10 Pain-Free Ways To Shield Against The Rising Cost Of Living

2022 has been dubbed the ‘year of the squeeze’. Households will reportedly be almost £3,000 out of pocket, with a perfect storm of rising costs due to hit in April. That’s when National Insurance is going up. It’s also when the crippling new energy price cap takes effect, with energy bills set to soar by 54%. And around two-thirds of English councils plan to hike council tax in April too, by up to 3%. All this against a general backdrop of runaway inflation, now threatening to rise above 7% according to the Bank of England’s latest forecasts.

It seems that everything is stacked against you. But what can you do to fight back and shield yourself against the rising cost of living, other than the usual unhelpful advice of cutting back on Netflix and Starbucks lattes?

There’s no silver bullet, but we’ve done a roundup of 10 pain-free actions you can take to improve your situation during the months ahead without having to cut all the fun out of life, and hopefully help you make it through the worst of the crunch.

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#1 – Cut Your National Insurance Payments

Your employer might offer you the option of salary sacrifice as part of their pension scheme. This can increase your pension size, lower the tax you pay, and can even increase your take home pay. If you choose to take up the option, you and your employer will agree to reduce your salary, and your employer will then pay the difference into your pension, along with their contribution to the scheme.

As you’re effectively earning a lower salary, both you and your employer pay lower National Insurance contributions, thereby reducing the sting of Boris’s new tax hike, and this often makes your take-home pay higher.

Better still, a good employer might pay part or all of their NI saving into your pension too (although they don’t have to do this).

#2 – Don’t Fix Your Heating Bills

The energy bills price cap is going up by 54% from 1st April 2022, meaning anyone on a variable tariff is about to see their bills increase by more than half what they currently are. There’s no escape to be found by fixing your tariff either. MoneySavingExpert’s Martin Lewis has run the numbers and concluded that there are no fixed tariffs on the market that offer a lower rate than the April price cap, with the cheapest fix right now costing a ridiculous 68% more than the pre-April price cap.

Your only shield here is to avoid fixed contracts – when your current plan ends, his advice is to do nothing and drop onto the variable rate. It’s bad, but fixing would be much worse.

What’s sad is that some of this pain could have been avoided. This is a breakdown of the average house’s energy bill. The part that’s rocketing up is in blue, the wholesale costs. But the parts the government has direct control over, and hence could scrap, are the green and pink blocks, which represent environmental and social taxes and VAT. Together these will make up 13% of your new fuel bill. Elements of these taxes and levies could have been scrapped, making for slightly more manageable bills.

#3 – Push Back On Your Employer’s “Generous Payrise”

Headlines abound about how 2022 will be a year of better pay rises than usual, but should you just sit back and gratefully accept what you’re offered?

Your employer will likely tell you that your pay rise is the ‘best ever’, or some nonsense like this. But the reality is that in 2022, UK pay rises could be just a measly one-third bigger than the 2.4% seen in 2021.

That works out at a 3.2% average pay rise in 2022. What’s the forecast inflation rate again? Oh yeah, over 7%. So the average worker is really likely to be getting a massive pay cut.

If your boss tries to pull a fast one on you, make sure he’s aware that you understand inflation and that anything less is not good enough. You’ll never get a good pay rise if you don’t ask for it.

You’ll probably have to justify your pay rise in terms of merit though, because employers don’t give good pay rises out of sympathy or even to help you keep up with the household bills. They’ll try and get away with giving you a real pay cut if they can.

Once you’ve made it through the crisis, make it your ambition to set up a freedom fund of cash large enough to cover a few months of bills, so you are empowered to walk away from jobs that treat you with disrespect.

#4 – Move Your Thermostat

A thermostat works by telling your boiler to stop burning when the room the thermostat is in reaches the right temperature. So why have your thermostat fixed to a wall in a hallway you barely use?

For those with a wireless thermostat, rather than shivering in the lounge while your hallway heats up to a toasty 25 degrees, switch off your hallway radiator and place the thermostat in the lounge instead, set around 20.

Energy experts at uSwitch suggest turning down your thermostat by just one degree centigrade could save you £80 each year on your heating bill as of January 2022– and that was before the new higher energy cap was announced, so is now closer to a saving of £125 per degree.

#5 – Use Your Car To Power Your House

We’re through the looking glass here, guys! The Times reports that you will soon be able to buy electricity at night, when it is cheap, and store it in your vehicle’s battery for use at peak times in your home.

One family trialling the new tech are expecting to save £1,200 on their household bills this year, with the technology said to become standard on new electric cars within 6-months according to Volkswagen.

You might think that people who own electric cars are the least likely to be on the breadline, but there are a lot of middle class families living well beyond their means who will have a plug-in vehicle sat in their driveway, financed by debt.

Those lucky enough to have access to one will soon be able to take advantage of the way the UK’s energy grid works. The Times article shows how power at night might cost 22p, but the same power be worth £2.40 during peak hours in the daytime. If you can charge your battery at night, and use that power during the day, you’re paying night-rates for daytime-usage.

Even better, many employers now offer free charging for employee’s electric vehicles as part of their PR campaigns to look more green and socially responsible. Why not let your employer pay your home heating bill by charging your car battery at work?

