Five simple steps to start investing

We think women need to talk more openly about money. Embarrassing or confusing. Join the conversation. We'll be discussing a whole range of topics. Hello and welcome back to the Ajo Bell Money Matters podcast. I'm Danny. And I am Laura, and as you know, we and the whole Money Matters team are on a mission to help you become more confident with your...

And since we're approaching a rather important time in the financial year, we thought now was a good time to go through the basics. So we're gonna run you through a simple five-point checklist to help you take whatever is the next step on your investing. Yes, whether you are a total newbie or someone who always makes the most of their annual allowances, hopefully the next twenty minutes or so is gonna provide a sort of toolkit to tune up your financial energy.

This is the perfect time to do it because as Laura says, we are at an important point in the financial year. And to that end, it kind of matters when you're listening. So if you subscribe to the pod. Why wouldn't you? And you're listening to this immediately after it has been released, it's before midnight on the fifth of April, you're still in the old next year, which means you have time to use up any allowances that you've got left for ISIS. Pensions.

But if you are listening to this on the sixth of April onwards, then it is the new tax year, which brings a new set of allowances. So either way, it's a great time to think about your cash and what you want it to achieve for you in the coming year. Now we've mentioned allowances a few times. For some people, they'll know exactly what we're talking about. And for other people, they'll be saying, eh, what are you going on about? So let's run those through really briefly.

Um, and don't worry if you don't understand some of the options that I'm going through because in our five step plan we will go into more detail in some of But the total amount that you can invest or save in ISIS each year is twenty thousand. It's a use it or lose it allowance. So if you've got any unused amount of that when the new financial year hits, you can't carry it over, and then you just get your new£20,000 allowance.

There are different types of ICEs and we will run through those later, but you need to make sure that across all of your accounts you're not paying in more than that£20,000. And then some of the accounts have different restrictions on them that are lower. For kids, the junior ICER allowance is£9,000 a year.

So, with pensions, there's no cap on the amount that you can pay in each year, but there is a cap on the amount that you can get tax relief on. And so it can be a hundred percent of your salary, but also for most people, it's cap.

£60,000. So it'll be the lower of each of those. So if you earn£30,000 a year, that's the maximum you could pay into your pension. If you earn£100,000 a year, then that£60,000 cap is likely to be There are a few niggly little exceptions, but we won't dive into them because we'll all

But um you can carry over some unused allowances, so that's why it's slightly different to the ICER allowance. Um so if you have unused pension allowance from previous years, you can carry it over if you wanted to make a bump. in one year. But there's lots of extra support online and on the AJFL website to help you if that's your And there are lots of reasons to use up those allowances. So if you've had a pay bump or if you're at one of those tipping points that means you're at a

Cliff edge. Here pension contributions can be really valuable in bringing you back down below that cliff edge and meaning you're eligible for certain tax breaks, child say childcare support, other allowances. So it's a really good idea to look into that if you are at those cliff edges. We've got on the AJ Bell News Hub we've got an article about those cliff edges and the Definitely. All right, still with us. This is the bit that we guest asked about a lot. When is the

to invest? What should I consider before I invest? What are my options? How do I go about it? Uh we don't have a special guest this week because Laura, this really is your bread and butter. And between the two of us, uh we hope that we're gonna be able to give you some tips on all those in the next. fifteen minutes or so. So you're gonna kick us off with the first step and it's to do with how much depth

Yeah, so I think if someone's thinking, I've never invested before, am I right for investing? Is this something I should be doing? Like you say, the first step that they should be thinking about is debt that they've got. So for this purpose we leave aside mortgages because they're a very long-term debt secured against your house and we also set aside student loans for this purpose because

structured slightly differently in that if you lost your job or your income dramatically fell, then you wouldn't have to pay that back. Um so for this purpose we're thinking about things like credit card, overdraft, personal loans, um, any other high interest debt. So you want to look at that. If you've got none, that's fine. Great. You can move on to step two. But if you do have debt, then it's a good idea to list it out how much you've got and how much interest you're paying.

Now the first thing that you want to think about doing is trying to move it to either a 0% deal or as lower interest rate as you can. And then secondly, you want to come up with a plan for paying off that debt. And I think that's much easier if you've listed it all out, you've acknowledged what debt you've got, and then you've come up with a plan of how

Now, there's a couple of different ways that you can tackle it. The financially prudent way is to list out all of the debt you've got and tackle the highest interest debt first. So the one that's costing you the most, eat away at that, make overpayments on that and get rid of that first and then work your way through the less list until you get to effectively the cheapest debt, the debt with the lowest interest.

