For those of us in the UK, there are many options available to us when it comes to saving wisely. First of all, you need to make a short-term financial plan for the next few years so you can apply your needs to what accounts and investments are available.
Firstly, work out how much money you would need to save if you lost your job for 3-6 months. Then work out the costs of any items you need to pay for or hope to buy in the near future such as a car, a deposit for a house, a new cooker etc. These goals will help you focus on what you need and what you are doing to work towards it. Open an instant-access account and start putting money in every month, you could set up a standing order to do this.
Secondly, always make use of you tax-free allowances by getting an ISA if you haven’t already got one, or switching to a top interest one if your rate is poor. Any money you put in will receive interest tax-free every year. However, due to the current system, you should consider an ISA as a long-term account for large purchases or even retirement.
A good way to do it is to split your monthly savings into the ISA and the instant account so you are working towards both goals. Once you have enough money for the emergency account, you can divert the rest to the ISA. If you are lucky enough to have filled your cash ISA allowance (3000), consider buying index-linked savings certificates from National Savings & Investments. These are tax-free, but you have to put the money away for a minimum of two years at a time, however they earn above the rate of inflation so your money never loses out.
If you don’t mind investing in the stock market, an ISA is also the first place to consider saving through. You can invest 4000 on top of the 3000 in cash. Alternatively you can invest all 7000 in stocks through buying them in an ISA, therefore any gains you make will be completely tax-free! You can also buy funds in this way.
These rules are due to be altered slightly in 2008