Also, note that the actual car isn’t required here, just the battery. No doubt if this tech catches on, having a home-energy battery in your house may become the new normal.

#6 – Keep On Top Of The Cost Of Housing

Now that landlords’ maintenance and interest costs will be rising in line with inflation, rents will be too. Analysis by Zoopla has also found that renters face more significant costs than homeowners; while homeowners spend 18% of their household income on their mortgage, renters spend 31%.

Understand that your landlord needs to raise the rent to protect their own family’s household budget from inflation, but you can try to negotiate any rent rise down to maybe meet them halfway.

If you make clear that you can’t afford a big rise and will be forced to leave if one is imposed, your landlord will likely concede to a better deal assuming you’ve been a good tenant and paid previous rent on time. They don’t want a period with an empty property while a new tenant is found, nor to have to pay big finders fees to their agent for sourcing the new tenant.

If you can’t avoid having to pay higher rents, consider house-sharing with someone else in your situation for mutual benefit, slashing your rent. Might not be ideal but needs must.

Homeowners may have it rough too if interest rates are raised further by the Bank of England to try and combat inflation. Financial markets are expecting the base rate will rise to 1.5% by the end of the year. You may want to fix your mortgage now if you’re living on the brink and can’t risk your mortgage bills rising.

Perhaps the best way for a homeowner to sidestep the cost of living crisis is to bite the bullet and get a lodger, which I did myself for nearly 2 years. While you may object to someone else sharing your living space… for £400 or more rent a month, it may make the difference between financial comfort and poverty. Plus, you’re helping someone else to live affordably.

#7 – Take Advantage Of Cash Giveaways

You can get big cash rewards when you switch bank provider for your current account, as detailed on MoneySavingExpert.com, or when you sign up to investment platforms, with a full list of bonuses on the MoneyUnshackled Offers page.

There are hundreds of pounds of free money giveaways on there, all of which could come in handy in the months ahead.

#8 – Claiming The Benefits You’re Entitled To

Benefits aren’t just for the poor. Go to entitledto.co.uk and plug in your details, and it will tell you what benefits you are eligible for.

I plugged in my details and found out that I’m entitled to £21.15 a week in child benefit. Every little helps, right? It also turns out that when my child turns 3 years old, she’ll be entitled to 30-hours free childcare, worth about £100 a week.

#9 – Sell Some Junk

MU’s Andy used to roll his eyes when he heard people advise to solve your money troubles by selling your possessions. But then he tried it for himself, and is now hooked. He’s making thousands of pounds by selling his stuff that he had considered junk – Lego in his mum’s loft, an old guitar which he has no interest in playing anymore, old, outdated TV’s and unnecessary furniture, and countless other bits of clutter that he bought ages ago and no longer wants or needs. Your junk really is someone else’s treasure.

Selling your stuff can only be a temporary solution, as you’ll eventually run out of stuff to sell, but in the Year Of The Squeeze, more people than ever are looking to buy used items and that junk in the loft could be paying your gas bill.

#10 – To WFH, Or Not To WFH?

Now that jobs are becoming more flexible, with working from home a real choice for many, you might want to re-evaluate the finances of how many days you spend in the office. For many it’s a no brainer, due to the cost of the commute. Petrol prices are already at all-time highs at over £1.40 per litre, and rail fares will rise 3.8% in March (the biggest price hike for a decade).

But when you’re in the office, your employer picks up the gas and electric bill, which as we know is now becoming more significant. You should run the numbers to work out if working from home is still economical. Your energy provider will provide you with a smart meter if you ask for one, and a device showing you the cost of your energy usage during the days you work from home.

Are you worried about the cost of living crisis, or even about the effect it will have on your ability to save and invest for your future? Join the conversation in the comments below!

Written by Ben


Featured image credit: Lazy_Bear/Shutterstock.com

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Your Retirement’s In Danger Unless You Take Action Now

There has been a slew of studies released recently on the dangers the younger generations face in retirement, from underperforming pensions over the next few decades.

Some of this is due to worries about future market returns. A lot of it is due to employers making such miserly matched-pension contributions. The main danger though is that most people will take no action to address any of these issues – or will act on it too late.

This video is so jam packed full of charts that we couldn’t recreate it as an article, but it’s essential viewing if you care about retirement. In the video, we’ve gathered up the findings of multiple reports that highlight the dangers heading down the road.

We’ll remind you of the importance of prioritising your pension, and the consequences if you don’t. We’ll look at some shocking statistics about pension awareness, and finally – we’ll tell you what you can do about all of this to get back on track to a comfortable retirement. Let’s check it out!

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Our Take: Energy Bills To Rise By 54% / Base Rate To Hit 1.5% / Calls To Punish Success

Hello and welcome to Money Unshackled News. The headlines:

  • Energy bills to skyrocket by 54% or £693 in April for a typical bill, taking the total cost to nearly £2,000 a year.
  • Chancellor Rishi Sunak offers measly £150 rebate and mandatory loan arrangement of £200 in response to rising energy bills.
  • Bank Of England raises interest rates from 0.25% to 0.50% in an effort to tame inflation. Mortgages and loans to become more expensive.
  • Job Seekers will be forced to accept any work after just 1 month or risk having benefits cut, even if it’s outside of their field.
  • As oil prices near $100 a barrel and Shell rakes in the big bucks, some call to levy a tax on oil and gas producers.
  • The work from home tax loophole allowing people to claim up to £125 a year is set to close.
  • And finally, Bank of England governor who earns £575,000-a-year tells ordinary people to not ask for big payrises.

