Saving money for the future is an aim for many, but with living costs to consider, it can certainly prove to be a challenge. A new study on the finances of the UK has found that six in 10 adults are not financially independent, and a quarter of people aged over 55 never expect to be.
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As the state pension age rises, reaching financial independence is becoming more important than ever, however the study into financial confidence and optimism by Manchester-based wealth management firm King Street Wealth Management revealed that 15 percent of respondents said they didn’t imagine they ever would be financially independent.
Mark Parello, managing director of King Street Wealth Management, said: “Personal wealth obviously plays a part in financial independence, but for many people it’s not necessary to be immensely wealthy to be financially independent.
“Lowering your outgoings and putting a little bit aside every month can very quickly lead to a state of financial independence.
“We encourage people to think of it as ‘paying your future self’.
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Lifetime ISAs offer a 25 percent government bonus (Image: GETTY)
“It’s interesting that more than three times as many people expect to be financially independent by the end of this year than expect to be financially independent in the next six to ten years.
“I firmly believe that people grossly overestimate what they can achieve in one year and grossly underestimate what they can achieve in ten. Thinking long term is key to financial independence.”
Mr Parello also shared some top tips when it comes to gaining financial independence.
Among them were considering taking the opportunity to start a pension.
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“File this one under ‘boring but important,’” he said. “Pensions are one of the most effective ways of saving for later in life and you’re never too late to start. The good thing about these are that they’re tax efficient and your employer can pay in too.
“Most people factor their pension contributions into the pre-tax income, so don’t miss it as it’s paid at source with tax and National Insurance.”
Some people may opt to open a Lifetime ISA in order to save money for their first property purchase – or for retirement.
With this scheme, eligible savers can get a 25 percent government bonus on savings – up to £1,000 per tax year.
Lifetime ISAs are just one option when it comes to savings (Image: GETTY)
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The most that can be saved in the Lifetime ISA each tax year is £4,000, and this is included in the total £20,000 ISA allowance for 2019 to 2020.
Should a person withdraw the money from a LISA for reasons other than to buy their first property (which must be eligible), once they reach the age of 60, or due to them being terminally ill with less than six months to live, a 25 percent withdrawal charge will apply.
“For every £4 you pay into one of these, the government will pay in £1, up to £4,000 per year until you’re 50,” Mr Parello said.
“They’re perfect for saving for your first home or planning for retirement. But there are strings attached.
Lifetime ISA withdrawal charges of 25 percent may apply – depending on the reason to withdraw the money (Image: GETTY)
“You must spend the money either on a first home that costs less than £450,000 or leave it untouched until you retire to get the full benefits.”
Mr Parello also suggested carrying out a spending audit following the Christmas period.
“Download your bank statement for September, October, November from last year – don’t use December as Christmas spending can skew your figures – as a spreadsheet, then categorise your payments into two categories; ‘needs’ and ‘wants’.
“The former will be things like rent, travel and utility bills and the latter will be those nice-to-haves that we can cut down on, such as takeaway coffee.
“Total up the ‘wants’ into a monthly figure, then set up a standing order to pay half of that figure into a savings account. Then instead of getting a takeaway coffee every day or eating out every week, do those things half as often.”