ISA Individual Savings Account 2011/12 tax yearWe are now well into the 2015/16 tax year and there are a few changes to ISAs which you need to be made aware of….

The ISA allowance has increased to £15,240 per investor and this applies to both Cash ISAs (over 16s) and Stocks and Shares ISAs (over 18s). You can invest in one Cash ISA and one Stocks and Shares ISA per tax tear and the total allowance of £15,240 can be split between the two types of ISA as you choose.

Previously you were able to transfer between ISA providers and Cash ISAs could be transferred into Stocks and Shares ISAs. Now, you can also transfer the other way – FROM Stocks and Shares ISAs TO Cash ISAs.

And finally, under new rules, your ISA allowance, if your married, does not die with you as was the previous case. Now, on death, your spouse or civil partner can inherit your ISA allowance.

 

Take a paycut and invest in your own financial futureThe current tax year ends on 5th April 2014 and until midnight you can invest up to £11,520 into a Stocks and Shares ISA. This can either be direct with a fund management house or via an investment platform, fund supermarket or wrap provider.

For those who are keen to manage their own portfolios there are a huge range of funds, shares and other investment classes to choose from to benefit from a more favourable tax treatment of income and capital gains tax, in the investors hands.

Alternatively, if you’re not so investment-savvy and wish to receive advice and guidance, please consult an Independent Financial Adviser.

If Stocks and Shares ISAs are not for you, due to the investment risks involved, you can still invest up to £5,760 into a Cash ISA. These are available from many banks, building societies and other institutions. They are quite simply bank account which pay your interest without any tax deducted.

Hope this helps!

Take a paycut and invest in your own financial futureA short post for this cold and wet Saturday afternoon.

To achieve financial independence you need to amass sufficient money/investment/assets to provide “unearned income” to replace your “earned income”.

Most will fail to achieve this in their lifetime simply because they spend first and then investment what is left (typically nothing!).

Those who build wealth know that you need to save first then spend what is less.

By effectively giving yourself a pay cut, say 10% of net income, you set this aside as your money for tomorrow. Only then do you spend what is left.

Whatever you decide to invest this money in, make sure it is taken from your bank account by Direct Debit immediately after payday, thus avoiding the temptation to spend it!!

Good luck 🙂

It may sound like a crazy notion to increase your personal wealth by taking a pay cut – however can that work?

It’s simple really.

Most people have a limited income yet infinite needs and wants. They earn a fixed amount, or the household has a fixed monthly income, they spend, spend, spend first and save what is left over. I will be the first to admit that I used to “waste” money each and every month – bottled water (!), pre-packed sandwiches, not shopping around for more competitive insurance/utilities etc….

Result = there is rarely anything left over at the end of each month – “which runs out first, the month or the pay packet?”

It has been quoted many times (such as in The Richest Man in Babylon – a great book and worth the £3.46 price tag!) that those who build lasting wealth are those who SAVE first and then SPEND what is left.

By taking something off the top of each pay packet you can set this aside, firstly to build a “rainy day fund”, and then to consider medium and long-term investments.

It will be difficult at first as the decrease in monthly income can be noticeable, but over time, your spending patterns will be altered to match your new “lower” income level and quite quickly you will notice the increase in your personal wealth.

How Noticeable Will This Be?

If you set aside just £50 per month, and invest it to receive a net return of 5% per annum (which should be achievable) over a ten year period this will grow to £7,764.

If you could achieve 7% net per annum, this would amount to £8,654; which if continued for a further 10 years would £26,046.

The more you save, the quicker it will grow.

My Experience

I am fortunate in that I earn a decent income and am able to set aside £700 per month. If I continue this level of investment, I am currently on course to achieve full financial independence by the time I am 50.

It’s hard at first, but after a while your lifestyle adapts to the “pay cut” you choose – I find I now plan purchases ahead – I got rid of my credit cards – it’s addictive (although I do still enjoy life to the maximum – I just don’t waste money any longer!).