There’s been a lot happening in the last few weeks, so we’ve aggregated all the important money news to bring you the stuff that matters. Now, let’s check it out…

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Energy Bills Are To Rise By A Staggering 54%

The biggest news making the headlines recently is the colossal rise in energy costs from 1 April. Energy bills are to rise by a staggering 54%, which is on top of the large rises back in October 2021. The increase to hit in April will be £693 for an average bill, taking the total cost to £1,971 for a year.

What confuses many people about these price caps is that they’re not an actual cap on your total bill. It is in fact the rates that are capped, so if you use more, you’ll pay more. Unfortunately, and something that is really annoying is that the regulator Ofgem, and the media, prefer to report on the cost of a typical bill, rather than tell us what our actual rates are.

Thankfully Money Saving Expert have produced an average rate table, but even then your region will vary slightly.

We’ve gone a step further and calculated the percentage increases for both the daily standing charges and unit rates. The findings are astonishing, and we cannot believe the mainstream media aren’t reporting this. It turns out the typical 54% increase is based on a set of assumptions that could be way off your situation. If you’re a heavy gas user, you could be in for a nasty shock with the unit rate rising by 81%.

The only consolation regarding the gas price hike is that this is taking effect initially for the summer season, so hopefully much of this damage can be limited for the time being.

However, electricity costs are being massively hiked for both the unit rate and the standing daily charge. In fact, even if you were able to reduce electricity usage – which is unlikely – your daily charge, which you’re charged regardless of usage, is being hiked by 82%.

If you think all this is bad, then make sure you’re sitting down for this next one. We know that the energy price cap will change again in October, and if wholesale prices stay where they are now, Money Saving Expert is saying there will be a further rise of about 20%, putting the total bill up to more than £2,300/year on typical use.

We are extremely concerned. Most households cannot afford these hikes and people are sadly going to die when the colder months hit. In supposedly one of the wealthiest countries in the world, nobody should have to make the choice between eating or heating. So what action is the government going to take?

Government Response To Rising Energy Bills

Back in August 2020 Chancellor Rishi Sunak was spending our money like there was no tomorrow. He couldn’t give it away quick enough. Back then, if you wanted 50% off kebab, chips and a greasy pizza, no problem – the government was paying.

Fast forward to now and he’d rather you freeze your tits off. The government think we’re all idiots.  They’ve painted black and white stripes on a horse and are calling it a zebra.

They are forcefully giving every household a £200 discount in October, which must be paid back over the next 5 years. Or in other words we’re essentially having a loan forced upon us.

There are so many issues with this scheme it’s unreal. Firstly, it assumes that bills will come down in the future but there is no evidence to suggest this will happen. Any conflict with Russia – just as an example -would send energy prices skyrocketing. If households can’t afford energy now, how will they afford it if prices increase further and they have to pay £40 extra a year for 5 years to clear that debt? Debt to cover living costs is never the answer.

Moreover, you may not even get the £200 discount, but you will still be expected to pay it back via increased energy bills. For example, a 24-year-old living with their parents wouldn’t get £200 now, but when he or she moves out next year and gets their own place, the way the mechanism works is that they will have £40 added to their annual bill regardless of the fact they never received the original discount in the first place. Unbelievable!

It’s not all bad news though: the government are helping 80% of households, who will receive a £150 rebate in their April council tax bill which will not have to be paid back. You’ll need to be in bands A-D to receive this. This is by no means perfect as there will be many cash poor people in higher bands but given the circumstances this is probably one of the fairest ways to target support to those that need it. Local authorities would also receive £150m to make discretionary payments to the neediest.

Truth be told, we broadly think people should only rely on government support in dire circumstances – even worse than what we’re experiencing now – but in the case of rising energy bills we can’t help but feel that this government and past governments are responsible, so need to provide support. Rising wholesale costs will always be a threat if we continue to rely on foreign imports of energy.

If the government hadn’t capitulated to the objections to developing more of our own oil and gas fields off Scotland, and permitting fracking, and rolled out renewable sources much faster, your finances would be in a far better situation. A country with energy independence would never be as vulnerable to energy prices as we are right now.

Interest Rates Raised To 0.5%

The Bank Of England has raised interest rates from 0.25% to 0.50% in an effort to tame inflation. It’s the first back-to-back rise since 2004, and the central bank is forecasting that inflation will increase to 7.25% in April.

Five of the nine members in the committee voted to increase the rate to 0.5% but four of the nine members wanted an even larger increase to 0.75% to get a grip on surging inflationary pressure.

The Financial Times is reporting that markets are now expecting the Bank of England to lift interest rates to at least 1% by May, and 1.5% by November. Thisismoney said the increase will add almost £1,300 a year to the cost of a typical mortgage and City analysts are warning that the rise will be a shock to those who are accustomed to cheap home loans. Rates have been at 0.5% or lower for much of the last 13 years.

About ten million British adults have never experienced base rates above 1%, according to analysis by AJ Bell.

