Investing can be a powerful way of growing your wealth and achieving your financial goals. 

But before you get started, it’s essential to lay a solid foundation. 

Here are five steps to consider before you start investing.

1. Make sure you have an emergency fund

Before you start investing, it’s crucial to have an emergency fund in place. An emergency fund is a stash of money set aside in an easily accessible account to cover unexpected expenses, such as car repairs or a sudden loss of income. 

For one-off expenses, one rule of thumb is to keep the greater of £2,000 or half a month’s expenses in a bank account. When it comes to an income shock, you’ll want more than just a few weeks’ savings set aside. We generally suggest holding 3-6 months’ worth of expenses in an accessible account.

Having an emergency fund can help you avoid taking on high-interest debt when unexpected expenses arise. It also gives you the flexibility to make investment decisions without the pressure of immediate financial needs.

2. Pay off expensive debts

High-interest debts, such as credit card balances and personal loans, can accumulate quickly and erode your financial health. They can also make it harder to save and invest. 

By paying off expensive debts, you can improve your credit score and free up money for investing and other financial goals.

Consider paying off debts with the highest interest rates first. If you have multiple high-interest debts, you may wish to consolidate them into a single loan with a lower interest rate.

3. Create a budget – and stick to it

The way you manage your day-to-day spending will affect your ability to save and invest. 

Before you start investing, think about creating a budget that outlines your income, expenses and savings goals. Listing all your essential monthly costs – everything from your mortgage, food and utility bills to your council tax, home/car insurance and childcare – will help you understand where your money goes and identify areas where you can cut back and save more.

Once you know your day-to-day needs, you can see whether to focus on controlling your spending, or whether you have capacity to achieve other financial goals. 

Sticking to your budget will help you manage your money effectively, avoid overspending and ensure you have funds available for investing.

4. Think about your financial goals

Before you start investing, take the time to think about your financial goals. Clear goals will help you make more informed investment decisions and stay motivated.

Your goals may include:

  • Short-term goals: These might include saving for a holiday, paying off a specific debt or building an emergency fund.
  • Medium-term goals: These could include saving for a deposit on a house or funding a major purchase.
  • Long-term goals: These might include retirement or funding your children’s education.

For goals that are less than five years away, a savings account can be a good option. This is because savings accounts are generally risk-free. Investments can go up and down in value and there might not be enough time to recoup any losses.

For longer-term goals, investing can give your money the opportunity to grow in value, helping you reach your goals faster. History shows that shares typically offer higher returns than cash over long periods. Although investing carries risk, you can reduce this by holding a balanced portfolio that spreads your money across different types of investments, industries and regions of the world. 

5. Make the most of the perks available to you

If you’re investing for long-term goals, there are several perks you can take advantage of to make the task a little easier. For example, a workplace pension is a valuable tool for employees to build long-term wealth. Knowing how much is going into your pension each month will help you work out how much you’re on course to retire with – and whether you need to save more.

The minimum contribution is 8% of anything you earn between £6,240 and £50,270 (2024-25 tax year). This is made up of 4% from you, 1% from the government in tax relief and 3% from your employer.

However, many employers will contribute more than this. Some may offer to match their employees’ pension contributions up to a certain limit. These extra employer contributions are effectively free money and can significantly boost your retirement savings. If you’re not sure where to find this information, speak to your HR department. 

You can’t access pension money until age 55 (rising to age 57 from April 2028), so if you think you’ll need your money before retirement, an individual savings account (ISA) may be a better option. ISAs allow your money to grow free from the income tax you might pay on the dividends1 or interest you receive, as well as the capital gains tax that could be applied on any profits you make. 

Knowing where to invest your ISA isn’t always easy. If you want a helping hand, we offer a managed service where we select a portfolio of investments for you, based on your attitude to risk. Alternatively, you can build your own portfolio using our individual funds, with over 85 to choose from. Or you can pick one of our five LifeStrategy funds, which are all-in-one solutions that combine different types of investments in one ready-made portfolio. 

While the steps above may take time, working your way through them can help you set yourself up for investment success.

 

1 Dividends are the payments some companies make to their shareholders out of their profits.

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Investment risk information

The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.

The eligibility to invest in either ISA or Junior ISA depends on individual circumstances and all tax rules may change in future.

Eligibility to invest in a Vanguard Personal Pension depends on your individual circumstances. Please be aware that pension and tax rules may change in the future and the value of investments can go down as well as up, so you might get back less than you invested. You cannot usually access your pension savings or make any withdrawals until the age of 55, rising to the age of 57 in 2028.

If you are not sure of the suitability or appropriateness of any investment, product or service you should consult an authorised financial adviser. Please note this may incur a charge.

For further information on risks please see the “Risk Factors” section of the prospectus on our website.

Important information

Vanguard only gives information on products and services and does not give investment advice based on individual circumstances. If you have any questions related to your investment decision or the suitability or appropriateness for you of the product[s] described, please contact your financial adviser.

For further information on the fund's investment policies and risks, please refer to the prospectus of the UCITS and to the KIID before making any final investment decisions. The KIID for this fund is available, alongside the prospectus via Vanguard’s website.

This is designed for use by, and is directed only at persons resident in the UK.

The information contained herein is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. The information is general in nature and does not constitute legal, tax, or investment advice. Potential investors are urged to consult their professional advisers on the implications of making an investment in, holding or disposing of shares and /or units of, and the receipt of distribution from any investment.

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The Authorised Corporate Director for Vanguard LifeStrategy Funds ICVC is Vanguard Investments UK, Limited. Vanguard Asset Management, Limited is a distributor of Vanguard LifeStrategy Funds ICVC.

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