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I have a high salary how can I keep more of it?

3/30/2021

 
Someone reached out to me to try to solve the puzzle related to earning a high income as an employee (£237,000 to be exact) and using tax laws and perks to keep the most of the money to save and invest.

I scoured the tax rules to pull a quick report that broke down how that money can be allocated in tax friendly accounts or where tax relief can be obtained.

This exercise was a great reminder on why we should invest in a tax advisor to help us keep most of our money. A tax advisor is available to all income levels and although there could be costs associated with this service you can save up and use them at least once a year to get your monies in order. If you are on a low income, you can get free advice from the government. I have just opened a Money pot called Life Admin where I'll be saving to get a tax advise and formalise a Will.
Many wealth builders have great lawyers, accountants, doctors and financial advisors. What can a tax advisor do for you:
  1. Plan your finances according to your goals
  2. Make your money tax efficient using the tax laws in place
  3. Give advice on when and how to file your tax return to get tax relief

How to manage a £237,000 income and Tax.​ Click here or the image below to see the full report.
​
Need a Tax Adviser, click here to choose who is appropriate for you or use the all in one service from Taxscouts and get 10% off.
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I stopped making these mistakes and it changed everything

2/23/2021

 
What money lies have I stopped telling myself? What is my biggest financial asset? How do I spend and save today? A few years ago I had ZERO knowledge about money and in this post, I look back to see what key mistakes I've stopped making that have become a game changer in my life. 

My 5 money mistakes
  • ​Spending and spending with no real plan
  • ​Not being deliberate about saving
  • Thinking I've got my pay-check. That's all I can make right now...
  • Not setting my pension to the max matching to get free employee match 
  • Believing the stock market is scary​
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I remember always being so surprised that I had nothing left at the end of the month ​
Spending and spending with no real plan
Before I began to get an handle on my finances, my money would come into my current account and all of it would stay there. Slowly my rent, bills would get paid and if at all anything was left, I would still have a reason to spend it.

I remember always being so surprised that I had nothing left at the end of the month and when I thought about the effort it would take to go through my spending,  in my mind, it was not worth the effort. The money was already gone.

Today, I have a budget which I optimise (find ways to 
reduce my expenses and increase my savings and investments) regularly. Nothing stays in my current account after all bills are paid (my current account doesn't pay interest) and monthly savings and investments have left. Every planned spending is accounted for and I no longer suffer the end-of-the-month-where-did-my pennies-go-syndrome. If you need a money goal to help you plan your spending start here.
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To be honest, by the time I was 23 years old, no one or school had taught me how to save, no one sat me down to talk about debt or showed me savings accounts and it definitely did not come up as a topic amongst my friends. I simply had no positive money role models.
Not being deliberate about saving
Just as I spent with no real plan, it is no shocker that I had nothing to save and this happened every time.  To be honest, by the time I was 23 years old, no one or school had taught me how to save; no one sat me down, showed me savings accounts, opened a piggy bank and it definitely did not come up as a topic amongst my friends. 

​I knew I wanted to have money but to me it was 
magic that makes this happen and this magic happens to special people. Little did I know that magic starts with a budget. A budget is the greatest energy source for your money - no lie, they are like batteries you charge to take you far. It shows you where all your money goes and how you are doing. Today, I know of many magic wands that are accessible to all of us  where it is savings accounts, the stock market, pensions, private equity, real estate, peer to peer lending, Crypto.

This is how I am now deliberate about my savings are as follows:
  1. I use my budget to plan where I want to save and I plan how much to put into each area
  2. My budget is also helping me to track my savings rate. I want to increase it from the prescribed 30% so I can reach my goals faster more and give more to others
Regarding my lack of knowledge, Wealthsquats has become my way of sparing others that experience and providing options to explore.
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  • Even when I am not at work doing my 9 to 5, my money is working 24/7, growing,  paying dividends or interest. This became a huge revelation to me.
Thinking I've got my pay-check. That's all I can make right now...
Once I got my first proper job, I breathed a sign of relief  I now have money. I revised this thinking after my first pay-check (with National Insurance (NI) and taxes deducted, very little was left). Since this was my only source of income, there wasn't much else I could do except find ways to increase my income constantly - this was a hard task. I knew I had to find a way to fatten my income outside of my employment.

