Commonly asked cash questions – and their answers

It’s easy to imagine that everyone else has it all figured out. It can have us believing our questions about money are trivial. But what if you knew everyone was secretly asking the same basic questions? It’s time to shine a light on some common money misgivings.

We’re peeling the lid on our cash questions. Yes – we’re exposing some of the most asked questions about personal finance, so we can answer them once and for all.

Based on the UK search results of a popular search engine, here are three of the most asked questions.

Question 1 – How (much) to invest?

Now, this question can be answered a few different ways.

Your priority should always be to build up an emergency savings fund – enough to meet your spending needs for 3-6 months. Once you’re comfortable there, you could consider allocating some of your income to investments. Ultimately, any capacity to invest will come down to your available disposable cash and your tolerance for potentially losing money.

For many people, a good rule of thumb to follow is the 50/30/20 rule. This suggests you spend 50% of your post-tax income on necessary things like bills. Then it's 30% on things you want, like subscriptions and everyday spending. The 20% goes to savings and investments. If you're unsure whether you should be investing and if so, how much, you could consider getting financial advice.

If you're investing for the first time, you may wish to consider an individual savings account, known as an ISA, thanks to the tax advantages. In the UK, you have an annual ISA allowance of £20,000. That means you can put up to £20,000 in your ISA account each tax year without any returns or income on your investments being taxed.

You can put the money into one or more stocks and shares ISAs, or if you would like to invest for retirement or a first home, you could choose to invest £4,000 of your annual allowance into a Lifetime ISA (aka LISA). There is a separate £9,000 per child per year allowance to let you open a Junior ISA (JISA) for children. It's important to remember that you don't have to open an investment ISA, as you can open cash ISAs, LISAs and JISAs too.

Question 2 – How does interest work?

Interest has a very different impact depending on whether it’s on borrowing or on savings.

Interest on savings

When you save money, interest is the extra money you earn from your provider, usually based on a percentage of what you’ve saved. You’ll usually earn interest every month or every year. For example, let’s say you put £100 into a savings account with an interest rate of 3%, calculated daily and paid monthly. After one month, your new balance would be £103 (gross), thanks to the added interest. You can see Chase's Interest rates on our Interest rates page.

Interest on borrowing

When you borrow money (like with a loan, credit card or overdraft), the interest is essentially the cost to borrow that money. So, let’s say you bought a book for £10 on your credit card (remember, credit is money you don’t actually have, but are borrowing from your credit card provider).

If the credit card had a 15% interest rate, you would end up repaying the £10, plus 15% of £10, which is £1.50. That’s £11.50 in total.

Keep in mind, you can avoid paying interest on credit if you clear your balance in full each month, as per your repayment due date.

Question 3 – How do you create a budget?

There are certainly some general rules you can follow when creating a budget. But importantly, yours will never look the same as anyone else’s. That’s because your income, debt and spending is specific to you.

Start with your income and necessary spending

As we mentioned earlier, the 50/30/20 rule is a great place to start. Look at your last few payslips or banking app transactions. Note down your income (you can create an average if the amount is different each month). Next, work out which of your spending is a necessity – that’s rent or mortgage, food, utilities. These are the things you need to pay. Note down that number.

Next, look at what you spend on ‘wants’

This next bit requires some decision making. Look at all your remaining spending, and note down the total ‘wants’. This is day-to-day spending that you don’t need, but quite enjoy. Now – what’s left over?

If there’s nothing left, or very little, then you may not have enough to save, invest or repay debt – which is not ideal.

Decide how to split the remainder

This is where you’d need to go back to your ‘wants’ spending, and consciously decide to stop making certain payments. It might be a subscription or two, unnecessary shopping or a few too many takeaways. Whatever it is, cull your spending until you ideally have as close to 20% of your income left over as you can manage.

You can then set up a standing order or direct debit to send that amount to savings, or split it between savings, investments and paying down debt.

Introducing Nutmeg

Introducing Nutmeg, the digital wealth manager that's part of the Chase family. You can now open an ISA with Nutmeg (Opens in new window) and keep an eye on your investments through the Chase app – so you can see everything in one place.

Recommended reading

• The A-Z of Gen Z
• How budgeting can help you stay on track
• Saving money doesn't have to be taxing

Disclaimer: The Hub is intended as a knowledge portal to provide information on a range of topics, including financial products. Articles may reference products and services that Chase UK does not currently offer. This article is for information only and does not constitute financial advice. As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Tax rules vary by individual status and may change. ISA, JISA and LISA eligibility rules apply.

Nutmeg is authorised and regulated by the Financial Conduct Authority in relation to certain investment services. Nutmegprovides 'restricted advice', which meanswe will only make investment recommendations on the products and services that we offer. Chase is a trading name of J.P. Morgan Europe Limited. Nutmeg and J.P. Morgan Europe Limited are J.P. Morgan companies. Investments are provided by Nutmeg and are not guaranteed by Chase. 18+, UK residents. Chase current account required. Before applying, you should consider if a Nutmeg account and its features are suitable for you and your investment needs.