That makes most financial sense because you're getting rid of the expensive debt first that's costing you the most However, for people who have a lot of debt, if that high interest debt

A big chunk of their debt, then that can feel like a bit of a mountain to climb. And it can feel a little defeatist if you're trying to chip away at that debt and you're not making any progress. So for those people, if you've got a small amount of debt elsewhere, you could decide, I'm gonna tackle that bit of debt, I'm gonna tackle that overdraft, for example. I've got a thousand pound overdraft and I'm gonna tackle that and work out a way to pay that.

because there's definitely a motivational factor in paying off a chunk of your debt. deleting that line from your notepad or your spreadsheet, however you're kind of managing this and and looking at this and thinking, yes, I've nailed that bit of debt, now I'm going to move on to the next. So you can choose which option and it really is up to you as to which route But I think the first step is really important is trying to move it to as cheap a debt as possible.

And this is particularly the case if maybe you've got credit card debt that's on really high interest, trying to move that to a 0% deal or trying to move that into a cheaper debt. So this is really your first thing. And the logic here is that you could use your spare money to invest, but if you're paying really high interest on your debt, it's unlikely that you're going to make the kind of returns on your investments that would counteract the debt that you're the investment.

paying on your debt. So it's just the financial logic here of your money is usually put to better use by paying off that high interest debt than it would be investing and potentially earning a lower return. I'm going to move on to step two because if you have discovered that that you've got all that in hand, then step two is also really important. But I'm going to keep this brief because we have talked about this quite a lot before.

And it is create yourself an emergency fund, a financial safety net, you know, just in case something happens. And we've all had those bills, you know, land through the door where we've gone, Oh goodness, I'd forgotten about that one. For me, it's always in January, the worst possible month of the year, where suddenly

some of my subscriptions renew, you know, things like internet security, that kind of thing. And I go, whoa, I've got to find a hundred pounds or a bigger impact, something like the boiler breaks down and you need to replace that. So Just to give you an idea, most perceived wisdom is that it's about three to six months of essential expenses that you should set aside. Now you need to be able to access that. So make sure it is in an easy access savings account.

Uh and that's really important because there's no point having savings if you have that specific intention to use them for emergencies and you can't get at them because you've locked them up for two, three, four, five years. Now, it doesn't mean that you shouldn't look at the savings rate that you are getting on that emergency savings account. You should. There are still some deals out there which will give you a decent return on your savings.

But also remember that if you have that emergency pot, and that emergency pot grows and grows and you suddenly find that you've got it for two, three, four, five years, then you need to be reconsidering that pot as well. Now I know that for some people at the moment We've got unemployment, which is quite high. People are very nervous about the economy. So making sure that they've got that financial resilience.

is really important. And additionally, because we've also got quite a lot of volatility at the moment, you don't want to be in a position where you're forced to sell your investments. at a time when the market is having a wobble. You want to be able to make the absolute best decisions for your money and make those decisions when you're not under stress. So that is step two.

Okay, great. So we've got step one, you've sorted out your debt. Step two, you've built up your emergency savings part. You're feeling pretty good about yourself right now. So now we go on to step three. And this is where you set a budget. Now before switch off. I don't mean that you need to go forensically through your bank accounts and, you know, march around in investigating absolutely every penny that you spend.

It's can be broader than that. I mean, some people love doing that and that's fine. They should go at it and, you know, really look at every penny they're spending and look at where they're spending their money. But more broadly, I think what is good to do is look at the amount of money that you have coming in each month. So for most people this will be their salary, but for other people that might be a combination of different income sources.

Um and then look at what you're paying out each month in essential stuff and what you generally spend on what I would class as fun stuff. So once you've added those together, you can get a rough idea of the amount of money that you might have left at the end of the month.

And I think this is really important because lots of people when they go into whether it's saving or investing, they might get very excited about it, think, Great, okay, I'm gonna bung two hundred pounds into this savings account and then

Come the end of the month they've realized that they've run out of money and they're taking some money out of that savings pot. And with cash savings, that's not such a bad thing. That's why you have cash and that's why it's easy access. Um But for investing, you don't really want to be putting money in, taking it out a short period of time later.

I also think there is a bit of a kind of psychological thing to this of if you have a set amount of money that you then invest and you leave it and you don't touch it, then I think you can see that fully as your long-term savings, your long-term investment.

and it's money that you don't touch. Whereas if you're constantly dipping in and out of it, I think you don't quite get into that long-term mindset. So it's just a good idea to work out how much money you think you could roughly spare each month. fyddwch chi'n gwybod beth rydych chi'n gwybod beth rydych chi'n gwybod beth rydych chi.

goal setting, working out what you want to do with that money, knowing what you've got going in each month. And then you can obviously, if you find that you have a bit more money to spare, or you have a month where you don't spend as much, or you get a bonus from work, or some birthday money, all of these different windfalls of money that might come in. You can then add to that and you can top that up. But it's a good idea to start with a kind of realistic amount that you can start with.