I went to a seminar once and they spoke about making money while you sleep and multiplying your hourly rate. Since then, this quote from Dave Ramsey has stuck with me-Your most powerful wealth building tool is your income. One of the ways I am applying this principle is by allowing other companies to work for me by buying into funds or shares. When these companies do well, their prices increase and/or they give a dividend. If they don't do great, I take the risk of having lower return but on average and over a long period of time, I should win.

Of course there are other things you can do like getting another job for your 5 to 9 but if want an 'simple' co-worker earning for you without any additional effort, you now know your options.

The results:
  • Even when I am not at work doing my 9 to 5, my money is working 24/7, growing and paying dividends or interest. This became a huge revelation to me.
  • Imagine I used to make £10 per hour, with my money working 24/7 my hourly rate is now £12. As I continue to save and invest, this amount continues to grow.
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Before writing this post, I looked at my overall pension to see the current value and hands down - it is the largest financial asset I own today.
Not setting my pension to the max matching to get free employee match 
When I started my first job, I think I opted out of the work pension plan initially or I may have begun with saving 1%. At this time, if I put in up to to 5% of my salary, the company would match that 5% and I would have 10% paid into my pension pot.

Now as a 23 year old, why would I give away 5% of my money for old age when I am young and in my view at that time, close to the London poverty line? I kept this view for about a year and  half when I got serious about transforming my financial life.

​I spoke to a friend at that time who advised that the easiest place to start getting money was by increasing my pension saving to the 5%. This not only allows me to get free money but it also reduces my taxes. 

Before writing this post, I looked at my overall pension to see the current value and hands down - it is the largest financial asset I own today. This is not surprising given this UK research where pensions can make up to 60% of households net worth. This are some reasons for the growth:
  • I started reasonably early 
  • I put in money every month and to the max. Remember: If you do not have a work place pension, you can use a SIPP and get tax relief. You can also use a Lifetime ISA and get 25% from the government towards your pension
  • I allow compounding (inability to touch it) to take effect.
  • The market is doing well (of course things can go up an down and I am taking a long term view)

 I am now looking forward to being older; I've even calculated how much I'll need to live comfortably. I also have some peace of mind that the efforts I am putting in now will lead to a beautiful life and that is exciting. I like pensions because they force us to save for old age (otherwise, we will just stumble into it), once the money is gone it is out there working, growing to make the most for you.
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Fast forward to age 24, I read a book by Tony Robbins which simplified the foreign language and and so I quickly open my brokerage account with £25. I have not looked back.
Believing the stock market is scary
As a young girl, I remember watching CNN evening news and at 9pm GMT, we would hear the NYSE Bell ringing to close the day of trading. I must have watched this happen hundreds of time but I never understood why the bell was there in the first place and what those green and red triangles next to names like LSE, NYSE, DAX etc. meant. I did not know that I was witnessing the opening and closing of money making opportunities. The commentary the pundit gave after each closure was like a foreign language to me, one I found very boring.

Fast forward to age 24, I read a book by Tony Robbins which simplified the foreign language and and so I quickly open my brokerage account with £25. I have not looked back. Today, I know the stock market is a huge source of wealth for the top 1% in the UK and is designed to be confusing (with the graphs and financial terms). It is actually not confusing and I am very supportive of the low fee robo-advisors that make it easy for you and me to take part this huge wealth engine.

Last week, a family member was discussing a real estate scheme that guaranteed 8% return if she put in £5000. I immediately opened by brokerage app and told her that one of my fund is posting 22% gain. Five years ago, there is no way I wold have been able to suggest this as an option to explore but now I know more and can suggest ideas that could generate a 14% pay bump. This is the true power of knowledge.
Now, your turn, do you have any mistakes you've made? 
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Infographic: I understood very little about Tax until now

10/20/2020

 
Tax is part of our lives whether we want it or not. It touches our income, contributes to our society, our healthcare, education, roads and more.
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In this post, I spend some time looking at the UK tax rules to find out which benefits we could use to grow and protect our money. I put my basic findings in an infographic to make it simple [Scroll down to view].

So let's learn about tax so we no longer label it as highly-confusing and downgrade it to somewhat confusing (a much better space to be in).
[Quick definitions] 
  • TAX: is a payment made to the government which comes from income or things you inherit, buy or sell.
  • ​TAX RELIEF: is money you get back. It reduces the overall tax you pay.

