“After talking to an adviser, we realised that we needed to build up some savings as these were all swallowed up when we moved house last year. We have two ISA allowances between us – so we can invest £10,200 in cash – plenty for a rainy day fund,” says Matt. “The main attractions are that we can access our money if we need to and we won’t pay tax. Also most ISAs are flexible so we can invest what we can afford each month.  “We can make the most of the rest of our ISA allowances by putting a regular amount into investment funds for the children’s university costs.  “After calculating that we wanted £20,000 for each of our children when they reach 18 years old, we discovered that around £200 a month will be enough, although this does depend on investment performance.  “As a higher-rate taxpayer,” he says. I like the fact that this money will grow and there’s no more tax to pay.  “When you’re a parent there are so many demands on your money, it was a relief to work out a budget to afford all our needs. Until now, I’ve been putting every penny into a pension – I was so worried about the long-term I forgot to plan for tomorrow. Now, my money is spread across savings, investments and my pension and as we already pay a lot of tax, it’s nice to know we won’t be paying any more.”  The newly weds Emma and Toby  Newly weds Emma and Toby would like to start a family in the next few years and perhaps, later on, set up a business so they met with a financial adviser to discuss their plans.  “We know nothing about investing so before our meeting with the financial adviser our plan was to look through the newspaper to find out which funds were selling best, and put our money into one before the ISA deadline in April,” says Emma.  “After discussing our plans we realised that investing is just part of a bigger picture. So, we are now going for a mix of investments — some savings in a cash ISA as we have no safety-net savings, another £200 a month in a stocks and shares ISA where our money can grow over the longer term and more money into our pensions. And none of this will be liable to any more tax. If we hadn’t sat down and worked out a financial plan, we would have missed out on these tax breaks,” she says.  Toby, who is freelance with no pension, was attracted by the tax relief on planning for his retirement. “As a higher-rate taxpayer I’ll be putting £300 a month into a pension, but that instantly increases to £375 and then I can claim another £75 when I fill in my tax return,” he says. “So when I retire a significant chunk of my fund will be from tax relief, something I now want to make the most of while my earnings are higher. Also the earlier I start, the longer my money has to grow and so the less retirement is going to cost me.”  The retired couple Chris and Sue  Our third couple are in the great situation of having a final-salary pension to provide for their retirement — which Chris took early in his fifties. Both he and his wife Sue work part-time and want to make the most of their spare income today, to ensure they can continue to afford their lifestyle tomorrow.  And after a lifetime of paying tax, they’d rather not pay any more on the money they invest for the future.  They arranged a meeting with a financial adviser and they realised that despite being financially secure, they were failing to address some fundamental issues.  “The first thing that was pointed out was that we had no savings,” says Chris. “So if we needed money in an emergency we would be stuck — something we had not considered.  “So, savings are our priority. We are also aware that inflation will eat into any savings we have over the longer term, so we are going to use some of our spare income, to invest in ISAs that provide growth.  “We did not realise that depending on which funds we choose, we could then use our ISAs to provide an income, which will not be taxable — unless the rules change — and it will not count against the age allowance for tax purposes either.  “I had always thought of ISAs as a way of providing tax-efficient capital growth, not tax-efficient income, so it was a revelation. I was left wondering why we hadn’t made more of the advantages of ISAs until now.”
In the third part of our Making Your Money Work series, we follow our three    couples as they plan to use tax-efficient pensions and Individual Savings    Accounts (ISAs) to shelter their savings and investments from tax