It’s the new year, it’s grey, it’s cold and the sun is a long distant memory. This leads to lots of conversations about holidays and escaping to the sun. Are you thinking about where you’d like to go or the type of thing you want to do? It’s certainly quite a hot topic within my household as we’re sorting out a big holiday to Zakynthos later in the year and some other smaller trips dotted throughout the year.
Holidays come up in conversation with clients all the time. When we think financial freedom we think travel and exploration. For some it’s about adventure and seeing new places and others its about luxury and pampering. Regardless, holidays are important for many of my clients. Everything from cruises in the Caribbean to Railway journeys across Scandinavia, family celebrations in Australia, to luxury hotels in Mexico.
When we budget for holidays our minds instantly go to the net amount it will cost rather than how hard our money has to work to make it. It’s very hard to pick a number for the cost of a holiday. I have clients spending a few hundred pounds and some spending £10k or more per person but I’m going to settle on £2500 per person for today.
If we need £2500pp for our holiday that’s £3,125 as a basic rate tax payer, £4166 as a higher rate tax payer and a whopping £6,250 for someone earning £110,000 and is losing their personal allowance.
So how do we plan to pay for these holidays into retirement?
We have been conditioned to think Pension for funding retirement but I want to show you how adding ISAs to your planning can bring a very different element to your retirement income.
Let’s imagine your day to day expenses are covered by your pension income and we are looking to save for the fun extras that make life interesting. If, over a few years, you were to save £50k into your ISA we could fund your £2500 each and every year tax free. Either by drawing returns if they are above 5% OR by drawing down capital from your ISAs. This would pay for your £2500 holiday each year for well over 20 years.
Individual Savings Accounts (ISAs), were introduced in April 1999 and there are now several types of ISAs available. They were initially introduced as a way for the Government to encourage the general public to regularly save money. One thing they all have in common is the fact that any investment returns earned on the account are free of capital gains tax and income tax. This fact makes ISAs a very tax efficient saving vehicle.
ISAs are very flexible. They can hold cash through the bank or building society or you can use them to hold investments. And the range of investments they can hold is really quite diverse.
ISAs provide tax efficient liquidity, making your money work for you within a risk free environment whilst also giving you rapid access to your capital should you require it. Setting up an ISA is often a useful catalyst to beginning to save regularly, which can’t be a bad thing.
If you want a reasonable return on a certain portion of your capital, but don’t want to tie your money up because you’re worried you might need the funds for something like a business acquisition, property purchase or a wonderful holiday, an ISA could well be worth considering.
As I mentioned, there are several types of ISAs, and I’ve only covered a general outline of them here but I’m always happy to discuss which type might be best for you and your current situation.
Just think about that tax free holiday! Please do get in touch.
Jon Doyle is Founder and Financial Planner at Juniper Wealth Management. Advising clients since 2008 he has guided clients through good time, bad times and the ugly. With a clear vision on how advice should be delivered and strong opinions on how we should be investing money in order to live the life we want to live free from money worry.