Where Should You Start?

Simple really – just keep a track of what/where your money goes on a regular basis for the next month or so – then analyse and be strict with yourself –

  • Do I really need to spend money on this item?
  • Is there a more cost-effective alternative?
  • What changes can I make in my lifestyle now to build the future I want rather than the future I currently have in-store?

Let me know you’re successes in “taking a pay cut” below.

I thought I would post about a few interesting articles I have read recently – I thought you might find them interesting reading – a little light relief from all this ISA allowance increase, change in pension age malarkey!

Rob over at MoneyWatch posted an interesting article “Create a Home Inventory” which got me thinking about an old game we used to play at cubs – the cub leader would bring our a tray with about 20 different items on and we used to have a about 20 seconds to look at the tray. The tray would then be taken away and we had to try and remember as many as possible.

I am sure if the worst happened and I was burgled or had a fire I would be able to remember a lot of things but I know for sure that I would not remember everything – I am therefore going to start cataloguing all my possessions – a spreadsheet will do the trick!

Meanwhile, Lee over at FivePencePiece, when he was not busy with Labour Party conference or his appearance on the radio wrote an article entitled Patience is a Virtue. Lee reminds us that nothing happens overnight and that “a journey of a thousand miles begins with a single step”.

I read a book many years ago on the subject of goal planning – one of the most important chapters for me talked about the need to take any task which at first glance might seem very difficult and break it down into smaller, more manageable “chunks” – for example, if you’re overweight and need to lose say 3 stone then this in itself is quite an achievement.

But if you break it down and say “I will lost 1lb per week” which is more than possible given some exercise and changing your diet, then you would achieve your waste loss goal in 42 weeks!

The final blog post I liked recently was “51 Unusual Money-Saving Tips” from over at WiseBread – I love lists – I am always making lists (mainly “to do” lists!) and love this kind of post – it acts like a hub with so much information coming off this hub in a series of “spokes” – just like a wheel on a bike.

Anyway – there should be enough for you to be going on with there – please let me know which posts you have read recently by posting a comment and a link below – please feel free to link to other personal finance blogs you visit.

The following is a list of the top 10 read articles in August.

1. Pay Yourself First – the first step in wealth creation

This article discusses the need to save from income before spending it! This is a form of deferred consumption and by saving first and then spending what is left you can build a solid foundation to your financial future.

Tip – aim to start saving 10% of net income each and every month – it won’t be easy at first but your budget and lifestyle will adapt over time.

2. Get Money for your Old Mobile Phone

Many of us have old mobile handsets lying around – did you know you can sell yours online – here is an article discussing this – I recently sold my old Sony Ericsson K800i and received £28.00.

3. New Tax New ISA Allowance – ISA 2009/2010

In just over a months time the ISA allowance for over 50’s increases to £10,200, with the allowance increasing for the remainder of the population on 6th April 2010.

4. Cashflow forecasting – income and expenditure spreadsheet

Our free income and expenditure spreadsheet remains as popular as ever and we are receiving some great feedback from people who are using it – thanks!

5. Investment Bonds – an introduction

An investment bond can be a shrewd financial planning tool as well as an investment vehicle.

6. It’s not how much you save but how long

This article discusses how, over time, money make money – with interest earned on a savings account itself earning interest. The longer you can save for the more money you will build up – start saving as young as possible.

7. Non-taxpayers – ensure you receive your bank and building society interest without tax deducted

Completing a simple form can ensure that non-taxpayers, both young and old don’t pay unnecessary income tax on the interest they receive on their savings accounts. With interest rates as low as they are at present every penny counts so ensure you’re registered to receive your interest gross if applicable.

8. Personal Finance Blogroll

A list of the other personal finance blogs I visit on a regular basis – makes for some interesting reading!

