Ask people across the UK what they are hoping to get for Christmas this year, and the top answer is likely to be money. A recent YouGov poll found that 27% of people hope to find cash or gift cards under the tree on Christmas Day.
If you get Christmas cash this year, and you haven’t already earmarked it to spend, here are three wise ways you could use it instead.
1. Play it safe and pay off debt
Paying off debt and topping up your savings are two of the smartest ways to use excess cash.
Lingering credit card debt can eat away at your financial wellbeing and prevent you from saving as much as you might like.
Most of us have some type of debt. This isn’t necessarily a bad thing but, if it gets out of hand, repayments can get too close to our level of income and this can cause stress and anxiety.
If this happens, companies may end up charging you more to borrow, which can make debt more expensive and harder to climb out of.
According to research from Aegon, excluding mortgages, the biggest amount of debt for most people is in car loans followed by credit cards and home improvement loans.
If you have debts that you fear could spiral out of control, or you want to keep your debts in check, using cash you get for Christmas to repay some of what you owe might be a good way to keep stress at bay in 2022.
2. Save it for a rainy day or something special
If you don’t have any excess savings, it may be wise to put your Christmas cash in a high-interest savings account and start building a rainy day fund. Sometimes called an emergency fund, having savings available in the event of an unexpected problem is sensible planning.
According to research from Finder, 9% of Brits have no savings at all and a third of us have less than £600 available in an emergency.
Setting money aside for a rainy day could provide a financial safety net in the event of an unexpected crisis such as:
- Losing your job
- An emergency repair
- An unexpected cost.
The amount of money you should aim to have in emergency savings should be equivalent to approximately three months of your normal household expenses.
Saving money can be a tricky habit to get into. If you don’t currently have a financial cushion to fall back on, you could use some of the money you get for Christmas to open a savings account and help kick-start a healthy saving habit.
Alternatively, if you already have a rainy day fund, why not put your cash aside for a big-ticket item you’re saving up for? Perhaps you’re saving for a specific goal and hope to save enough for a deposit on a new house, a new car, or a holiday of a lifetime in 2022 or beyond.
3. Invest in a good habit
If you have repaid any concerning debts and have funds ready for an unexpected emergency, you could invest your Christmas money and start a great savings habit that could last far into the future.
Although saving in cash can seem like a “safe” option, cash savings can fall in value in real terms because of inflation. If you want to save your money for the long term, investing is something you might want to consider.
All investments carry some level of risk, but they can also provide an opportunity for your money to grow at a faster pace than inflation. If you’re saving for a goal that is more than five years away, investing could make more sense for you.
Before you invest, you need to consider what level of risk is appropriate for your specific goals, time frame, and more. If you’re unsure what level of risk is appropriate, we can help you.
If you’re new to investing in the stock markets, regular investing might be a good way to start.
Typically, when you invest in equities, the longer your money remains invested, the greater the potential rewards. No matter how little you save each month, over time, your regular investment should build up.
If this idea appeals, you may find it useful to decide to set aside a fixed portion of your income. This way, as your income fluctuates over your working life, you can adjust the amount you’re saving in line with the amount of money you are making to build your future nest egg.
If you already have an ISA, or a pension, you could use your Christmas money to give these funds a boost and enjoy additional tax-efficient benefits.
Get in touch
If you get cash for Christmas and want to use it wisely, we can help you decide the best approach based on your specific financial circumstances. We’d be delighted to chat things through with you and help you make a confident decision. Email us at contactme@kbafinancial.com or call us on 01942 889883.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
