed since interest rates have been so low. There are still some that may pay a little bit though. These might particularly accounts where you get some money when you pay for certain things through the account or if you keep a certain amount of money in the account. It might be that you need to have a certain amount of money passing through the account each month. Therefore, if you are looking for an account with a better return, then you will be wise to check all the terms before you switch.

What makes the best current account?

How to Compare

There are some websites where you can do comparisons of different accounts, that you will find useful to use. These vary though and it is good to make sure that you use a trusted one. Websites such as money saving expert will be unbiased and show you the best current accounts with regards to the cost and the interest. There are lots of other sites that do this as well, but you will need to be sure that you use one that is unbiased. You will need to think about the sites and whether they might be biased bearing in mind hat some will get commission from any leads they generate form recommendations they make. Legally they have to state this clearly and it will not always mean that they will biased but there is a bigger chance of bias as they may be keen for you to switch to an account that they get paid more money from. Make sure that you are also comparing yourself and thinking about your own needs. The account which suits you the best will vary depending on what you use it for.

You might also be concerned about the amount of time and hassle that it might take to switch accounts. This is not unjustified but it could be worth it. The current account providers should help you with this and switch the different things over for you, but some people do still find that they have problems happen. This can be a concern but it is a good idea to consider whether it is worth it if you can reduce the cost of your overdraft or get more interest on your money.

Should I Repay my Overdraft?

If you have an overdraft you might wonder whether you should be making more efforts to repay it quickly. There are some advantages to doing this as well as some disadvantages.

Advantages to Repaying

Overdrafts cost money. They tend to cost about 40% interest which adds up to a lot of money in real monetary terms. So, if you owe £100 for a year then you will pay £40 in charges. Forty quid might not sound like much but if think that is only for owing £100 which is not much really. Therefore, if you repay it then you will avoid having to pay this money.

There have been changes to overdraft costs lately so for some people they will be cheaper and others they will be dearer. It is a bit complex to explain why but it is still better to repay the overdraft as quickly as you can if you would like to save money.
It can also show on your credit report that you will have an overdraft. This could go against you if you want to borrow money, rent a property or anything else where someone will be checking your credit report, you want to make sure that it is as good as possible and this might not look good for you.

Should I repay my overdraft?

Disadvantages to Repaying

It might seem like it will always make sense repay as quickly as possible. However, there are things that you should consider first. For example, if you have other loans from companies like Emu.co.uk, it is good idea to check how much they are costing you. It will make financial sense if you tackle the one that is costing you the most money first as then you will be paying out less in interest and charges. Make sure that you are aware of how much it costs you in full and then you will be able to check this. Be aware of the fees, charges and interest when you do these sums.

You may also find that if you repay the overdraft, that you will not have enough money to pay for other things, the perhaps are essential to you. This could include things like food which you will not want you or your family to go without.

How is an Overdraft Repaid?

It is also worth thinking about how an overdraft is repaid as well as this can have a bearing on whether you repay it. The overdraft is on your current account and this means that you will repay it automatically when you have money going into the bank account. So, if you get paid, then this could be enough money to cover that overdraft and it will automatically be paid off. Some people have several current accounts and have their income paid into a different one to the one with the overdraft so that they do not have to repay it automatically in this way. It is worth thinking about whether this is sensible though. If you repay it, you can always go overdrawn again if you need money for essentials like food, but in the mean time you will not be paying the interest until you do need to borrow again.

Therefore, it is probably better to make judgements based on your own personal situation. If you have more expensive loans then concentrate on repaying those first. However, you will probably also find that your overdraft will repay itself when you get paid. You do need to think about whether you are managing the debt though. If you keep borrowing more and more each month then it is worth taking stock of your situation and working out whether you should be changing your spending habits so that you do not have to borrow so much each month.

How Do I Know If Something Is Good Value for Money?

You may often hear people say that you need to try to buy things that are good value for money. However, if you are not sure what the phrase means then you might be confused as to what they mean. It is a good idea to have an understanding of it though and then you will be able to make sure that you are getting good value for money.

What does it mean?

There are lots of people that mistakenly think that good value for money means cheap. That is not what it means at all. Good value for money means that you are getting a good return for your money. This means that when you spend the money you feel happy at what you are getting in return. There might be some things we buy that we will never feel we get good value for , perhaps taxes for instance, that we have to pay, but normally we can change what we buy and who we buy from so that we can get better value.