9. Retirement is an Income not an Age

Many have fallen into the trap that retirement occurs at a particular age. Unfortunately for most of the population this occurs simply because they haven’t secured sufficient income to retire earlier. By targeting a specific income and going for that it is possible to retire early. In a forthcoming article on “goal setting” we will discuss how this can be achieved.

10. Buy a Financial Calculator

If you’re serious about planning your own finances I strongly recommend buying a good financial calculator – ideal for calculating rates of return, how much to save on a regular basis to build a certain sized fund etc.

And finally……

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I was reading an excellent post over at Seth Godin’s blog which got me thinking about budgeting, wealth and financial independence.

The article talks about how over 2 billion people on this planet live below the poverty line. Now for one moment, the chances are that if you are reading this article, you are not living in the abject poverty being suffered around the world but you could be in a state of personal financial “poverty”.

Do you spend more than you earn? Does more money float out of your bank account each month than flows in?

If you spend just one more £1 than you earn each month, you will get further and further into debt. If you spend £1 less than you earn each month that is £1 extra put in reserve.

To achieve financial freedom in your life time you need to spend money only on necessities, and save for a later time, when you can afford to buy luxuries.

Actions:

1. Prioritise your debts – pay those carrying the higher interest rates first

2. Draw up a cashflow forecast – see how your money comes and goes each month over the next 12 months.

3. Prune all those “luxuries” you don’t need – e.g. possibly downgrade on your satellite or cable package, cancel that gym membership you never use.

4. Destroy those credit cards – only use cash for purchases – open a separate savings account for those large, one-off purchases you need to make each year.

5. Live by the mantra, “10% of all I earn is mine to keep forever”.

What else can I add to this list – please comment below.

The following is a list of the top ten articles visited in June 2009.

1. Pay Yourself First – the first step in wealth creation

Those who save first then spend invariably end up better off than those who spend first and save what is left.

2. New Tax Year – New ISA Allowance

Increase in ISA allowance following the start of the new 2009/2010 tax year on 6th April 2009.

3. Changes in ISA Allowance – Budget 2009

How the ISA allowance will increase to £10,200 for those aged over 50 on 6th October 2009 and for the rest of the population on 6th April 2010.

4. Cashflow Forecasting – Planning Income and Expenditure

A budget and cashflow planning article with a useful Excel spreadsheet to download and share with friends and family.

5. Investment Bonds – An Introduction

The various ways in which this life assurance based investment vehicle can help with your financial planning.

6. Non-taxpayers – earn interest without income tax deducted

How completing a simple form can stop non-taxpayers paying unnecessary tax on their bank and building society interest to the taxman!

7. Critical illness cover v income protection

How these two different types of protection product can be used to compliment each other.

8. Will writing – an introduction

What is a will and why are they important?

9. 10 Great Reasons for Writing a Will

A must-read article for all those serious about financial planning and protecting their families and loved ones.

And, finally…………..

10. The Rule of 72 – The Time Value of Money

A great little rule for making quick calculations

Why you need a Will

There are many reasons why it is prudent from a personal, as well family perspective, to ensure you have a suitably worded Will in place – and Will Planning is not just for old people either!

What is a Will?

A Will is your written instruction which formalises what is to happen with your estate, and your children, after death. It can be a shrewd tax and estate planning instrument when used correctly and there are also a number of reasons why you should write a will sooner rather than later. We will cover these further in our next article in this series. This article is an introduction to Will Writing.

There are several ways in which a Will can be written – you could use the services of a Solicitor, a Will Practitioner/Specialist, a financial adviser or even a “DIY” Will purchased from a stationers.

In order to make a Will you need to be of sound mind and over the age of 18.

What is contained in a Will?

A Will sets out the administration of your estate in the event of your death. In it you can state your funeral preferences together with details of any gifts to charity or the National Trust.

Individual items can also be named, for example, leaving jewellery to a daughter or military medals to a grandson.