Another action the Bank of England is taking is bringing the curtain down on its £895billion money-printing programme after almost 13 years. As the £875billion of government debt from quantitative easing gets repaid, the Bank will allow the cash to simply disappear. This will reduce the cash supply by £28billion this year and just over £70billion in total by the end of next year.

After the interest rise, Nationwide and Santander have rushed to raise mortgage rates and are the first lenders to do so, reports The Telegraph. We’ve yet to see any banks raise the rates offered on savings accounts but with more base rate hikes expected to follow, we expect banks will adjust savings rates in time – so look forward to making a few more pennies each month on your savings account while your mortgage payments skyrocket.

Job Seekers Will Be Forced To Accept Any Work After Just 1 Month Or Risk Having Benefits Cut

In news that is being heavily criticised by the likes of Labour and the Liberal Democrats, there will be a crackdown on jobseekers who claim Universal Credit. Claimants will be forced to widen their job search outside of their preferred sector of work after four weeks, rather than three months, or face sanctions that will slash their benefits if they are deemed to not be making a reasonable effort to secure a role, or if they turn down a job offer.

At some point you do need to draw the line but are they expecting a trained and specialised computer programmer to apply for jobs shovelling crap into a skip? The whole process is a total waste of time. For one, the programmer is unlikely to get the job in the first place because he is likely to be deemed underqualified for this particular role and obviously not interested, and if he did get the job, he’s equally likely to quit as soon as he lands a more suitable role. Surely, it’s better all round to allow more time to search for jobs?

Shell Rakes In The Big Bucks As Oil Approaches $100

Crude oil prices are back up to levels last seen in 2014. West Texas Intermediate and Brent crude have pushed up towards $90 a barrel. Many experts think the next stop is $100.

As a beneficiary of this rise in oil prices, Shell has received criticism for its success. We should be celebrating these stories of successful UK companies, not reprimanding them. Shell posted a $19.3bn profit for 2021, up from just $4.8bn a year earlier. They also raised their dividend by 4% and are buying back shares worth $8.5bn in the first half of 2022.

The timing of this release was unfortunate. It came on the day that Ofgem hiked the energy cap by 54%, prompting calls by Labour to levy a windfall tax on oil and gas producers. We don’t recall oil companies being offered state handouts when they were struggling back in 2020 when prices collapsed. In 2020 they reported a $21.7 billion loss.

Rishi Sunak said the idea of a windfall tax sounded “superficially appealing,” but it would ultimately deter investment. We’d also like to point out that punishing Shell also punishes British pensioners, whose pensions are tied to the fate of FTSE 100 companies. Let’s hope this is the end to silly ideas about punishing success.

Work From Home Tax Loophole Allowing People To Claim Up To £125 A Year Is Set To Close

The tax loophole on working from home that has cost the exchequer about half a billion pounds over the course of the pandemic is expected to close. It had only cost the Treasury £2million a year before the pandemic. However, the cost of the scheme to the Treasury has increased over 100-fold because of homeworking since the pandemic.

The relief was introduced in 2003 as a way to help home workers with gas, heating, internet and other utility bills, and allowed people to claim up to £125 a year for working at home even if they only spent a single day away from the office in the entire year.

Claims could also be backdated, meaning anyone who has worked from home due to Covid but has not made a claim for the relief could be entitled to a two-year payout of up to £250.

You might think that something as boring as an obscure tax relief might go unnoticed by the British public, but HMRC said 4.9 million successful claims for the tax break had been made since March 2020. But sadly, it looks like its days are numbered.

Bank Of England Governor Who Earns £575,000-A-Year Tells Ordinary People To Not Ask For Big Payrises.

‘Sick joke’: Bank of England governor who earns £575,000-a-year is criticised over pay restraint call, reports Sky News. Foolish and out of touch comments were made by the Bank of England’s Andrew Bailey in an interview with the BBC.

He said workers should not demand big pay rises as the Bank battles surging inflation. If employees ask for big wage increases to match the cost of living, the Bank’s task could be made harder. He doesn’t want his job to be made harder despite his epic half a million-pound salary, but he seems unconcerned about the millions of ordinary people who will struggle to put food on the table. His theory is that employers would then pass on those higher wage costs to consumers in the form of higher prices, creating an inflationary spiral.

We on the other hand would like to say the exact opposite – that it’s your duty to go and obtain a much higher wage. Most people cannot cut back to the extent that surging inflation demands, therefore you have no choice but to go and take what is yours.

Are you worried about rising inflation? What are you doing to keep your head above water? Join the conversation in the comments below.

Written by Andy

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Avoid This When Aiming For Financial Independence

If you’re as determined as we are to achieve financial independence (FI) and ideally at as young an age as possible, then it’s important to recognise that there are an array of things that can derail your plans. Avoid these and you will be financially free in no time.

As with anything worth having in life, financial independence is going to require some sacrifices but many of these items to avoid are in fact painless and won’t be missed, so are no brainers.

We’re also going to look at a few things we’re all told to do to reach financial independence, but by doing so could actually worsen your chances of hitting it; so, you should avoid these common money saving tips. Now, let’s check it out…

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#1 – Avoid The Wrong People And The Naysayers

If there’s one thing that we’ve experienced in all the years we’ve been targeting FI, it’s bad advice and negativity towards our goals from people who don’t share them. The fact of the matter is that most people – that’s those who have bought into societies way of life – do not understand financial independence and consider it impossible or even weird.