The Tax Web

Throughout this research, I found that Tax is actually not hard to understand on its own. The confusion comes when you have to consider all parts. Take this example: 

You have an income over the personal allowance threshold whilst saving for a pension and a home which your family will support you with a deposit. 

I call this the web because to understand your tax position, you need to understand the Tax rules for income, pension, stamp duty tax and gifts.  No wonder you and I shun this topic...but to our own wealth demise.

Did you know that if you make a loss when you sell your home, shares in an ISA, or a personal possession worth £6,000 you can get a tax relief? Imagine that getting paid when you lose. These are the kinds of helpful money tips I want to know about (I've added much more below).

Get Clarity
If you work for an employer, your income tax is typically handled by your company. If you are self employed, you'll file paperwork on your own or via an accountant/certified tax advisor to pay the appropriate tax and claim relief. Anyone can reach out to an accountant or tax advisor on tax matters.

Before we move on, one question. What tax rate payer are you? If you don't know the answer, keep reading to find out.

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Reasons you should know a little something about tax
  • You earn money
  • You own a business
  • You will get an inheritance, plan to leave an inheritance
  • You donate
  • You want to reduce your tax bill
  • If you make or plan to make 6 figures
  • You made a loss when you sold an asset
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What Tax Rate Payer are you?
  • Possible Answers: 0%, 20%, 40% or 45%
 
​Your income determines how much tax you pay. The UK uses a progressive tax system, where the more you earn the more you pay in tax. So, if you earn up to £12,500 per year, you'll pay £0 tax.

​On the other hand, the highest income earners pay up to 45% of their income in tax. This can be very difficult to accept which is why many people look at ways to legally reduce their tax bill by using some  of the options outlined in the infographic such as increasing payments to their pension, using ISAs to prevent being taxed again or not taking out dividend income for a given tax year (deferring it). Some others flee the UK to low tax rate countries. Just know that your tax solution or option is unique to your personal circumstance.

Find out what tax rate payer your are here.
TIP
Use income calculators to see the breakdown of your Tax, National Insurance and Pension.

More tips & resources

  • If you make more than £183 per week, you will pay National Insurance (NI). ​Click here to find out how much NI you'll pay per year.
  • Learn more about your Personal Allowance.
  • If you make more than £100,000, your personal allowance goes down by £1 for every £2 you make over this 100k. Kirkrice gives advice on how to work around the loss of personal allowance to keep more of your money.
  • If you make more than £125,000, you loose all of your personal allowance.
  • Learn about Tax relief with EIS, SEIS and VCT.
  • You pay no Inheritance Tax if 7 years or more has passed between when you received the gift and when the person giving passes on. Find out how much is tax free here.
  • You pay no Capital Gains tax if you sell your main residential home or give your assets away to Charity.
  • If you make a loss on an asset you sell (Shares in an ISA, EIS, 2nd Property), you can get a tax relief. You can also use this method to reduce your Capital Gains tax if it is more than £12,300.
  • You can get £6 a week tax free from employers (£312 per year) for working from home (especially during Covid-19). Alternatively and depending on your tax rate, you can get a tax relief up to £2.40 per week (£124.8). You do not have to provide any evidence to make the claim. Click here for more details.
  • Pay no stamp duty land tax when you purchase a home of £500,000.
  • Learn about VAT too.
  • if you are a low income earner, you can get 20% tax relief if you save up to £2,880 into your pension in each tax year. Read more​.
Remember this:
In a given tax year you can save £72,300+ tax free!
20,000 (ISA) + 40,000 (Pension) + 12,300 (Capital Gains Tax Free allowance) = £72,300
Get Tax Advice
  • UK rules on Money and Tax 
  • Tax Aid
  • Citizens Advice
  • Income Tax
  • DO THIS: HRMC - check your tax code and National Insurance record.
  • Get in touch with a Chartered Accountant who can guide you on self assessment and Tax 

Videos on Taxes

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7 ways to make the most of your cash in a low interest world