Step four, then we've done one, two, three. We're at step four. And I think this is actually maybe the most important one for many people because it Figuring out what it is you want to achieve. What are your goals? What is your timeframe? So think about what it is that you want to achieve from your investments. Because if you've got clear goals, that is going to help you feel more motivated, is going to inform your choices about where you put your money, and it's also going to help.

see those goals achieved. If you've no idea what you're saving and investing for, then it it's just a number. Whereas Certainly for me, I think if I understand that okay, well, this investment, this money that I'm putting aside every month is going to go on something which I am going to enjoy having. So

If you're thinking about short-term goals, actually we've covered off a couple of them already. So that debt that Laura was talking about, the emergency fund, those are short-term goals. but also things like saving for a holiday. If you're going to want to have something at the end of the year, you've got a few months, that's a short-term goal. That is probably where you are looking at Savings because you want to be able to access it rather than

Moving on to medium-term goals. So these are things like saving for a deposit on a house. This is one of the most major purchases most of us are ever going to make and getting that deposit together isn't going to be something that we can do over a few months, maybe even a couple of years. You're probably talking about Five years, maybe slightly less, but that is also where we can talk about funding a major purchase. So

something else that you want to achieve. Maybe you're wanting to put an extension on your house. That's uh certainly one of my medium term goals at the moment. And I've got a little pot which is nicely chugging away and I keep looking at it and every time I look at it, every time I put some money in it, I think about

The lovely orangery that's going to be just over there, and I can imagine sitting there with the fire, and it warms my heart, and it makes the fact that I'm putting aside this money every month just that little bit nicer. Um but then you've got longer term goals as well. And for most people, that's probably going to be thinking about retiring. This is going to thinking about

what you're going to do when you're finally able to finish work. And for a lot of us that probably seems like an awful long time away. But it can be other things as well. So Uh particularly if you've got kids, young kids, or you're thinking about having kids. Children's education now is so expensive and being at a point where my kids are having to rack up huge amounts of student debt, I really do wish that I'd started

saving for them when they were born, giving me, you know, eighteen years to be able to build up a decent pot of cash in order to be able to pay off their student um bills even before they start to get interest. So I think that is a really important thing to do because

If you have those clear goals and they don't have to be perfect, But as long as they are realistic, then you can see those steps, you can see that mountain that you are beginning to climb, and you can watch as you get closer and closer and closer to the top of that. Um and of course, you know, those things, the time, the goal, they also can dictate which product you want to use, which neatly takes us on to step five.

Yeah, exactly. So I think once you've worked that out then there might be, like you say, some obvious routes of the type of account that you want to open. So like you mentioned there, if you've got very short term goals, um you might just want to stick. So generally we say that investing is good for any goals that are around five years or more out. And that's just so you have time to invest and ride out the ups and downs of of the market.

Um anything that you're planning to spend money on within five years might be better. Cash. It's obviously bas it's a personal opinion, um, and everyone will make their own kind of decision on that. Then, like you say, if you're saving for a first home. you might want to consider a lifetime ICER. So this is right at the top we talked about the fact that some ICEs have different allowances to them each year. So there's that overall£20,000. With a lifetime ICE, you can pay in

Up to£4,000 each year. You get a government bonus on that money. So£25% of the money you pay in, you get a government bonus on top. So that means you can get up to a thousand pounds from the government to top up your deposit savings.

So a really great option if you're a first-time buyer. There's some criteria to it that you can check out on the AJBAR website rather than me going through all But there's an age restriction on it, so you have to be between the age of 18 to 39 to open the account, and there's also a limit on how much you can spend on your first. So that's four hundred and fifty thousand pounds. So if you think that you're likely to spend more than that, um, then it may not be.

So definitely check that out if you're in that camp. It can also be used to save for retirement. Now for most people their workplace pension, if they're employed, will be the best first option for saving for retirement because you get your employer matching so any money that you pay into your pension your employer um will match up to a certain point um but for self-employed people the lifetime is that can be a really good uh retirement savings opportunity

So where Danny talked about those very long term goals, uh your pension or your retirement being one of them, it might be that the lifetime answer is right for you, or it might be that a self-invested personal pension The SIP could be the right account for you if you are.

Like I said, if you're employed, then you should really check out your employer pension first because you don't want to miss out on that effectively free money from your employer into your pension. But for some people, they might want to also have a For all others, there is just a general Icer. So this is the one that overall has a twenty thousand pound limit on it. Um, a stocks and shares ICE means that you can invest within it. And the beauty of all ICERs is that you're protected from

Tax in that account. So you won't pay income tax on the money that you withdraw from it, you won't pay capital gains tax on the gains that you make on your investments, and you won't pay any tax on the dividends that you. From your own. So a really great option to keep more of your investment money effectively you're not handing any of it over.

