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What to do if you can't afford to invest

We’ve teamed up with investment learning platform Female Invest to talk more about getting women invested and how to get started.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

There’s an age old saying, ‘the best time to invest was yesterday and the next best time is today’.

But what does that really mean?

The longer you wait to start investing, the less opportunity you have for any future returns. That’s because when you invest for the long term, you benefit from the power of compounding.

That said, it’s important to get a few things in order before embarking on your investment journey.

Whether you’re new to investing, or you want to get started on your journey, we’ve put together helpful tips that you might find useful. And importantly, what you need to get into place now, to be able to invest in the future.

This article isn’t personal advice. If you’re not sure if investing is right for you, ask for financial advice. Unlike the security offered by cash, investments can rise and fall in value, so you could get back less than you put in.

Spend time on the basics first

First thing’s first, take a deep dive into your finances.

It sounds obvious, but it’s key to knowing what’s regularly coming in and out of your bank account each month. That way, you can separate your money into essential expenditure, emergency cash buffer, wants, needs and investments.

Building up enough of a cash buffer to cover emergencies should be a priority before you invest. At HL we suggest having three to six months of essential expenditure if you’re earning an income. If you’re not working, it should be closer to one to three years’ worth.

Find out more about saving and investing

Once you know the ins and outs of your income and expenses, you know how much you can afford to invest every month.

Eventually, your goal is to budget enough to invest every month consistently, and to make sure you’re not saving or investing ‘after spending’. But you’re factoring your savings and investments into your ‘expenses’. That way, you won’t be as tempted to dip into the cash.

Investing shouldn’t mean you have to give anything up. But there could be ways for you to cut back on your expenses so your overall spending decreases.

For example, you could think about:

  • Re-evaluating your subscriptions – they’re important for your enjoyment, but make sure there aren’t any forgotten ones you haven’t got around to cancelling.
  • Compare and potentially switch on things like house, health, and car insurances. Automatically renewing your policy is convenient, but you might be able to make a saving if you shop around.
  • Find out if you can get a cheaper phone plan. It’s nice to have a new phone every year or so, but make sure you’re not paying more than necessary and consider switching providers for a better deal.

Pay off your debts before you invest

One of the most important things you should do before you start investing is pay off any debt, or at least consolidate your debt if you can for a lower rate. If you have high-interest debt, paying this off first should be a priority.

Make sure you keep making payments and pay more than the minimum amount each month if you can. That way, you’ll be paying off more of your actual debt, rather than just the interest that’s added each month.

If you’re struggling with debt, don’t be afraid to ask for help. You could get help through Citizens Advice if you’re not sure who to reach out to.

The more debt you pay off, the better your credit score will be – making it easier to borrow money. But don’t fall into the trap of improving your credit score just to take out short-term high interest debt.

What about your pension?

So, you don’t have the spare cash to invest just yet, but, if you’re employed and you’re enrolled into your workplace pension, you’re already an investor.

One of the easiest ways to boost your investments is to contribute more into your pension through workplace contributions.

By putting money into your pension, you’re investing for future you. You might even find your employer will match or increase their contributions to your pension if you do.

On top of that, for every £100 that you personally pay into your pension, the government will top it up by £25. And if you pay higher rates of tax, you can claim further tax relief through your tax return. You can get this tax relief for any contributions up to your annual allowance (£40,000 a year for most people), or 100% of your salary, whichever is lower. Tax rules can change and any benefits depend on individual circumstances.

Investing next steps

So you’ve got a plan for your high-interest debt, saved the amount you want to kick off your emergency fund with and made the most of your company pension contributions. Now you can start to set some investment goals.

Ask yourself why you’re investing, how much you’d like to invest, and what your time frame is for your investment goals.

Once you’ve got that in place, you can start thinking about the type of account you want to invest in. It’s important to make sure you plan your investments for the long term, and that you’re diversifying to reduce risk. Not having all your eggs in one basket will improve your chances of investing success in the long term, although of course there are no guarantees. This is because investments can rise and fall in value as markets fluctuate, meaning you could get back less than you invest.

Get started with investing

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Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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