Precautionary savings, buying property, retirement: how to save and make your capital grow?
Whether it’s a question of coping with life’s setbacks, preparing for retirement or financing your children’s education, having a financial reserve is essential. But how do you set up a savings strategy and how do you make it grow? Here are some explanations brought to you by the experts from Palma Violets Loans.
Defining your Objectives
The first step in saving is to define your goals. The strategy to be implemented will depend on the objectives set and will differ depending on whether it is a question, for example, of building up precautionary savings, preparing for retirement, financing your children’s education or buying real estate.
Defining your savings goals means knowing why you’re saving, that is, knowing what the money you’ve put aside will be used for. This helps determine whether you are saving for the short term or for the longer term, and therefore helps you choose your savings products appropriately.
For example, generally speaking, building up precautionary savings is a short-term goal, buying a principal residence is a medium-term goal, and preparing for retirement is a long-term goal.
Precautionary savings is a sum of money intended to deal with an unforeseen hardship: job loss, accident, vehicle replacement, etc. It is therefore generally the first savings objective that you set yourself, even before you buy your main residence.
It is estimated that this precautionary savings should amount to the equivalent of 2 to 3 months’ salary, or even up to 6 months for the most prudent savers.
Since precautionary savings must by definition be available immediately at all times, the most suitable vehicles are the Livret A and the LDD. With a maximum amount of 22,950 and 12,000 GBP respectively, they are more than enough to receive precautionary savings.
Making your savings grow
Once precautionary savings have been built up, the aim is to look for longer-term financial investments, where capital is no longer immediately available at all times but which promise better returns. At this stage, it is therefore a question of making your savings grow to meet your medium and long-term objectives.
Here are some of the investments preferred by the British:
- Life insurance,
- The PEA or the securities account,
- Online trading.
With a total of 35 billion GBP in 2019, life insurance represents the most important investment of UK people’s assets. It is indeed an investment with many advantages which allows in particular to :
- Constitute savings with free or scheduled payments,
- Make these savings grow through capitalization,
- Collect income with partial buybacks,
- Passing on a heritage.
Also very popular, the PEE allows you to benefit from attractive tax conditions. If the capital is blocked for 5 years, the saver is however exempt from tax on the sums coming from the profit-sharing, profit-sharing and employer’s contribution.
Finally, the stock market is less popular among French people because of their rather conservative investor profile, and is therefore a very attractive investment. To invest in the stock market, there is a choice between traditional PEAs or bank securities accounts and the online stock market. These solutions open the doors to the various stock markets. If the first one does not present any particular difficulty (you just have to go to your usual bank), special attention must be paid to the second one. Scams are indeed frequent there and one should choose one’s stock exchange broker carefully. It is easy to do this: simply check on the Regafi website (the register of financial agents) whether the company is authorised to carry out financial activities in UK. It’s quick and free.
Savings and Investment: Conclusion
Whatever your investor profile, different savings or investment products can be considered, from simple bankbooks for the most cautious savers to online trading for the most speculative profiles. A golden rule: keep your objectives in mind.