Martin Lewis gives advice on saving with a lifetime ISA
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Many people will have significant goals such as getting on the property ladder, or putting money away for retirement – and these can be difficult to conquer. However, one expert has pointed toward a formula which may help Britons find these goals more achievable.
Express.co.uk spoke to Rob Gardner, Investment Director at St. James’ Place Wealth Management, who offered further insight.
He pointed toward the Lifetime ISA as a key way for Britons to get on the property ladder, or help their children or grandchildren as prices continue to soar.
The account allows Britons between 18 and 40 to buy their first home or save for later life, putting in up to £4,000 each year until the age of 50.
The Government adds a 25 percent bonus to their savings, up to a maximum of £1,000 per year.
Mr Gardner said: “One of the biggest issues facing young people is not being able to buy their own home, as many believe they can’t afford it. But using a LISA can make it more achievable.
“You can use a quick exercise to help you get the deposit for a home in ten years.”
Mr Gardener explained the average cost of a house deposit in the UK, excluding Greater London, is between £25,000 and £40,000.
However, by deploying an approach he describes as “earn it, keep it, grow it”, individuals can save and invest enough to transform their lives in a decade.
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He urged individuals to think about their daily vices, whether this be coffee, a Netflix subscription, getting one’s nails done or otherwise.
Then, people should calculate the annual price of that vice by taking what they spend per day and multiplying it across the year.
By cutting this out for a decade, individuals can easily multiply the figure to see how much they could put aside.
But the expert stressed multiplying this figure by 1.25, and subsequently by 1.5 is perhaps most important.
This part of the equation, however, can only be achieved if a person puts further action into motion.
Mr Gardner explained: “The figure you have is the amount of money you could keep and grow over ten years towards buying a house.
“I asked you to multiply how much you saved over ten years by 1.25 percent, because the Government wants you to save and gives you 25p for every pound in your LISA.
“So if you were to save £1,000, you get a £250 top up for free. And who doesn’t love free money?
“I then asked you to multiply that figure by 1.5 – the amount of compound growth you may receive on your money if you invest and grow your savings over ten years by investing in a stocks and shares LISA.”
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Mr Gardner assumed an average rate of growth of seven percent over 10 years through a diversified investment portfolio.
He added that individuals should be able to double their money every ten years, and on average money saved regularly over this period grows approximately 1.5 times.
He continued: “The cost of one coffee a day, or getting your nails done every month, or having drinks after work every week could help you build the deposit you need for a house – just.
“There’s absolutely no reason why anyone on an average salary can’t save enough money in ten years for a deposit. You just have to exchange one of today’s vices for future prosperity.
“So, if you are thinking about saving for a home then understand that the coffee, the one you buy on the way to work every morning isn’t just costing you £2.50, it’s costing you nearly £4.70 against your future house deposit.
“That way you can make a better choice about what’s important to you.”
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