We can each invest £20,000 per tax year in an ISA. That’s a substantial sum which can really start to add up. In fact figures from Fidelity show how easy it is to become a millionaire, simply by saving diligently into your ISA.
If you were to invest the maximum sum allowed into your ISA every year, then assuming growth of 5% a year on your investments, you would be a millionaire in just 22 years and five months1.
So how do you get started?
Well, it’s actually relatively easy. For even the most hard-pressed of savers with a little bit of discipline and a clear focus on your end goal, it’s possible to free-up cash that you would otherwise fritter away and put it to far better use inside your ISA instead.
If you think you simply can’t afford to save, think again. Because as Michelle McGagh has proved, with a few simple changes you can claw-back money that you would otherwise waste. Michelle, who has written a book about her money-saving year, The No Spend Year: How you can spend less and live more, managed to save thousands of pounds in just one year. And then used it to pay off a large chunk of her mortgage.
How did she do it? She stopped spending for a whole year. As drastic as that sounds, it didn’t mean she was left homeless and penniless. It was more about being smarter with her money.
She said she got the idea after realising that she simply had too much stuff.
“It was a long-term problem I had with owning too much,” she explains. “I thought I have to get off this consumerist treadmill where we go to work, to buy stuff that doesn’t make us happy, that we don’t need.
“I also wanted to over-pay my mortgage. So that’s when I had this idea of stopping spending for an entire year.”
She set herself some ground rules that allowed her to keep up her mortgage repayments, pay all her household bills, such as water and council tax and gave her and her husband a basic food budget.
“But that was it,” she says. “No bus fares, so I went everywhere on my bike for a year. No cinema, no trips to the pub; unless I wanted to drink tap water and watch everyone else get drunk. No meals out. No clothes, no gadgets and no books. Everything else was off limits.”
In the space of 12 months she had saved enough to pay off a chunk of her mortgage. And she says the experience has also taught her to rethink her relationship with money.
“I realised that I don’t need things to be happy. They’re not important,” she says. “In terms of how I spend my money I’m so much more careful with what I’m spending. Every time I go to hand over some money I really do think, ‘do I really need to spend this money? ‘
“Pubs, meals out, clothes, toiletries, just the general cost of living. Those little bits of money that filter out of our account that we don’t really seem to notice; or we think ‘oh it’s only a few quid, it’s not going to make much difference’. But it really does.”
Over the course of the year she managed to save £20,000.
“When you open your wallet, or when you go to hand over your credit card, or even just put your hand in your pocket for a bit of cash for a magazine, just think ‘do I really need what I’m buying or do I just want what I’m buying?”
Watch our full interview with Michelle McGagh.
Source: 1 Fidelity, January 2017 – based on a hypothetical illustration of an investor who invests £20,000 in the 2017/2018 tax year and subsequently invests the full ISA allowance each year - where the ISA limit increases in line with the Bank of England’s target rate of 2% inflation each year, with an annual growth rate of 5% and platform charges. The 5% growth figure used in this example is an assumption and not guaranteed.
The value of investments and the income from them can go down as well as up, so you may not get back what you invest. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment or action. You should regularly review your investment objectives and choices and if you are unsure whether an investment is suitable for you, you should contact an authorised financial adviser.
Eligibility to invest into an ISA and the value of tax savings depends on personal circumstances and all tax rules may change.