Most people consider money to be something that needs to be spent. If they earn £20k they’re broke; if they earn £60k they’re still broke. They will spend every penny that comes into their life and will expect you to do the same.

These high spenders often get their self-worth from displays of wealth, so must have the biggest and best furnished house, the most expensive cars, and the luxurious holidays. They will consider themselves more successful than you because they display more wealth than you do.

When you’re working hard and saving diligently towards FI you cannot be sucked into this toxic way of life where you always desire more than your friends and neighbours. If you’re not careful you will end up wanting what they have, which is short term gratification and very expensive bills.

The naysayers are potentially even worse; they will criticise your plans. Anybody who tries to build up a financial safety net might be told by naysayers, “you only live once” in an attempt to drag you down with them. If they get wind that you plan to retire early through FI, they’ll spout nonsense like, “you’ll have nothing to do, you’ll be bored.”

And then there are the people who don’t know what they’re talking about but believe they’re experts, unintentionally giving bad financial and life advice. It’s highly likely these people include your family and friends.

I’ve disliked a few jobs in my time but one of the early ones I hated came at a time when I didn’t have the life experience to know when to just quit. Society’s advice and what I was told was to suck it up – it might get better… and only quit after you’ve found another job first.

I endured this job for way too long – 5 months – and it was torture. I eventually decided to listen to my gut, I quit, and found another job straight away. The bad advice I was given was because these people had their own fears of not finding another job, so projected that fear on to me.

As with any goal, if you take advice from people make sure it’s from those who truly understand what it is you’re aiming for and ideally have done it themselves or are working towards the same goal. You wouldn’t take weight loss tips from a hippo, so don’t take money advice from somebody who’s broke.

#2 – Avoid Investment Fees And Taxes

As this is a video on financial independence, we’ll assume you’re focussed on your savings per month (SPMs). No doubt you’re investing as much as you can, and you have a good idea at what age you’ll hit FI should you continue at this savings rate.

That’s awesome, but make sure you understand the impact of fees and taxes which if left unchecked could hinder the ability of your investment pot to grow to its full potential.

Let us showcase an example of the different returns somebody could earn depending on how well they avoid high fees and taxes. Let’s assume that our investor will put aside £500 a month for 30 years.  A 7.7% return net of fees and taxes would produce a pot of £670k, which is £39k less than an 8% return.

So, it goes to show that seemingly small savings (of just 0.3 percentage points in this example) can have a huge impact on overall performance. We believe savings of at least this size are easily achievable for most investors.

Many investors pay way more than this in fees and taxes. They could be paying platform fees of 0.45%, fund fees of 1%-1.5%, trading fees of several pounds at a time, high bid-offer spreads of a few percent when buying small cap stocks, foreign exchange fees of 1.5%, dividend taxes, and capital gains tax.

Even those who think they have a firm hold on fees and taxes can probably still benefit from a portfolio spring cleaning. We talk extensively about how you can cut fees and taxes on this website and the MU YouTube channel, so if you’re new here consider checking out the rest of the site.

#3 – Avoid Life’s Big Unnecessary Expenses

We find that many people scrimp and save to the Nth degree on the small purchases but then undo all their hard work in one fell swoop when they buy one of life’s big but unnecessary expenses.

I’ve lost track of how many times I’ve heard someone say they need a car… and yet rather than buy a cheap used car, they go out and buy a brand new one on expensive finance, which is way more car than they actually need. Or when they do get a used car, they opt for a premium brand, which comes with premium car payments. Inevitably these people get in the new car cycle by upgrading every few years, and thus have a perpetual car payment until the end of time.

We just looked at an example, where an investor put aside £500 a month earning 8% and ended up with £709k. Instead, if our car enthusiast was only able to save £200 a month due to their unnecessary car payment, their investment pot would be worth just £284k; £425k less. If you want financial independence in order to retire early, that car could be forcing you to work several years or even decades longer than what you otherwise could have been.

Expensive weddings are another of life’s unnecessary big expenses. When the honeymoon is included, the average cost in the UK is £32,000. That alone is enough money to live on for an entire year and that’s ignoring the lost investment gains that money could have made if allowed to be invested over the years.

And that excessive cost doesn’t factor in the cost of divorce. According to the money advice service, the reality is that 42% of marriages now end in divorce, and the average cost of a divorce in the UK stands at around £14,600 in legal fees and lifestyle costs. Also, if there’s property involved and financial assets on the line, then the costs significantly increase.

If you’re unable to agree on a financial settlement and end up in court your wallet is in for a serious beating. The money advice service is stating ballpark numbers in the £10,000 to £15,000 range, and double that if it’s not all done and dusted after a few court appearances.

On your path to financial independence, it’s your prerogative what expenses you cut to achieve your goal. We are both animal lovers, so neither of us would want to do the following but it might be something you consider.

The average cost of a dog is around £21,000 over their lifetime. But some dogs, particularly large, pedigree breeds could set you back an eye-watering £33,000 each.

You may also want to avoid certain hobbies that are notorious for bleeding you dry. Hobbies like horse riding, go-karting, flying lessons, and skiing will set your financial independence plans back years.

