Good question. And the answer can be different for each person, but here are few tips:
- Keep some: it is best to have some savings for emergencies, and it also helps smooth your expenditure if you make adhoc large payments for holidays, insurances etc.
- Spend some: if there is anything you would like to buy in the next few years, it is probably best not to invest that money. This could be something like a new kitchen or a car.
- Invest for the long term: Investing gives you a return on your money over and above inflation, so should be able to buy more with it when you take it out, than when you put it in. Here are some investment products you could use:
- Stocks and Shares ISA: this product allows a payment in of £20,000 per person, and provides tax free growth and proceeds to the holder.
- General Investment Account: this product is much like the ISA, but without the tax breaks. You can invest an unlimited amount, but you might want to limit the exposure to capital gains tax.
- Offshore investment bond: this product gives the investor a third option for tax planning; since it is subject to the savings rate for income tax and it allows tax deferred withdrawals.
- Invest for retirement: pensions are purpose designed for tax efficient retirement planning, and should always be considered as part of your plan.
- Invest in property: many people are drawn to this as it seems a reliable and easy way to make money. In reality, few property investors make as much as they claim, and the tax benefits are few.
Finally, beware adverts and promises that seem too good to be true. Take regulated and independent financial advice.