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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.
​
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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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.
​
Which Rich habit will you start to use?
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Doing this has made me exceed a money goal by 4000%

8/23/2020

 
What do you want to be when you grow up? What is your 5 year plan? What are your career goals? What are your relationship goals? We've all heard this at one point in time and I wonder, why do we not also ask: WHAT ARE YOUR MONEY GOALS?

if you are the kind of person that writes your life goals, does it include money goals? Research has shown that writing your goals down can make you reach them faster. Keep reading to find out how you can incorporate this money habit for success.

What you need to know
  • See the money goals 5 readers want to achieve
  • Writing money goals make you save and invest faster
  • You can choose a amount or a lifestyle
  • 4 ways to make it stick

I asked 5 readers to share their money goals:

I asked 2 questions:
​1. What makes you want to save and invest 
2. What DOES NOT make you want to save and invest

Click on the images below to see their responses.
The research and experience of writing money goals

Every year, I write my money goals down. So far, I have found that I met them before or after the deadline I had initially set. I believe that there is some magic to writing things down. Once you write it down, it is autosaved in your brain and then somehow, you start to focus consciously or unconsciously to  make it happen.

My experience aside, research has shown that setting goals makes you more confident, motivate and in control - no wonder employers use performance reviews to set and monitor targets- they know that if done well, it motivates employees and can also help their business grow. If you want to actually make it happen, start by writing them down. 'A study by Gail Mathews, found that you are 33% more likely to meet your goals if you write them down, share it with a friend and review it frequently'.
Want to meet a money goal? write it down.
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How to Write a Goal that you stick to (4 ways)

1. Choose an exciting goal
According to Business Insider, 'Instead of being afraid of your finances, focus on the goals that excite you'. Why? when you choose an exciting goal, you stay motivated to make it happen. Here are the types of goals you can write down:
Types of Goals
  1. Travel
  2. Comfortable living
  3. Comfortable retirement
  4. Homeowner
  5. Retire comfortably
  6. Create an education fund
  7. Wedding
  8. Financial Independence
  9. Increase savings  by 1%
  10. Reduce debt by 50 a month
  11. Save 500 this year
  12. Save 3 months in your emergency fund
  13. Increase my net worth by 200
  14. and more...​
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2. Break it down into small bits
Big goals can feel overwhelming and when it comes to money goals it is important to break it down. A Harvard study explains, 'When we’re judging the difficulty of a goal, the first thing our brains see is the size of the gap that separates the goal from the baseline. The bigger the gap, the more difficult the goal'

For example, if you are planning that trip to tour the East Africa and it would cost 2000. Saving 2000 might today can feel challenging. To make progress, you can break it down to save 100 a month and add more in months where you can. After 5 months, you'll have 500 saved and have covered 25% of the cost. With an exciting goal ahead of of you, you can celebrate the small progressive wins and that is key,
3. Make it Challenging
If the goals is too simple, you won't be satisfied. Research has shown that you achieve 'greater satisfaction from achieving goals that help you improve as opposed to maintaining the status quo'. So, If you  are dedicated to clearing your  3 credit card debts of 2000, 1000 and 300, you'll likely be more satisfied clearing the 300 than paying off the minimum for each month which would make you feel like you are not improving.

Going back to the readers response on 
 What DOES NOT make you want to save and invest? I noticed most of the response was about making sacrifices today so they can enjoy tomorrow. I think this is another crucial element of satisfaction, delaying gratification, allows the reward at the end to be more enjoyable.
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4. Track It
Truth session.  Years ago I began tracking one specific money goal. Since then, that number has increased by a whopping 4024% to be exact. How come? What you cannot track, you cannot measure. Remember the research I mentioned earlier, it said, if you share your goal with a friend on a monthly basis, to keep you accountable, it happens. My friends are my spreadsheet, MUTAZ, and you readers of this post. I review my spreadsheet monthly to check how I am doing. Tracking helps me to stay focused and also allows me to think of new ways to reach my goals faster. Grab a copy of the WealthSquats smart budgeter to write and track yours.
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Need help on where how to start tracking? Use Financial Success Map to make a plan.