Horse riding in parts of the South will apparently set you back £75 for a 45-minute lesson, and £45 in the North. Personally, we tend to think that if you earn the big bucks then a little bit of lifestyle creep may be okay. But if you’re on an average to low wage, then these should probably be avoided.

#4 – Avoid Mickey Mouse Courses

University fees are damn expensive in the UK, and normally you can only get student loans for your first degree, so it’s crucial to pick that degree wisely. One of the worst things you can do financially is waste years doing an expensive course that does not improve your employment prospects.

At the worst end there are the Mickey Mouse degrees, which is the term used to describe university degree courses regarded as worthless or irrelevant. But the presence of worthless courses is prevalent throughout the entire education system – from school, to college, to university and beyond.

Film studies, Media Studies and Drama have been ranked among the most “pointless degrees”, reported The London Economic. The study found Acting degrees were the top waste of time, followed by courses on Outdoor Adventure and Environment, and Office Skills.

One in four graduates now regret having gone to university, and nearly half of those surveyed now work in a job where they could have reached the same level through a trainee or apprenticeship scheme. Nearly two thirds of those who graduated with qualifications considered ‘pointless’ admitted their degree didn’t help them to secure their current job.

From a solely financial independence perspective, we would recommend training towards an industry that is towards the top of the league tables in terms of pay. This is a simple Google search away.

Money Saving Tips To Avoid

Financial independence folklore would have you believe that doing the following will leave you in a better financial position – but it’s not true.

#1 – “Pay Off Your Mortgage”

We’re all regularly told to pay down your mortgage as soon as possible but from a financial perspective this would be a terrible mistake to make in this age of super low interest rates. That’s because the interest rate on the mortgage is much cheaper than what is commonly earned in the stock market. Basically, if you could earn 8% in stocks but overpaying your mortgage could save you just 2%, it makes financial sense to invest excess money instead of making overpayments on the mortgage.

To avoid confusion, we want to spell this out clearly. We don’t think the average person should avoid paying down their mortgage, because for them the perceived risk is too high, and most people don’t have the financial discipline to not spend the money that was meant to be invested. The urge not to dip into those investments would be too strong for a typical person.

However, if you’re seeking financial independence, you’re going to have to take a few well-calculated risks and the maths is in your favour when you invest instead of paying down the mortgage.

In this post we looked at targeting specific LTV bands as a way of effectively earning a guaranteed return. As the market stands right now, the optimal LTV for your home is about 85% with any excess cash invested in stocks or rental property.

#2 – “Only Save For Retirement In A Pension”

Most people are encouraged to only save for retirement through a pension. There is no doubt about it that pensions are incredible retirement saving tools, especially for higher-rate taxpayers.

However, they have 2 major problems. Firstly, you can’t access the money until sometime in your fifties. We’re being deliberately ambiguous on the age because this is currently part of ongoing discussions at government level and is set to rise to 58, and probably even higher in the future. The inability to access your money in a pension is no good for somebody aiming for financial independence.

The second problem with pensions is that the government has the power to change the tax rates at any time, so who knows what these might be in the future. The way the world is headed who would be surprised if a future government decided to raid pensions somehow?

What we would suggest to anyone targeting FI would be to use a mix of investment vehicles. Stocks & Shares ISAs are fantastic as once the money is in the ISA it is never taxed again, and crucially it’s accessible at any age. Moreover, spread betting could be the most misunderstood investment vehicle out there. While the average person probably should give spread betting a wide berth due to the complexity, those seeking FI should absolutely consider it as part of their arsenal due to it being tax-free and having the ability to apply leverage. You might also consider buy-to-let property as a retirement vehicle.

To sum this point up, those seeking FI should absolutely use pensions to save for retirement – but at the same time also utilise all other weapons at your disposal. In most cases, you want to use accessible retirement savings to bridge the gap with pensions.

What else should a financial freedom fighter avoid? Join the conversation in the comments below.

Written by Andy


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Also check out the MoneyUnshackled YouTube channel, with new videos released every Wednesday and Saturday:

If You Could Only Watch 1 Video…

We’ve been producing videos on YouTube for about 4 years now and uploaded nearly 450 videos. Over that time, we’ve dished out what we hope are helpful financial tips covering investing, retirement, tax, debt, economics, business, and everything in between.

That’s a lot of content, so in this post we’ve hand selected our best ever money tips that we truly believe will make a massive positive impact on your life and wealth. Think of it as our greatest hits.

This post can only ever be a summary of these life changing points, so we’ll also provide links to some of the key videos that explain further. This particular post is a perfect demonstration of what Money Unshackled is all about, so if you’re new here and find it useful, consider subscribing to the email newsletter and YouTube channel. Now, let’s check it out…

Alternatively Watch The YouTube Video > > >

#1 – Avoid Dividend Tax With Synthetic ETFs

Broadly speaking Exchange Traded Funds (ETFs) come in two forms: Physical and Synthetic. Physical ETFs physically own the basket of stocks they intend to track the performance of, while Synthetic ETFs hold different assets and then swap the performance of that basket with an investment bank to achieve the desired index performance.

Synthetic ETFs are so awesome because they can be used to circumvent some country’s dividend withholding taxes, saving you a fortune and getting you to your financial goal potentially years earlier. Most notably you can avoid that horrid US dividend withholding tax, and with US stocks likely making up the bulk of your portfolio this is a game changer.