Um, the other alternative that doesn't have the tax perks is what's called a dealing account or a general investment account. You can invest in exactly the same things that you can in a and shares ICE. There's no limit on how much you can pay in. So if you're doing very well, if you're in money bags and you want to invest more than the£20,000 ICER allowance a year, then you can use a general investment account for that.

But you will not get the tax perks that you will with an ISA, which is why it's usually better for people to use um save their money. And then I think the only one that I missed off there is Danny, you were talking about saving for children. So one option for that is a junior ICER. That's another one of these ICEs that has a a separate limit. So you can pay in up to$9,000 year into a junior ISA. The parent or guardian opens it for the child, but then after that anyone can pay in. So you

Go round with a with a little bowl, do a whip round of all of the family and get them to top up that junior Icer account. Um they can all pay in once in the So all of those are kind of

the different options depending on what your goals are. And that is why it's quite quite useful to work out what your goal And I think if you're on the fence, if you're not sure, you think I just want to start investing, I just want to save a bit of money for the future, but I don't necessarily have a clear goal in mind, then probably that broad

Stocks and shares ISA is going to be the best option for you if you know that you want to invest rather than save in So I think that is all of the economic To you. And I think the other thing to say is that you can just start small. I think when I talk to a lot of friends about starting investing. I think they have this view that it's something that's for Rich men in suits, let's be honest. But it's not. It is for everyone. And you can start with AJ Bell, you can start from£25 a month.

Um, so you don't need, you know, thousands of pounds or even hundreds of pounds to start. And if you are dipping your toe in and you're getting used to investing and you're learning about it, then starting small and starting regularly is a really good place to start when you build up your competition. Your knowledge. So our five-step checklist. Number one, pay off expensive debt.

Number two, get yourself an emergency fund. I I feel like I need sort of a game show thing here. Coming in at number three, set your budget. Number four, figure out your goals. Number five, select the right product for the job.

And if that has wet your appetite, which I very much hope it has done, then there's lots of articles on the AJO Bell women and So, if you just head over to the AJ Bell website and find the Women and Investing tab, you'll find all of the great Money Matters content there, our previous podcasts, and lots of art. to help you out. And I think like we mentioned at the top, there is a deadline coming up of using up that ICER allowance. Now for some people they might think twenty

That's loads of money. I don't need to worry about that because I'm not gonna save that amount of money. But you never know what the next year will bring, and you never know. And so I think if you want to start, it's always for me personally and Danny will know this working with me, I like a deadline. I like a deadline because then I will get stuff done. And so if you're that type of person that's been thinking about

sorting their finances out or starting investing um and you need a bit of a deadline, then I would say that 5th of April is a good one that's coming up. Um and it you can use that as a good investment. And as Laura said, we've got everything from how to start your ICE journey to the different types of investment. Plenty for you to take a look at, which will help.

Steer you give you a bit of help when you are looking at how to use those ICEs, uh, whether or not those ICEs are right for you or another kind of investment account as we head into the new tax year. And you've kind of already confessed this, Laura, that you do love the new taxi.

That would be the geekiest confession. Um, I love the new tax year because it means tax year end is over. So for anyone that works in the finance industry, the tax year end period is very busy and it's very busy for us. So I think 6th of April is like this shining light for me of it's a new tax year and that tax year end period is over for another year. But I do also have another confession. Oh come on share it with me.

I'm going on holiday and that is not unusual as regular listeners will know. I love a holiday. Yeah. But it means that I will not be here for the next episode. But don't worry, Charlene is going to be stepping in. Fabulous. Well, that was the goal that you set yourself earlier this year to make sure that you did use your hard earned, well invested cash to enjoy life a little bit because

I mean that's what it's all about in the end, isn't it? Just to make sure that we're financially fit and resilient enough to deal with anything that comes at us, but also to be able to enjoy the money that we make, to make it work hard so that we can do the things that we want to do with it. I know lots of people when we talk to you about starting investing, they are concerned about risk.

And we've got a special guest next time out, Charlotte Britton from JP Morgan's gonna join us to talk about the three Ps, patience, perspective, and panic, or at least try not to panic when it comes to investing. So we hope you can all join us for that. In the meantime, do get in touch with us on social media if you've got a topic that you want us to cover, a question you want to ask us, or just any feedback. We are at AJ Bell Money Matters on Instagram, Facebook and LinkedIn.

Until next time, thanks very much for listening. Before you go, please remember that And the views expressed don't necessarily reflect those of AJ. The podcast isn't telling you if a certain investment is super. Don't forget that the value of investment and you can lose money as well as make it. It's Also important to remember that how you're And rules can change. how it behaves in the future. If you want help, go see a qualified financial advisor.