In Summary

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Save this to Stop Working FOREVER

7/20/2020

 
Achieving financial independence is a major goal that many of us have. It is owning the chance to save enough money to maintain a desired lifestyle, stop working forever and doing what you please with your time. If you think you need millions saved to achieve this goal, I have found that this is not necessary the case. You can reach this goal much earlier than you might imagine.

​What you need
How much do you spend per month?
What lifestyle do you have today 
What lifestyle do you want when you retire
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Start achieving financial independence today

Let's start by making some assumptions

Let's take the following example:
  • My total expenses per month is 1250
  • My annual expense make up (1250 *12) = 15,000
  • Most of my savings are in stocks and bonds and the average annual return is 7%. 
  • On my savings, I estimate that taxes and inflation ( the price of things you buy go up) will cost me around 3% per year
  • Therefore, during my retirement (defined as when I want to stop working), I expect my savings to pay me 4% (7% minus 3%) each year to cover my expenses full. 
  • If I take out 4% yearly, then my savings will remain untouched as I'll continue to spend only the income generated via interest payments (for bonds) and income (from stocks)

This is the amount you need to save to ​stop working

Taking the figures above, your financial independence number is (15,000 * 20) = 300,000

So you need to save 300,000 which pays 4% per year (after taxes and inflation). 4% is 15,000 which means your expenses are fully covered. If you want to cover accommodate other expenses or luxuries like travel, you can multiply the annual expense by 25.

I've seen other articles that suggest multiplying your annual expense with a figure between 20 to 30. Multiplying by 20 means you expect your savings to pay you 5% annually, if you multiply by 25, you assume a 4% return.

​It is important to note that returns will vary with changes in the economy. When the economy is up, you can expect higher return and pay yourself more. With a bad economy, you reduce your spending.  You'll also notice that the rule assumes you are invested mostly in the stock market, read more about this here.

How many years are you away from retirement? 6 years?
You can also use this calculator to find out.
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My financial independence number is too high - what can I do?
Before completing this post, I calculated the financial independence number for a friend. This was the first time she'd ever calculated this figure. Once she saw this, she found her number to be achievable and started to think about how to reduce her expenses and particularly her debts to achieve freedom faster.

What can you do:
  • Use the wealthsquats smart budgeter to calculate your Financial Independence number (see below)
  • Reduce your expenses where you can
  • ​Pay off your debts to release more funds for savings
  • Choose a smaller return (3% instead of maybe 4% or 5%). Make sure this amount covers your expenses so you still have peace of mind
  • Increase your income
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Calculator: How long will it take you to retire? Find out here

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So  go ahead, calculate your figure and Memorise this number
Watch the Video below to learn about the FIRE movement. 
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I found the Financial Success Map I wish I had 5 years ago

5/10/2020

 
With COVID-19 restrictions easing up in the UK and around the world, many of us are left asking - what's next for me, my career, my health and my finances. Some of us are unsure, confused and looking for clear answers.

In my previous post, I wrote candidly about how this pandemic has made me re-think and replan for the future. Since then, I have spent the last weeks trying to define the milestones of financial success. Specifically, what could it feel like or look like?
​

I tapped into research and my personal experience and I have designed an interactive financial success map​ lets me assess how I am doing with my money goals. 
  • Where are you on the Map - click on the boxes below.
  • Plan where would you like to be at the end of 2020? 2021? 2025
create your financial success map

I asked 5 readers to share their financial success Map...

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I've just found out that I need £900k saved to be happily retired

10/6/2019

 

It is the  year 2056, I am age 62 and have just retired. I have paid off my mortgage, I have healthcare coverage and I need £3000 per month (net tax) to be happily retired. Research has shown that UK retirees need around this amount to maintain a certain comfortable lifestyle that allows for some luxuries likes holidays, fine dining and more.

So if I want to be a disco dancing queen at 62 , living it up on £3000 a month, where would that amount come from? The answers I found are well… huge and I must start now. See it all here.

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Why did I choose £3000 as my happily retired monthly figure?
At 62, I envision a life where I can spend on luxuries, management my expenses and retain or increase the lifestyle that I had when working. An undesirable scenario for me is a position where I am used to a certain lifestyle and then in retirement, I find that I have to downsize significantly.

So if I was living on £2500 while I working, In retirement, I don't want to have only £1,500 as income. Studies show that most retirees want there income to be around 70% of their working income in retirement.

My £3000 will cover, healthcare, bills, food, clothing, travel, donations and a few luxuries.
It is very crucial that my mortgage is paid off or at least close enough to being paid off (2 years away). This way, I will not have to work to discharge the loan or feel the stress of using my savings to cover meet my debt obligations.

My ideal situation would be to have my primary home paid off and to have a rental property where I can continue to hold assets. We are likely to live longer and with a retirement age at 62, I can expect to live till I am 85 or longer. This means that my income must last for at least 23 years.

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What is your aspirational lifestyle at retirement?
My income at retirement will change from getting a whole UNSCLICED PIZZA on day 1 to getting different pizza slices on different days

Today, I work for a company and each month on a specific date, I get a salary. That salary is provided once and it funnelled into my expense, savings and investment. Fast forward  to age 62, my retirement age. My income will no longer come at a specific date but it will come from different sources to make up £3000. It could look something like this:

£750 from Company Pension received in on 8th of each month
£450 from State Pension received in on 8th of each month

£450 from Personal Savings account received in on 8th of each month
£450 from rental income received in on 15th of each month
£300 from SIPP received in on 17th of each month
£300 from LISA 
received in on 17th of each month
£300 from part-time job received in on 23rd of each month

This reconfiguration of my potential income at age 62, changes the way I think of a pay-check. It will mean that for instance, I'll have to organise my spending not around one date but multiple dates. This is a mindset shift that I have to be aware of and start getting use to as the retirement age comes closer.

The above is an example. The £3000 I estimate is for an individual. If that amount covers a couple, adjust your income sources to​ reflect your cirumstance.
umm Did I say £900,000?
Now that I know how much I want to live on at 62, I now had to figure out how much I needed to save in order to get £3000 monthly. See the table below for full details.
​
To estimate how much I need to save, I learn of the concept of '4% drawdown rate'. This the rate at which I can take out of my savings in order to maintain my pension pot and not run out of money.

Let's take my LISA, each month, I need £300 from that account to live on. In 1 year, I need £3600 = £300 x 12. If I want to withdraw 4% of my LISA account at 62, I need (£3600/4% = £90,000 saved in my account upon retirement. 

So the Ideal scenario is that my LISA will grow annually at 4% and if I withdraw 4% annually, I actually NEVER run out of that £90,000 saved. This is called the natural yield.

So if my annual income i £36,000 net, I need (£36,000 / 4%) = £900,000 saved at the age of 62 to maintain the lifestyle I desire. This calculation is based on a number of assumption related interests rates and inflation. However, it gives me a view of the size of the pension pot I'll eventually need. 

Seeing this figure, I can spend all the £900,000 in 25 years (£900000/£36000). However if I anticipate that I will live longer than 25 years, I need that £900,000 to last much longer.

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Want to simulate your pension pot?
Have a go at the Wealthsquats calculator shown in the table above. Alternatively you can do a quick search and find other like the People Pension calculator 


At what age can you access your pension?
For each of the pension sources I have mentioend above, you'll need to keep in mind when you can actually start to withdraw from them. For instance, the age when you can access State Pension will differ depending on your birth year, so if that age is 68 years, and you wish to retire at 55, you'll need to find ways to cover the income you would have received from our state pension.

So part of my pension plan is looking at the age and time when I can access these income sources.


Some Interesting things I found out:
  • £1 million is the maximum size the UK allow for your pension pot excluding state pension. This is called the Lifetime Allowance. If you go beyond this, you will be taxed.
  • £40,000 is the maximum an individual can pay into pension each year. This is called Annual Allowance. If your income exceeds £150,00, your AA will reduce up to a maximum of £10,000 at £210,000. The more you pay in your pension, the lower your taxes.
  • £4000 is the maximum Amount I can save in a Lifetime ISA  per year if I allocate the savings for retirement. If I save the full £4000 the government will give me a bonus of £1000 (25%).
  • 25% is typically the amount you can withdraw TAX FREE from company pension or SIPP upon retirement. The remaining 75% is taxed as income but you can vary your withdrawal rate to pay lower taxes.

Know the Pension Carry forward rule. 

I learnt this from a friend.


Every year I put in  £40,000 into my pension this is the maximum annual allowance permitted by the government. I also manage my wife’s finances and she currently has around £160,000 in her pension pot. For the years where we do not put the full pension allowance, I use the pension carry forward rule where in a given year, I can pay the difference from the annual allowance for the past 3 years. This looks like this;

Year 2016 I contribute £30,000 into my pension (I have £10,000 left for my annual allowance)
Year 2017 I contribute £20,000 into my pension (I have £20,000 left for my annual allowance)
Year 2018 I contribute £20,000 into my pension (I have £20,000 left for my annual allowance)
Year 2019 I contribute £40,000 into my pension  (I have maxed out my allowance, nothing is left)

In 2019, I can contribute a total of £90,000 into my pension because I am able to carry forward £10k+20k+20k= £50,000.
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Know your pension status!
I want to get my pension situation sorted
There are many variables that impact your growth and longevity of your pension pot. Keep these in mind when reviewing your circumstance.


  • When you start saving
  • How long you save for
  • How much you want to live on
  • Interest rates
  • When’re you hold your investments
  • How you manage your taxes and tax free pension

What you can do now?
  1. Calculate the value of your current pension
  2. Simulate your expected income
  3. Agree on your savings plan
  4. Track your progress monthly

Options avaliable for you
  • Save more
  • Reduce your expenses
  • Work longer
  • HOPE for a better interest rate


More information
Read our full guide on pensions here to get started. I also found this website from The People Pension to be useful.
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Use this cool method to set up your bond savings like a pro

9/6/2019

 
Recently I came across a new idea called Bond Ladder which allows investors like us to arrange our bonds in ways that provides ​flexibility with regular returns.

This can be an attractive option if:
  • You want regular income in the form of interests
  • You want to access to your money at certain intervals
  • You are happy not to touch some of your money for a while
  • You are retired​
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I am actually going to rename these bond trees as they money bloom all year round. Who doesn't like that

How a bond ladder works

Say you have £1000 to save. You can either put the whole amount into a single fixed bond for 10 years with a 2.33% return. With this option you will not be able to access any part of the £1000 for the duration of the 10 years. If you feel that this ties you down, you can also opt to create bond ladder.

With a bond ladder, you split your £1000 into different amounts  across different bonds that mature at different times which also offer varying interest rates as return.
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With your £1000 bond ladder, you get the amount you invest back at different times so the first will be £200 + interest after 6 months. You can use that amount to sort our any expenses or you can reinvest it into for example, a 6 year bond to keep the process of building your ladder and getting a guaranteed income each time.

As normal with bonds, you'll get the highest interest rate with a longer maturity period. Essentially the issuer or bond provider rewards you more the longer they hold your funds as a loan.

If you are retired or you know someone who is about to retire
A bond ladder is a good way to manage your savings or lump sum pension while you retain your capital. With a bond ladder, you are guaranteed a monthly
(if you bond provides this) income via interest payments across multiple years.
Remember

Do keep an eye out of the interests you get to ensure that you are getting the types of returns you want. You can also create bond ladders using:
  • Bond savings accounts only
  • Stock market bonds only
  • A mix of bonds savings accounts and stock market bonds

Click here to learn more about bonds. 

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Why you need the 'Oops Account'- Managing the Unexpected (curve ball)

8/6/2019

 
Recently I came across the following key words Financial Vulnerability, Financial Capability and Financial resilience. I generally attribute the words vulnerability, capability and resilience to life, emotions and an overall wellbeing.  In the articles spewing these words they explored the following how easy is it for you to weather a sudden financial storm? In other words, how ready are you to manage curve  balls. In this blog, we discuss the need for a new savings account to cover unexpected however large or small.
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Imagine this, two individuals Niya and Hurley receive an email that says you owe £450 from phone contract which you did not formally close if you do now address the cost, it will continue to increase.

Niya and Hurley's response to this curve ball event

Niya's response:  damn I should have done this, I kept putting it off.  I can resolve it in 24 hours using my own savings

Hurley's response: oh no, I'll have to borrow from Shane again and I have not paid him back and I can't ask Leo again as I still owe her as well.


Niya is less vulnerable, More capably and more resilient as she has the funds to attack the issue immediately. Hurley is highly vulnerable, less capable and less resilient as she was in an already difficult position and this new phone bill has added to her worries.

This is how people become suddenly poor 

I read this article that mentioned that the number of people who are at risk to becoming poor is actually higher than the number of poor people. I thought eh!?

The scenario above is the simple view of how poverty happens. You are less likely to be poor because you have ONE bad event. You need combination of multiple events for it to happen- like a domino effect that makes your situation more and more precarious. 

If we understand this cycle, then we know that if we can manage these multiple series on unfortunate events by having a sufficient financial cushion, we are more likely to survive it or at least come out of being poor in no time.

A key goal of WealthSquats to encourage ourselves to build financial resilience, the ability to progress with our financial goals in the face of the unexpected. It is about building a strong finical muscle. 

What are examples of curve balls
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I found the table below from UK's MSE report where they list out all the most frequent unexpected events and it associated costs. From their report, the average amount for unexpected cost is £1545, the highest category is lending to  family/friends which amounts to £2,482.

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How am I building my resilience?

After reading this report, I promptly reviewed my finances to see how I can start to prepare myself for just in case situations.  I converted one of my saving accounts into an oops account where I make a monthly deposit.

This account is for managing any expenses and I am perfectly fine knowing that it will go to zero at some point and I will continue to top it up. I want to be part of the survey that has funds to solve problems that can be prolonged if I am unable to take action.

​It is important to note that the oops account is part of building our overall financial resilience  imagine a future where you have a robust emergency fund, a diverse asset class that includes bonds, funds, pensions and an oops account. That to me is holistic financial resilience- you are taking care of yourself today, you are prepared for tomorrow and you have a starting point to handle the unexpected.



I encourage you to open your curve ball account today and start with something however small and give yourself additional peace of mind.

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The truths I am learning about controlling Debts

6/6/2019

 
It is year X and you owe Family 119 a loan.. Knowing that you are unable to pay back, you pledge your services and that of your entire family of 5 to repaying this debt. Family 119 agrees to this arrangement but will not tell you what type of service you will provide and for how long.

You are now age 73 and frail. The 119s now own your land, where your modest home sits (you are now a tenant) and they are also aware that you can no longer continue your services. You instruct your children to inherit your debt repayment services to the 119s. What will they do?

Luckily, Debt Bondage, as described above is illegal according to the International Labour Organisation but it provides some historical insight into how debts have been managed in the past.

Today, the 119s seem to be replaced with banks and other lending organisations. Additionally in some parts of the world, your debts can still be passed onto your dependents.
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Unsurprisingly, Debt is about affordability. Can you afford to have Debt?
So, what is your debt relationship status? Friend, it's complicated, separated?

In the UK, research by FairMoney found that typically, women own 25%  more debt that men. This reality is taking place in a world where a woman wage is statistically lower than men due to wage gaps and the increased number of women in part time jobs. One positive news is that women are more likely to speak about their debts than men showing that we have less guilt or shame about this subject.

With an open approach to discussing debt, this blog post looks at, what we can do to reshape a women's debt reality. I seek to understand the nature of debt, what it is and how to manage it to yield positive outcomes. And if you are already in a difficult debt situation, I share some views based on research on how to get address it.

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Credit Card is a type of unsecured debt
Debt is a sum of money that is owed or due to a lender. 

There are two types of debts - Secured Debt and Unsecured Debt.

Secured Debts are backed by an asset. This means that when you take on a secured debt, the lender (who is providing you with the loan) has the right to asset e.g. a car or house upon as collateral. The typical types of secured debts are mortgages and car loans. If you are unable to pay the loan taken to obtain these assets, the lender can get the asset also called a collateral. As a borrower, you are able to own the asset only when you pay off the loan in full.

Unsecured Debt are not backed by an asset and the lender does not have rights to any collateral. These debts typically have a higher interest rate and examples of this type of debts are credit card loans, student loans, medical bills, pay day loans, overdrafts etc. If you obtain one of these types of debts, the lender can get repaid if your default in a number of ways- garnish your wages, send a debt collector to retrieve the funds or find a way to get access to your asset.


The Stats
Across the Britain, Unsecured debts have increased by 50% since 2008 and make up around 30% of a typical household income. Why? these increases are attributed to public spending cuts and wage stagnation. In light of this, individuals are using debts a resource to manage their expenses. Unsecured debts are easier to access (online) and loan providers are able to typically charge higher rates and thus reap significant rewards particularly when borrowers are unable to repay them. 
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Wealth builders handle debt with extreme care
Understanding Debt for Wealth Creation, Growth and Protection

From my research, I have found that people hold debt for a variety of reasons, to purchase phyiscal assets, knowlegde assets such as education via a student loan, to deal with sudden changes, build their credit score and more. Some others choose to have ZERO debts and manage their lifestyle with their own savings.

However, most wealth builders handle debt with extreme care. This is because:
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  • If it is too high incomparision to their income, it does not free up funds to make additional investments
  • It impacts their wellbeing. A debt free life is a stress free life​
  • It can impact their credit score- a representation of their ability to pay back a loan. If you have a low credit score, lenders including banks will likely charge you high interest rates to lend to you or will choose not to provide you a loan. You can check your credit score for free or for a fee using services like Experian, Equifax, Noodle or the Information Commissioner office. 

For each debt type, I share my finding what what a good behaviour looks like and also list out which bad ones to avoid.
We hold debts for a variety of reasons
Credit Card

Bad Debt Habit:  
  • Spend beyond what you can afford.  
  • Take cash out of your credit card
  • Pay only the minimum amount- this means you'll pay more than you borrowed e.g. If you borrowed 50, you can pay back 150 depending on the interest rate per lender.

Wealth building habit:  
  • For each amount you spend on your credit card, clear it (pay it back in full) every month. 
  • Get a credit card with low or zero interest rate payments 
  • Have only 1 credit card that rewards you for spending (if possible) 


Car loan
Bad Debt Habit:   
  • Buy a brand new car beyond your means and pay a large proportion of your income to pay back the loan

Wealth building habit:  
  • Buy a second hand car and pay in full using cash which you have saved this way you also avoid making monthly payment.
  • Use public transport, Walk, get a bike (if possible) 

Mortgage
Bad Debt Habit:
  • You purchased  your home and you cannot meet the monthly payments. 

Wealth building habit:  
  • Have an emergency fund that covers around 3-8 months of expenses before purchasing a home 
  • Make sure the monthly payment is equal to or less than 30% of your monthly income.  
  • Make monthly or annual overpayments to reduce the amount of interest you pay and your mortgage term.
  • Rent out spare room(s) to supplement your mortgage payment


Student loan
On average, It takes women 16 years to pay off student debts. By contrast, it takes men 11 years.​
Bad Debt Habit:
  • Get a high student loan that will take more than X number of years to pay. 

Wealth building habit:  
  • Go to a significantly cheaper university 
  • Take out low cost loans so you can start your career with very low debts.
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I am thinking of taking on (more) debts
(Discuss this in DETAIL with your loan provider )
  • Seek low interest rate debts
  • Ask for ability to pay it off early with minimal penalties
  • Make debt repayment less than 20% of your monthly income
  • Use comparison sites to consider all suppliers - family, friends, government, banks
  • AVOID pay day loans (see more below)
  • Do not take on debts for things that do not grow in value (e.g. a TV)
  • Find out what happens if you default​
I am already in debt
Not to worry, you have multiple resources avaliable to you to acheive a postive outcome. Speak to your bank or financial advisers to get more information. You can consult resources and charities that include:
  • Money Advice Service
  • Citizens Advice
  • Money Advice Trust

​Here are a few steps that may help:
  • Create a debt payment plan
  • Speak to the lender to reduce the interest rates and repayment amount(s)
  • Use the snowball method (pay off the smallest debt first)
  • Reach out to debt management charities (see above)
  • Overpay when possible
  • Stay positive


Whatever you choose, DO NOT Use Pay day Loans
Payday loans refer to loans provided by pay day lenders who lend an amount of money which borrowers typically pay back on the day they receive their monthly salary-hence the word pay day. These loans are typically  sought after as a last resort. Due to this, they typically carry very very high interest rates. These loans are unsecured and can negatively impact your credit score because they signify to the lender that you are not financially stable. This can  make it more difficult for you to get other loans e.g. a mortgage in the future.
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1 way to SERIOUSLY GROW your money

5/6/2019

 
Take a look at this:

You woke up this morning and decided, every month I want to save £100 each month in a savings account that pays 5% annual interest rate.

5 years later, You wake up and look at your account and your balance is £6,828.94

10 years later, ​as you continue to deposit your £100 and you check your account as it says, you have £15,592.93

30 years later, you check the account again and it says, you have £83,572.64 saved

What is happening here?
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How patience pays you back. Imagine setting out to climb Mount Kilimanjaro over 6 days, pitching tents and making it to the summit without giving up!
“Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.”
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Albert Einstein

The 8th Wonder of the World

Albert Einstein called Compounding the 8th wonder of the world. Compounding is one of those mathematical concepts teachers taught me in school but it did not fully resonate until I began my financial education. 
Compounding allows you to keep growing your investments by continuously adding interests.  

In the example above, we assume an interest rate of 5% and that you invested the £100 in a savings account. In fact, you can choose to invest your £100 in the Stock market via a mutual fund and get double digit returns depending on market conditions which can exceed your overall returns. 

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Where can I apply compounding?
Compounding applies to asset classes where interests or dividends are paid. These can include:
- Savings & bond accounts
- Pensions
- Stocks & Funds
- Peer to Peer platforms

How to get the most of Compounding


In order to reap the full rewards of compound interest,  you have to do three key things: 
1. Start NOW
2. Continue to save or invest frequently
3. 
Do not take anything out 


Start NOW
The key secret of compounding is time. If I save or invest £100 for 20 years vs. 30 years at a rate of 5%, I will get £41,274.63 and £83,572.64 respectively. The difference  of 10 years allows me to double my investments.

The more time you allow for your investments to grow, the higher your returns. I always encourage my friends to start today even with a little bit in order to take advantage of this opportunity. 


Continue to save or invest frequently 
At what frequency should you save? Daily, Weekly, Monthly, Quarterly? The frequency of saving is something that you should consider in line with your financial goals. Personally, I like to save/invest the same amount or more monthly to benefit from interests and to keep promoting this financial habit. 

Do not take anything out 
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The mindset that I have employed is to have a long term view (25+ years) on my investments. I suggest you have a short, medium and long term view for your investments. This allows you to create contingencies in case anything arises. The goal here is to try and leave your medium to long term investments untouched. When I say untouched, I mean, not spending your principal and interest returns. You can always move your savings/investments from one bank account to another to gain the benefits of higher returns. 


If you invest in the stock market, your investments can increase via an appreciation of the stock value and/or via dividends. The same principles apply, reinvest your dividends to build momentum with compounding.


Keep in mind

In summary, let your principal grow and your interests returns will increase. This applies to all types of asset building engines that you choose to use. It is very important that you maintain a long term view on your savings/investment. Only save what you can make you sleep well at night. Maintaining a long term view on your investments allows you weather economic changes,  recession, booms, bust, over time research has found that these correct themselves. So try not to panic when for instance you find your stock investment has gone down from what you saw yesterday. This is part of the cycle of our economy. 



Want to play around with your figures to see the effects of compounding? Visit the calculator site

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Let your principal grow and your interests returns will increase.
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The easiest trick to saving more money while you sleep

4/6/2019

 
As an evergreen financial and wealth student, I am always on the lookout for new ideas, tips and time saving ways to manage my finances. One tip that many wealth builders apply is using an automated standing order. This tip allows me to build wealth by significantly reducing the hassle that is required to manage my funds. ​​
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Set up Automated instructions for your funds to grow wealth and meet your goals

H​ow do I use an automated Standing order?

Every month when I receive my salary, I have set up instructions to my bank to automatically allocate a given amount to multiple asset classes. For example, If i receive £100 on the 30th of each calendar month, the minute the £100 reaches my account, my bank automatically sends:
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£8   to my emergency fund
£10 to my  P2P account
£20 to my  H2B ISA
£17 to my  Mutual fund account
£10 to my  LISA
£5 to my  travel account

£30 remains in my bank account to cover my expenses



Out of Sight, Out of Spending Mind

Allocating my funds in this manner allows me to effectively meet my monthly or annual financial goals. In this scenario, I am applying out of sight, out of spending mind.  It is very easy to be tempted to spend when you do not have a plan for your funds and I have chosen to be structured and disciplined with my own goals.

You may say, but I can do this every monthly manually and that is ok if it is helping you reach your own goals. Using this easy tip, has allowed me to be very careful about unplanned spending. If you find that new reasons arise where you want to spend the money you want to allocate to  your asset class, it become very easy to derail your goals.



The Surprise

After doing this for a while, you'll find yourself checking one of your accounts surprised at the amount you have accumulated without having to do too much. This is exactly the experience one of my friends described- 'every month, I send £50 to my savings account and at the end of the year, I go and look at it and £600+ is just sitting there and I do a little dance'. 

How can you set-up your automated standing order

The great thing about an automated standing order is that the hard work takes places only at the beginning when your set up your instructions. There are many ways to set up your own automated instructions and it takes only a few minutes. 

1. Identify how much you want to allocate to your asset classes

2. Contact your bank and set up your instructions. You will need the receiving bank account details. Alternatively, you can set up your instructions via online banking or your banks' phone App. 

3. The typical details you'll need to complete your automated instructions:


Bank details of your receiving account
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The date when you want the instruction executed (make this the day you receive your salary)
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Amount to be allocated




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Automated standing orders is a great  and easy tool that allows me to build wealth over time with the right discipline. Remember, you can always amend your instructions to match your plans.

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Free Money you should already have

2/5/2019

 
I am all for finding new ways to supercharge my investments and nothing makes me more excited than knowing that I can be rewarded for saving or investing. In this blog, I scour the WealthSquats website and list out asset classes where you can get up to 50% guaranteed increase on your investments and savings without adding more funds. Of course, the more you invest or save, the greater your returns.
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Use the right financial products to get up to 50% returns on your savings guaranteed


The following are excerpts from WealthSquats.com


​Get 20% Returns

Junior SIPP: is a personal pension plan that parents can use to set up a pension for their children. The money invested in the Junior SIPP can only be accessed at around age 55. For each amount invested into a Junior SIPP, the UK government provides a tax relief of 20%

Self-Investment Personal Pension or SIPP SIPP is a pension scheme that allows you to contribute and invest your pension contributions as you like. In the UK, the government provides a tax relief on the contributions made and you can access the funds when you reach retirement age.  Keep in mind that there are annual limits to the amount you can contribute to a SIPP (Learn more here).​


Get 25% back on your savings!

The LISA can be held in cash ISA which is a saving account or as a Stock and Shares ISA where you invest in the stock market.  Each month, the UK government provides a 25% bonus on your cash or investments. You can use the LISA  for only one of two things. Either you can use it to purchase a home valued up to £450,000 or you can use it as a substitute pension in which case you are not allowed to make any withdrawals until the age of 55. If you put in £4,000 a year, the government will give you £1,000 free and we like that.

The H2B ISA can also be used to save up for a home. In that case, the government will give you £50 for every £200 you have in the account. Keep in mind that this is only valid for buying a house in the UK.


Receive up to 30% back on your Private Equity 

Private Equity: In the UK, the government wants to support early stage companies as they see them as an investment into the overall economy. The government has several schemes including the EIS, SEIS, VCT to support these companies.

Because you are investing in businesses that are at an early stage and are therefore high risk, the UK government can provide a tax relief of up to 30% on your investment. So if you invested £50 you can get back £15 from the government. This means that your actual investment costs you £35.  


Receive 100% from Employers

Employer Pension Matching: If someone told you that if you put in £100 in your account today and they will also put in £100, will you say no? probably not. This is the same mindset you should apply when reviewing your Employers pension matching option. Matching pension allows you to build your pension networth at an accelerated pace. In addition, as your salary increase, so does your matching contribution and your overall pension pot.

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