Normally any US equity ETF you invest in, like the S&P 500, would pay 15% withholding tax. In recent history the yield on the S&P 500 has been around 2%, so that’s a drag of 0.3% on your return. Doesn’t sound like much but that is huge over your lifetime.

An investor saving £500 a month for 40 years, earning 8%, ends up with a portfolio worth £1.62m. If that return becomes 7.7% due to the withholding tax, the portfolio is only worth £1.50m. £120k less.

There is also every chance that we are being conservative with those numbers. The yield on the S&P 500 in the past has been more like 4%, so that tax drag would be even more substantial at 0.6%. And, in our example we based it on a 40-year investment timespan. Realistically you will have some money invested in the market well beyond your retirement day and likely up until your deathbed.

Therefore, the more you invest and the longer you invest for the more important it becomes to avoid paying unnecessary taxes, which over time siphon off your wealth. Synthetic ETFs are awesome!

#2 – Optimising The Size Of Your Mortgage Deposit

Many people’s negative attitude towards debt means that the common financial advice is to have the biggest house deposit possible and overpay on your mortgage to rid yourself of the debt as soon as possible.

Contrary to this, other people argue the exact opposite that you should have the lowest deposit possible and do as much as you can to avoid paying down the debt. The argument is that the interest rate is so cheap you can get a better return on that money by investing it.

Both approaches are flawed. Instead of being in either of these camps we invented our own approach. We carried out an investment appraisal, thinking it might be better to target specific LTV bands to find a balance between avoiding high interest and freeing up cash to be invested elsewhere for greater return.

We crunched the numbers and found at the time of doing the video that the optimal deposit from a purely financial perspective was 10%. This an updated version of this analysis but this exercise should be carried out for your specific circumstances and the latest interest rates available to you at the time, so these figures are just a guide.

A 10% deposit currently gives you a 14% marginal return on investment over and above a 5% deposit, so it makes sense to put down at least a 10% deposit if you can. However, as you move to a 15% deposit the marginal gains on the extra deposit amount are just a 5% saving, and then just 2% as you progress to a 20% deposit. On the assumption we can earn 8% in the stock market, sitting within these bands doesn’t make financial sense for those who don’t mind a bit of risk.

With a 25% deposit there is quite a jump in the marginal benefit, so we wouldn’t give you a hard time if you chose this amount of deposit or home equity. But from that point on there is almost no marginal benefit from paying down your mortgage, so you would likely be better off investing.

#3 – Spread Betting Futures

This may well be the single biggest win for investors who are prepared to spend the time learning the ropes of this very clever but high-risk investing strategy. This is our own formulated strategy – you won’t hear this anywhere else. What we have done is create a balanced portfolio to reduce portfolio volatility, and then ramp the risk back up with leverage to earn hopefully mega returns.

The strategy involves using a spread betting account to invest in S&P 500 futures, long-term US treasury futures, and gold futures in a 60/30/10 ratio. This was specifically chosen because historically for this mix of assets the largest ever drawdown – that’s the largest fall from top to bottom – was less than 30%. Government bonds tend to move in the opposite way to stocks when stocks crash.

On the assumption that history broadly repeats itself it means we can leverage the portfolio with up to 3x leverage and never get wiped out, which is vital whenever you invest on margin. That’s a big assumption but the beauty of the strategy is you can choose the amount of leverage you use, so you could do 2x or 1.5x. You can even use no leverage.

That begs the question why would you use a spread betting account with no leverage? Spread betting is technically classed as gambling by the powers that be, so there’s no capital gains tax to pay, even though our particular strategy using indexes is no different to any other long-term investing strategy. The author of the book The Naked Trader refers to a spread betting account as a Spread ISA because of the tax benefits.

In the past a non-leveraged portfolio like this would have earned 11% annually, so with 3x leverage we would hope to get 33% less any fees. We’re not expecting quite this much going forward but even half that would be incredible!

#4 – Matched Betting

Matched Betting despite the name is a great way to make some side income with relatively little risk. On the back of some of our previous videos, we’ve had people thank us for introducing them to this great money-making technique. Some people even claim to have made several thousand pounds from it but as a minimum you should be able to make several hundred with just the welcome offers.

Matched betting is a betting technique used to profit from the free bets and incentives offered by bookmakers. Bets are placed on all outcomes of a sporting event, so a negligible amount of money is lost. You are then rewarded with a free bet. You repeat the exercise to turn that free bet into real cash you can withdraw.

There are usually over 50 different bookmakers all throwing free bets and incentives at you, so there is plenty of easy money to be made.

To do this efficiently and to maximise profits you will want to sign up to some matched betting software. These literally walk you through the entire process and serve up the best bookmaker odds. Visit this page where we have a range of exclusive offers to the leading matched betting service providers, so do check that out.

#5 – Massive ROI With Buy-To-Let Property

We talk about buy-to-let property a fair bit on this website (and on YouTube) because it has the potential to make ordinary people rich, in years rather than decades. Ben (MU co-founder) currently owns 4 buy-to let properties and he credits this investment as the single biggest factor in his wealth building journey.

