I have a master’s in chemistry yet most of my life lessons learnt are in finances. And sadly, I was never taught those lessons in a lecture theatre, where I had the safety of simulations. It was all learning with experience. Each year since graduating I have learnt new financial lessons and I think I am coming on the other side of those. So, it’s a good time for me to reflect and share what I have learnt and hopefully you can take that penny for your thoughts.
Mild disclaimer: none of the accounts and companies referenced have paid me to recommend them and none of these are affiliate links. However, if they are interested, please send me an email here 😊
Savings account
My savings accounts are split into a general emergency, car emergency and holiday savings accounts. The emergency accounts are for expenses I can’t wait to save up for. I aim to have about 5 months expenses in the general account, and enough to cover my car insurance and maintenance in the car account. The holiday savings is for treats like booking a trip or any big plans I want to hold money for in the short term.
Interest rates
These are still something I am navigating, but all savings accounts are presented with an interest rate. When they say AER 5%, it’s 5% throughout the year (5 / 12 = 0.42 % per month on average). There will be different terms on whether it’s for a fixed amount of time, how often/much you are allowed to withdraw/deposit and normally the interest is variable. This means that they can change the amount of interest they pay you, and that normally changes with inflation.
I have noticed that when inflation is high my interest rates increased nicely and have dropped when inflation is not as high. I think I read somewhere that it’s because the banks need our money to “stabilise” during the uncertain times with inflation, but I’m not a good source for that. Since I am not an actual finance guru, I will do the justly thing and reference you to people I turn to: Money Saving Expert, Farsight Finance (UK) and Her First 100k (US).
Financial Lesson Learnt
2 of my savings accounts are High-yield Savings accounts these are Chase and RCi bank, and the other is just a normal savings account with Virgin Money. I opened Virgin money because they offered an attractive sign-up gift (Virgin activity day) but I never received that. Why? – because the terms were to move my current account to virgin within a certain timeframe and I was too scared. I was thinking of how hard it would be to move my direct debits, and whether I would still get paid. But I have since learned that it should be an easy process to move, though not done it myself. Don’t sign up/buy something for the benefit unless you know you can use it.
I also opted to get a £250 overdraft with Virgin money, and this affected my credit score, as it’s essentially borrowing money. However, it sorted itself out after 6 months, I just knew to be cautious about taking out any further credit in that window. I did not know that taking an overdraft did that to your credit score.
Credit card
I have had my first credit card since 2020, and it has built my credit score this whole time. Keeping up with the payments and paying them in full is always the goal. I don’t earn any rewards with this credit card, but I know if I close it, I will lose all the credit history this card has built. So, I have set specific bills to come from the card, so I can technically use it each month and keep a good credit score with it. My aim is to keep my credit score well enough, to be able to convince banks to give me a good rate when I look for a mortgage.
Financial Lesson Learnt
A lesson I have been struggling with since I started working was that, I need to be reasonable when trying to pay off that bill. I spent my first year limiting the way I lived to keep paying off my credit card bill. But now, three years on I have found myself in a similar position and this time I know to let myself enjoy my life with small limitations whilst paying down that debt.
However, something I questioned ‘finance gurus’ is can my credit card still be used whilst I am paying it down? Obviously, it will prolong the duration of paying it down, but I use it pay simple bills like my gym and Netflix. No one really talked about that, but I think it works. I just made sure I didn’t spend more than the necessary bills on the card and then pay a large sum to bring the overall debt down. It is doable to pay down the debt, and still have an enjoyable quality of life, it just requires a little more planning.
Instant Savings Accounts
ISA’s are a great way to save £20k tax-free. Have I ever saved £20k? Never, and I don’t see that happening anytime soon, but that doesn’t mean I can’t take advantage of what I am entitled to. There are 4 types of ISA’s: LISA, Cash ISA, Stocks and Shares ISA and an Innovative Finance ISA. There is a £4k limit on the LISA, and I finally managed to reach that limit in 2023/24 tax year, and this meant the government gave me an extra £1k. I am using this to save up for a house deposit and even though it does take time, small steps are better than no steps.
The remaining £16k I am entitled to is targeted with my S&S ISA, where I invest in predominantly index funds like the S&P 500 and FTSE 100. A cash ISA is something I don’t have yet, as my Chase bank account has a really attractive 12 month joining benefit that I am still utilising. I put in a small amount in my S&S ISA as the goal is to have compound interest on my side, until I have more income available to add more (which is hard to do with the credit card bill still looming). I don’t have an IFISA, because it is not something I am interested in and so doesn’t deserve my money or attention. Feel free to research further into it, if it’s something that’s up your street.
Financial Lesson Learnt
Start investing even if it’s a small amount, as compound interest in the long term will work in your favour. I spent 3 financial years not maxing out my ISA, but I still added money when I could. I am glad I put what I could in the beginning, now that I managed to max it this year. Because now I can work towards a timescale for having a deposit ready and base my house buying plans on that.
I have also learnt from April 2024, you can have more ISA’s of the same type. We have been limited to only one type of each ISA each year. But they have changed it now to having more than one type of ISA in the same tax-year. So, you could have two cash ISA’s at different banks, earning different amounts of interest. However, the yearly cap is still £20k, so now you’re just splitting that across more accounts.
The reality
The reality is that your finances are independent to you. Just because I have said all these things, and shown what I learnt and the accounts I use, it does not mean it will work for you. I started my finance journey with an old friend, and we prioritised different things. They maxed their LISA out in the first year, but didn’t have a credit card or an emergency fund. I focused on building that fund and paying down a debt. Before working towards trying to max out my LISA. The only wrong way to do finances is if you don’t do any research or do something that doesn’t work in your favour.
A budget shouldn’t limit you and your lifestyle, but gives you some guidance. Right now, I use my budget to roughly know how much extra I can pay towards my credit card on top of my usual payment, as long as nothing unexpected happens.
Too long; Didn’t read TL; DR
- Reality is never the same as the plan – Having a budget is not meant to limit you, it’s to give you guidance, because you can’t predict the future, but you can be more prepared for it
- Have an emergency fund! – Please, do it. Any small amount of money is better than nothing in a desperate moment
- Look out for interest rates on credit cards and savings accounts – They represent the interest over 12 months, and the number is not exact every month. For savings accounts they can vary, for credit cards they will depend on the terms outlined when opening the account- read the small print
- If you can’t pay in one lumpsum, don’t limit yourself – Limiting your lifestyle drastically is unachievable for more than a month, and defeats the point of living a decent quality of life. If it’s too big to close in one payment, just reduce your other expenditures slightly with a payment plan.
- Use your ISA allowance – I don’t mean all of it, but that money is tax-free and we pay enough in taxes as it is. Even if it’s £50 a month (my direct debit to my S&S ISA), that’s still £600 tax free compounding for the future
