12/08/19Using your savings to achieve aspirations
What is on your bucket list? Whether incredibly exciting experiences, exotic travel destinations or something entirely different features on your list, it is likely finances will play some role in how achievable they are. Could your savings be used to tick a few of your aspirations off?
You may have been saving with specific goals in mind or simply putting money to one side for the future. However, dipping into savings can be something people find difficult. To have built up a healthy savings fund you have likely established good money habits and accessing savings can go against this. However, it may mean you miss out on opportunities to achieve aspirations, even if you are in a financial position that allows for it.
As a result, it is important to understand your savings and how dipping into them will affect your plans, giving you the confidence to make decisions.
If you have big plans ahead, from helping younger generations get on to the property ladder to a once in a lifetime trip, there are a few things to consider. Your savings are likely to be spread across multiple products, how do you know where you should take the money from and when should you do it? Among the areas to consider are:
- Accessibility: When looking at various savings, the first step should be to see how accessible they are. Are any of them fixed term accounts? Or are some of them invested? If you are planning ahead for a few years’ time, accessibility is less likely to be an issue, but if you want the money soon, it may limit your options. Be sure to check that you will not lose any of your savings, interest or returns by taking money out. Some accounts may lower interest rates, for example, if you make a withdrawal before a set date.
- Tax efficiency: Would accessing your savings affect your tax position? There are some instances where taking a lump sum from savings may mean an unexpected tax bill. Let us say you decide to use some of your pension after the age of 55 savings to kick-start retirement; the first 25% can usually be withdrawn tax-free, but, take out more than this and it may be considered income for tax purposes. If you sell stocks and shares, you may be liable for Capital Gains Tax too. Looking at the tax efficiency of different options allows you to maximise your savings.
- Allowances: As you have been saving for the future, you may have made use of allowances. Your ISA (Individual Savings Account) allowance means you can save £20,000 each tax-year tax-efficiently. If you take money out of an ISA, you cannot return the money without using the current year’s allowance, which may limit you. In some cases, allowances will have little impact on your decisions, but in others they are important. This will depend on your personal circumstances and plans.
- Potential for future growth: Which of your saving pots has the biggest potential for growth in the future? Accessing savings that are invested over a cash account with a low-interest rate may not be in your best interests financially when you look at the long term, for example.
The impact on your long-term financial security
Of course, it is important to consider what impact using savings now will have on your long-term financial security. If you are worried about how taking money out of savings could affect future plans, this is an area financial planning can help with.
Often people find they are in a better financial position to start accessing their savings than they first think, but it is normal to have some concerns. Cashflow modelling can help you visualise the short, medium and long-term impact of using your savings. It can also model how taking savings out of different saving products will have an effect, allowing you to choose the right option for you.
It is also an opportunity to weigh up how your financial security will be affected. Would using a portion of savings mean your emergency fund is depleted, for example? Understanding the long-term implications gives you the tools needed to decide how much and when you should make a withdrawal from your savings. Taking the time to consider the long-term impact of your decision means you can proceed with confidence and really enjoy spending the money on turning aspirations into a reality.
If you are thinking of accessing some of your hard-earned savings to work through your bucket list and have concerns, please contact us. Our goal is to work with you to help you get the most out of your money by creating a financial plan that reflects aspirations and boosts confidence.