The reason why buy-to-let is so effective is mainly because of the leveraged returns that are achieved by using a mortgage. We’ve substantiated these figures in some of our YouTube videos but on a high level, if your property increases in value by 4% and you only put down a 25% deposit, your return on investment from capital gains alone is 16%.

You will also earn rental profits on top that can easily push up your total return to somewhere around 20-25%. Obviously, this strategy doesn’t work if you choose a bad property. Not all properties make good investments and in a way your profits are determined by what house you buy and the price you pay.

As a property investor you need to remember to invest according to which properties do well, not necessarily the type of house you want to live in. My particular strategy is to buy terraced houses in northern city locations as they command good rental yields, have excellent demand, and are amongst the most affordable.

For those interested in investing in property, if you are prepared to spend a great deal of time learning the market and then managing your own properties you can do everything yourself, but if you want to avoid having to essentially take on a second job you could get in touch with our preferred property partner via the Find Me A Property page.

[H2] #6 – Equity Release

I put this right up there with buy-to-let property as a means to grow wealth, with one complimenting the other. In fact, my ability to buy so many properties was largely due to equity release.

Most people who own property for a long time end up with substantial amounts of equity tied up in their home that is doing nothing. A savvy investor might prefer to borrow against their home and invest that money elsewhere.

Typical mortgage rates are less than 2% and have been that way for several years now. The stock market is widely expected to return 8% a year on average, so you could profit in the tune of 6% on average per year by moving equity from your home to the stock market.

The reason why mortgages are so good for this is because it’s long-term debt that is not callable. As long as you are meeting your agreed monthly repayments the mortgage cannot be called in no matter what else is happening in the wider economy and stock market. This gives your investments time to recover if they happen to fall in the short-term.

If you could release equity of £100k and profited 6% a year, you would earn £6,000 extra a year going forwards for doing relatively little other than moving some money around and taking on some minimal financial risk. As Ben chose to invest the money from the equity release into buy-to-let property he was earning significantly more on what otherwise would have been wasted capital.

[H2] #7 – Retire Early With A Pension Bridging Strategy

We believe everyone should be working towards retiring as early as possible, but pensions put up some roadblocks as they have an age restriction on when you can start withdrawing from them. Currently this is 55, which is due to increase to 57, then 58, and who knows how high this could climb?

Many hard workers who have diligently invested wisely may have enough money or be able to save enough so they never need to work a day again. However, it’s no good if it’s all locked away in a pension.

It seems that many ordinary people save exclusively within a pension, of which some build up huge sums and yet still can’t retire early due to the aforementioned age restriction. While some other aspiring early retirees disregard pensions completely despite the huge benefits.

What we teach is to use multiple investment products including accessible accounts that allow you to retire earlier in the most tax-efficient way possible. These accessible accounts enable you to bridge the gap between your desired retirement day and the day your pension becomes available.

Most people will want to invest in a pension because they are epic. You should get matched contributions from your employer, which is effectively free money and a 100% immediate gain. You also get tax relief, which for a basic-rate taxpayer adds 25% to your contribution, or 67% for higher-rate taxpayers. And if you’re lucky enough to have an employer using salary sacrifice you can avoid national insurance and student loan repayments.

But before you can access the pension cash you can use the likes of a Stocks and Shares ISA, buy-to-let property, and spread betting accounts to bridge the gap. You could even borrow against your home, which can be paid back with your tax-free pension lump sum when you get it.

[H2] #8 – Diversify Across Time

When we first heard this, it blew our minds and changed how we perceived risk forever. It was a concept we read about in a book called Lifecycle Investing. Essentially, due to how people come into wealth they start with relatively little when they’re young and end with a big sum at retirement age.

This uneven distribution of wealth across your lifetime means that the investor is almost completely exposed to the stock market risks at the end of their life; the market movements in those early years are largely irrelevant to your overall lifetime wealth as you have so little money invested.

The author’s proposition is for you to try and control as much of your lifetime wealth as possible as early as possible. To achieve this they recommend using 2:1 leverage and are only proposing this amount of leverage at an early stage of life. This way, investors only face the increased risk of wiping out their current investments when they are still young and will have a chance to rebuild.

The suggested path is to first leverage your investments in stocks, then reduce the leverage in the middle part of your life, and then finally move into an unleveraged stocks and bonds portfolio as you approach retirement.

We can’t say we agree with their precise strategy but the concept of diversifying across time is a game changer.

Which of these financial points has had or will have the biggest impact on your money? Join the conversation in the comments below.

Written by Andy

Links to key videos on these subjects:

Synthetic ETF (Ultimate Portfolio): https://youtu.be/xIK07tgv_14

How Big Should Your House Deposit Be: https://youtu.be/nuj456bkslU

Spread Betting Futures: https://youtu.be/1hzb_zIIdmY

Matched Betting: https://youtu.be/R6zbzk04BHI

Massive Returns With Buy-To-Let Property: https://youtu.be/gmioY5HxlDk

Equity Release: https://youtu.be/XA-an3NozVo

Pension Bridging Strategy: https://youtu.be/Nd-GUcBZFCo

Time Diversification: https://youtu.be/JpoWZ_K_iA0


Featured image credit: daniiD/Shutterstock.com

Also check out the MoneyUnshackled YouTube channel, with new videos released every Wednesday and Saturday: