Category: Wealth Protection

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

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.

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.

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

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.

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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How to make sure your loved ones are cared for when life happens #Life insurance

7/6/2019

I have been thinking about what financial products are available to support individuals when the unexpected happens. In this post, I explore life insurance and find it can be a useful investment allowing your dependents to benefit from an additional source of income.

The combination of your savings, investment and life insurance payments, can provide a very stable financial foundation for those you care about.

About life insurance
Life insurance is a financial product that provides your dependents with income in the event that you pass on. This is particularly important for parents with children and individuals with partners/spouses. As part of my exploration into wealth protection, I have found that life insurance allows you to continue to provide for your dependants so that they do not have a lower quality of life. Using the insurance payout, your dependents can pay mortgage payments, pay for education, manage other expenses as well as continuing to save and invest.

How to get life insurance...

With your employer
Typically, employers provide life insurance as part of employee benefits package. In this scenario your employer will ask you to identify your dependents and sometimes you can allocate the percentage that should be allocated to them. Having an employer provided life insurance package provides coverage if you pass on while you are an employee of the firm. If you move to another job, you will lose the coverage. So check the terms and conditions carefully.

On your own
If you wish to have life insurance coverage that is not dependent on your job, you can shop online from providers such as Vitality, AIG, Scottish Widows, Virgin Money and more. My research has shown that you should seek life insurance policies that is at least 12 times your annual income so if you annual income is £30,000, you should seek coverage of £360,000.

How much does life insurance cost?
The monthly cost of Life insurance varies substantially and can range from £2,50, £6, £12, £30. This is variation can be due to a number of factors:

1. Your age: typically, the older you get life insurance, the more expensive it will be

2. The term of the policy: What length of coverage are you seeking, is it 25 years or unlimited?

3. What will the policy cover: do you want mortgage cover and/or financial payments to your dependents? The more you cover, the higher the monthly costs.

4. The payment plan you choose: Level or decreasing term

Level Term The payout will remain the same over your chosen term. So if you elected a payout of £360,000 over 25 years, your dependents will get that amount if something happens to you over the selected term.

Decreasing term: The payout decreases over the term of the policy and is typically used to cover specific debt like a mortgage. If you obtained a decreasing policy of £360,000 over 25 years, your dependents will get a higher payout at the beginning and as the 25th year approaches, the payout will approach £0.

Your own monthly payments will be advised by your insurance provider and there is also no limit to the number of life insurance policies you can purchase.

Is life insurance for you?
I like the idea of allowing my investments and savings to continue to grow and have my dependents benefit separately from life insurance payments. The combination of your savings, investment and life insurance payments, can provide a very stable financial foundation for those you care about.

Should you get life insurance if... (my view)
Yes if, you have dependents- children, a spouse or parents, it is beneficial to get life insurance.
It Should at least be 12 times your annual income
And is separate from your job so it follows you and does not end if you leave a job

Spread the word!
After reading this, do check if your parents have life insurance and discuss why it matters. If you know of parents or individuals with dependents, inform them as well so that they are armed with the right options and information.

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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.

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.

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.

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:

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.
Pay only the minimum amount- this means you'll pay more than you borrowed e.g. If you borrowed 50, you can pack 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.

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:

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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Clues on Taxes

3/6/2019

One of the wealth mantras that has always remained with me is it is not how much you make but how much you KEEP. When I heard these words the first time, it shattered my beliefs that in order for me to have wealth, I would have to make a significantly higher income.

Keep more of your income by understanding your tax position

Knowing that I did not need to be a millionaire before I could start investing and saving, I began to learn about ways to keep more of my current income by saving and investing wisely, controlling debt and understanding taxes. This blog will focus on taxes.

Why we pay taxes

Taxes are payments citizens/residents of a country make to their government who will typically use such funds to secure social goods like maintain public parks, provide state pensions, provide national healthcare and many more. There are different types of taxes but the one that significantly impacts your wealth goals are income taxes.

What is your tax bracket?

Income taxes are typically deducted from your monthly or annual pay check. Depending on where you are in the world and your occupation type, you can pay up to 70%+ taxes. If your income tax is 50% it means that 50% of your income is going to government and that amount will not be available for you to build your wealth. The 50% that you get to keep can also be subjected to taxes on the interest earned via savings so it is very important to ensure that you are not taxed twice when planning for your financial future.

Many individuals, use banks and tax planners to help them identify ways to legally reduce the amount of tax they pay so that they can hold more of their wealth.

So what can you do today to protect your wealth?

1. Look through your assets classes and identify if you do pay taxes. For instance, if you are using a retail savings account that is not a cash ISA, you will be paying taxes on your savings.

2. If you get a monthly pay check, look through your pay slip and understand how much tax you pay monthly. If you want a holistic view, visit HRMC to see how much income tax you pay annually.

3. My favourite: Start using tax friendly products to safeguard your wealth

The UK government allows wealth builders to save up to £20,000 tax free in any of the three ISA wrappers available. You can save your cash, invest or use Innovative finance products.

In addition, if you invest in Private Equity companies that are covered under the EIS scheme, you can get up to 30% back from the government. You can also get similar refund using a VCT.

If you donate to charity, you can also claim a tax relief on your donations. Furthermore, if you are saving for your children, you can use the Junior SIPP or Junior ISA to protect your savings.

As you can see there are numerous opportunities for you to keep more of your income by understanding how to manage your tax situation. Most importantly, the size of your income is not a blocker. Remember, it is not how much you make but how much you KEEP.

it is not how much you make but how much you KEEP

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Use this cool method to set up your bond savings like a pro

How a bond ladder works

Click here to learn more about bonds.

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

How to make sure your loved ones are cared for when life happens #Life insurance

The truths I am learning about controlling Debts

Clues on Taxes