With interest rates at historically low levels and the price of goods and services we buy (inflation) still increasing at a fair pace, it is difficult to know what to do with your spare cash.

Putting it in the bank is always the obvious solution. It is (relatively) safe, you get an interest rate on your savings that is easy to understand (until they change it), and it is easily accessible any time you need it.

Others choose to invest the money to take advantage of higher long term returns from the markets. Some will put it into a Pension because you get a guaranteed 20% return as soon as your money hits the Pension. Some have even opted to buy solar panels for their home as a way of earning an effective rate of return on their initial spend.

Whatever you choose to do there are a few simple rules to be aware of:

Step 1Always make sure you hold a cash reserve. This could be money in a Cash ISA or savings account, money in Premium Bonds or National Savings & Investment Certificates. Wherever you hold it, the objective is for it to be safe and for you to never need to touch it. It’s your ‘rainy day’ account. There is no fixed amount you should have here, just whatever makes you feel comfortable.

Step 2Next you should hold some money that is easily accessible, say in a savings account earning a good rate of interest. This is money that you can spend any time you want to, or even money that you have set aside for certain things, e.g. a holiday or a car etc. This is for planned and unplanned expenses. Again there is no fixed amount, this will vary according to your spending patterns.

Step 3Once you have secured the above two ‘pots’ of money you can think about investing for longer term goals such as children’s education, a bigger home, your own retirement etc. This can be done via a Stocks and Shares ISA or Pension, or even a bank or building society account. The important thing here is to match your chosen investment to the goal so that it is right for you.

That’s a quick overview of the basic rules of money management.

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Blog by Jaskarn Pawar

Jaskarn Pawar is an experienced and award winning Chartered and Certified Financial Planner. He advises people all over the UK on financial planning and wealth management issues to help them reach solutions to fit their personal needs. You can contact Jaskarn on 01604 211234 or by e-mail on jaskarn@investorprofile.co.uk