9/29/2020

 
NS&I have cut Interest rates meaning you get less back for your money. There is speculation that other bank/lenders will follow NS&I's lead. This means that holding a lot of your money in cash will not make you rich anytime soon. What else can you do with your cash?
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  1. ​​Build your emergency fund and aim to cover at least 3 months of expenses.
  2. Pay off your debts (mortgage, credit card) and reduce the interest you pay in the long run.
  3. Research higher savings account like this one from NatWest with 3% variable rates and move your cash into these pots. These accounts come with limits so read the terms and conditions carefully. 
  4. Start with as little at £2 and Invest in the stock market using Apps like Freetrade and/or try robo-investing. Read this article to find out how the rich take advantage of this option.
  5. Top up your pension. You can save up to £40,000 a year and it reduces your taxes.
  6. Invest in promising start-ups. Click here to learn more about the opportunities and risks.
  7. Despite the cut in interest rates, you can save up to £50,000 in NS&I and get a chance to win of up to £1million which is tax free. I won £25 last month.
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Research says this is how to be rich in the UK (2020)

8/23/2020

 
Why do the rich pay less for housing month on month? How do they make their money grow? How many of them can survive one month without a pay-check? I read the 2020 report from Resolution Foundation on wealth in the UK to see what research says about how to be rich in the UK. Keep reading to see the surprising answers.

First, a quick recap: What is Wealth?
Wealth is your assets (An asset: is a thing of value that grows e.g. savings, pension, real estate, art, gold etc.) minus your debt. We also call this your net-worth. In this study, 4 types of wealth were measured:
  1. Property: residential and non-residential property and land
  2. Financial: includes ISAs, bonds, stocks and shares.
  3. Physical: such as consumer durables like cars or appliance
  4. Private Pension: money in your pension pot

So, how do the rich manage their money?

The top 10% have about 50% of UK's wealth

The average net worth of the 10% is £800,000. But, where do they grow their money? Keep reading to find out.

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Do it like the Rich:
Track your net worth. Click here to get started.

When it comes to financial assets, the Rich hold less cash and more of their money in growth assets like savings bonds, ISAs, and Stocks and Shares. 

Poor households hold most of their money in cash or current accounts where there is very little growth.

When the rich hold money in savings bonds, ISAs, and Stocks and Shares, they benefit from:
  • Compounding and High Interest rates
  • Stock prices going up: the value of cash doesn't go up. Inflation does and so you'll need more money to get the same amount of the things you buy
  • Reinvested Dividends from holding stocks or funds
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  • Risky Assets: stocks and shares of companies
  • Safe Assets: ISAs and Savings bond
  • Savings Assets: non ISA Savings accounts
  • Zero- return Assets: money held in cash. under your pillow, in the piggy bank on the shelf or current accounts 
Do it like the Rich:
Hold most of your money in places where it grows. Choose ISAs, High interest savings accounts and the stock market over cash. Hold cash for a specific purpose  e.g. to build your Emergency fund or for a  home deposit.
The Rich have about 45% of their money in pension pots, 35% in property and 20% in financial assets (savings bonds, ISAs, and Stocks and Shares)

Financial wealth (in high growth assets) increased substantially in the last 10 years and this contributed significantly (80%)  to the overall wealth of the rich.

As mentioned above, the financial assets of the rich are held in growing assets like bonds and the stock market. The Stock Market grew substantially in the past 10 years and it made the rich richer.

​The poor held most of their money in zero growth assets e.g. cash or current accounts and even when they added more money in these places, it grew at a much lower rate.
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Do it like the rich:
Write the numbers down, how much of your money is held in: 
Cash
Current accounts
Savings bonds
ISAs
Stocks and Shares
Richer families tend to be homeowners 

Their housing costs are around 5% of their income if they own their home outright or 11% of their income if they have a mortgage

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Do it like the Rich:
Reduce your housing cost. Limit it to a maximum of 33% of your income so you can find money to save and invest
The Rich have emergency funds 

7% of the rich would have a hard time if their main source of income is impacted as opposed to 44% of the poor.

An emergency fund allows the rich to stay afloat if a shock like a pandemic or job loss takes place. Young females who are not degree educated were the most at risk if their income ran out.
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Do it like the Rich:
Build an Emergency Fund of at least 3 months.
There you have it. Some insights into the habits of the rich. Of course there are other ways to get rich, such as owning a successful business, investing in start ups, inheriting money or owning art for example. The options above are the accessible ways to start to build wealth which is also the reality for many people. See this infographic on how to spend £2000 which highlights the step by step guide to implementing the lessons above.
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Which Rich habit will you start to use?
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