Understanding the value of money.

Why is it important?

It is not easy to get money. Most of us work hard to earn the money that we have and when we spend it we want to feel that we are getting good things in return. If we buy from the very cheapest shops, we may not be that keen on what we buy, we may not like the taste of the food or the items may not last as long. If we pay too much we might feel that the items do you taste that much better, that they do not last that much longer or are not that well made. Therefore, we are looking for things that fall somewhere in the middle. We want items which suit us and we feel are good but we want to still pay a reasonable amount of money for them.

However, value for money is a very personal thing. Let’s take carrots for example. Some people might notice no taste difference between different types of carrots and may be happy to just have the cheapest ones or they may just use them in dishes where they use sauces to cover the flavour anyway. However, some people might really notice the difference in taste and want particular ones. Some people might want to buy organic as they feel they are healthier. Some people might want to buy locally grown to support local business. There are all sorts of reasons why people might make particular decisions and they will all change whether they feel they are getting good value for money.

How do I tell?

So, knowing whether something is good value for money for you will depend on you and your expectations. Remember that brand should not be a factor as that does not always determine the value, sometimes you pay more for a brand name and it may not be as good as a non-branded item. However, if you know that you like a particular brand then you might want to continue using them. If you are judging something fairly cheap, like the carrots then you can try different types and make up your own mind. However, if you are judging, lenders, makes of car, houses or holidays then it is harder and much more expensive to try out lots before making up your mind. Therefore, in some cases we have to rely on speaking to other people about their experiences and reading reviews to help us to make the right choices. This can be trickier but it is still worth it as it could make a big difference.

Should I Keep Moving to a Bigger and Better House?

Sometimes there is pressure on people to keep ‘bettering’ themselves and moving to bigger and more expensive houses. We may often hear the phrase ‘getting on the property ladder’ which implies that you need to keep climbing up it. There are pros and cons to taking this approach though and it is worth considering what your views are on by thinking about it carefully rather than just going with what other people are advising or suggesting.

Pros

Many people start off in a home which is quite cheap because their incomes are low. This means that they will possibly not have a lot of room. They may have a home only suitable for one person or a couple and if they want to extend their family then the only way to find room for them is to move to something bigger. It is also possible that they start off in not such a good area and want to move to a better one once they can afford it when their income increases.

When we buy a home we put money into the property which can be released when it is sold. If we have lots of money in the home, then we will potentially have a lot of money available for our children to inherit if they sell the home when we no longer need it. So by moving to a more expensive home, it means that we have more money there for them.

Putting money into houses is sometimes seen as a type of investment. It is not really, but it has similarities. The value of a property will normally go up in time. This means that when you buy a property you will pay a certain amount but when you sell it you will tend to get more back. This means that your money has gained in value. However, only if house values go up by more than inflation or by more than you could have got had the money been invested elsewhere, can you say that you have gained financially. There are other gains that you can make from owning a homes compared with renting but these are not determined by the size or value of the home.

If you have a big house, then you may be able to rent out some of the space and make some income from it. You might rent out a room, for example, some attic space, a garage or even set up a bed and breakfast which could bring in some extra income.

Should you move to a better house if/when you can afford to?

Cons

When you sell and house and buy a new one there are lots of costs. You will have to pay stamp duty if the house is of a high value, solicitors fees, estate agents fees and removal fees. You may also have to decorate your home to get it looking good for sale and then decorate the new home too. These add up to quite a significant amount if you do it a lot.

If you have a bigger house you will have more property to look after and maintain. This not only means that it will be more expensive when you are repairing things, decorating and updating but it will take longer to clean and tidy it and keep the garden in order. You will also have to pay more council tax.

When your family move out then you may find that you have a property that is too big. You might want to downsize and this will cost money, when had you stayed in a smaller home you may have been happy staying there.

If you put all of your money into housing, then you will not have it to spend elsewhere. You increasing mortgage payments could mean that you will have to sacrifice other things. It could mean that you will not be able to afford to go on holidays, that you will not be able to give so much money to your children or may not even be able to afford to have as many, you may not be able to afford such nice cars and things like that.