Curbing impulsive spending, budgeting & pensions vs ISAs – Millennial money

4 min Read Published: 29 Mar 2019

In this week's millennial money episode, I ask financial expert Damien Fahy for tips on how to budget, ways to curb poor spending habits and his view on pensions vs ISAs.

Damien says:

How to curb excessive spending habits?

I always remember being told to that the best way to curb my spending was to leave my wallet at home but that doesn't actually work anymore. Now you can use your phone or even your watch to spend and so you are unlikely to ever be in a situation where you can simply leave your wallet or purse at home to avoid unnecessary spending.

My top tip is that there is something that you really want to buy, then defer buying it for 48 hours. The 48 hour break is important as it helps to stop impulse purchases. So if there is something that you want to buy, then hold off for 48 hours and if after that time you still want it, then go ahead, it has passed the 'impulse' test.

Don't forget that when we go to the shops there is lots of psychology in the way the shops are laid out and so we can easily be manipulated into buy things that we don't need or want.

Should I prioritise my pension or an ISA?

First things first; if you're employed make sure you join your employer's pension scheme via auto-enrolment.  The auto-enrolment scheme requires your employer by law to pay 3% of your salary into a pension on your behalf with you having to contribute 5% from your side.

So in total you get an 8% pension contributions, the employer's additional 3% is effectively free money and you should ensure you take advantage of the auto enrolment scheme. An employer can't encourage you to the opt-out of the auto enrolment scheme in order to save themselves money (although you do have the choice to do that yourself - but don't!) If your employer does try and encourage you to opt out they will be breaking the law, so don't be afraid to speak up.

Pension vs ISA


In terms of a pension vs ISA, it's an interesting question and ultimately it's about flexibility. If you want to pay in even more money into your pension, you get tax relief at your marginal rate which means that if you're a basic rate taxpayer you get 20% of what would be tax added on. So if you paid in £80 you'd actually be rounded up to £100 by the government and the taxman giving that tax relief.

So that's a positive because your pot is already fairly big and it will keep growing over time. The only downside is that you can't access that until you're 55, so you've got to weigh up whether you will need access to the money?


An ISA, on the other hand, is very flexible as you are able to take money out of it, as well as put money into it (within certain rules). You don't get tax relief on the way in but on the plus side
it's tax-free on the way out. So if you take money out you don't get taxed, unlike with a pension.

So it's really about flexibility and personally I quite like ISAs because it means that if my boiler blows up I can gain access to the money if I need to.

For more information on whether you should be paying into a pension or ISA, have a look at our article 'Pension vs ISA - which one is best for you?'.

Lifetime ISA vs pension

A Lifetime ISA is an alternative option to a pension and is an interesting concept because you can actually pay into this ISA from the age of 18, ready for retirement and you get a 25% financial contribution from the government.

The aim of the Lifetime ISA is to save for buying a house or save for retirement. It was a concept that's meant to be flexible and you can read more about it in the following Lifetime ISA articles:

The best way to budget

I used to recommend opening up as many bank accounts as you can (taking advantage of free banking) As soon as you get paid, you then and then move money into the various different bank accounts that were assigned for different things like your food bills or your mortgage. It is a form of budgeting that has been super-ceded by the wealth of apps that can be used to make budgeting easier.

Starling Bank and Monzo are some of the app only banks that can help with budgeting (by allowing you to silo off money for savings) and they can help you to build a cash buffer by rounding up the loose change every time you spend using your card and putting it into a savings account.

Emma is also really good budgeting app which helps pinpoint the subscriptions that you're paying for and not using. A good example is maybe if you're paying for Spotify, Apple music and Amazon music but actually you're only listening to it on one of those platforms and are therefore wasting money.

Also the there's a couple of apps such as You Need A Budget or Squirrel, they're really good for showing you how to budget but there is a subscription fee for using them.

For more information on app only banks and apps that can help with budgeting, have a look at our article, 'The best budgeting apps in the UK'.

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