The Will for the most part will deal with the distribution of your estate – these are all your worldly goods and possessions. It is common for married couples to leave everything to each other and then shared equally between children on second death – this is generally known as the “Great British” Will – and may or may not be the most efficient and effective way of administering your Estate.

Who is involved in the Writing of a Will?

As the person making the Will you are known as the Testator (Testatrix if female) and the Will will be witnessed by two individuals who are not to benefit under the terms of the will – these are the Witnesses.

In the Will you nominate a person or people to administer your Estate after your death – these people are known as the Executors and it is their legal obligation to ensure that your wishes are carried out to the best of their ability.

I have an existing Will – does it need changing?

It is important to ensure you review your Will on a regular basis as people’s circumstances do change and the Will previously written may no longer match your wishes.

In addition to this, on several occasions, during my time as a financial adviser, I came across situations where people simply do NOT have a valid Will – in one case for example, the person had received their copy of the Will back from the Solicitors office and had simply filed it away without signing and witnessing the Will – remember – you need to ensure you sign your Will and that this signature is witnessed by two independent witnesses for it to be valid.

Is it feasible to make my own Will?

Although it is possible to write your own Will it is always advisable to have your Will written by an expert, such as a Solicitor or STEP practitioner.

A word of caution – in many cases the person writing the Will may wish to add themselves to the Will as an executor – I would always err on the side of caution at this suggestion. This person would be acting in a professional capacity and therefore the level of charges which might be incurred could be an unknown. You could in effect be writing a “blank cheque” on your estate by including a professional to act as an Executor on your Will. Remember – the other people acting as Executors (e.g. family) can always bring in professionals to act, at an hourly rate or agreed cost basis, should the need arise.

Next article – 10 GREAT reasons for Writing a Will

Debt-Snowball – Repaying your Debts Quicker

It is common for people to have more than one debt – for example you may have a mortgage, a personal loan, a few credit cards, hire-purchase etc. Nobody likes debt, unless it is being used as leverage for an investment, and for the majority of people the quicker it is paid off the better!

Snowball those Debts

Consider a hypothetical situation whereby you have say 3 debts as shown in the following diagram –

debt-example

In this example the borrower owes a total of £105,600 and is paying £759 per month for this benefit. There have been other methods mentioned on the internet whereby you effectively repay the smaller debts first. I can understand the psychology of this approach – it is easier to cope with one large debt than several smaller debts. In the example above, any surplus funds would be used to pay off Credit Card 2 first – this debt could be cleared fairly quickly based on the amount remaining outstanding and in terms of “cost” it carries an interest rate of 16% making it the second most expensive debt.

The Logical Approach to Debt Repayment

Regardless of the amount of debt outstanding let’s focus on the Interest Rate.

The interest rate tells us the “cost” of owing that amount of money. For example, with Credit Card 1 the interest rate is 19% – therefore for every £100 that we owe to that lender they will charge us £19 for those 12 months – it’s as simple as that.

To demonstrate the logic of this, consider a situation where you owe £100 to each of Credit Card 1 and Credit Card 2 in the above example – Credit Card 1 is “charging” you £19 per year for this privilege and Credit Card 2 is charging you £16 per year. If you had £100 available to repay one of those two credit cards which one would you choose? Logic dictates you repay the more expensive one first.

Conclusion

Therefore, the logical conclusion is to check all your debts and see how much they are costing you each year – check carefully as interest rates have a nasty habit of increasing beyond what you THOUGHT you were paying over time. Once you have drawn up a “league table” maximise all efforts to repay your most expensive debt first, making just minimum payments on the remaining debts – as soon as the first (most expensive) debt is paid off move on to the next one.

Action

Make a list of all debts and interest rates – make a concerted effort to repay the most expensive ones first. Maybe consider transferring any outstanding balances from higher charging credit cards to those with a nil or lower introductory balance allowing you to make greater savings and, thereby, repay your debts quicker.