Exposed: Completely Pointless Money Tips, Tricks, Hacks, Products & Habits

There’s a lot of financial content out there on the internet, TV, in newspapers and in magazines. Some of this content is extremely useful….and some, not so much! Then, we have businesses who are imagining up gimmicky financial products in an attempt to part you from your cash.

In this post we’re going to expose many of the pointless money tips, tricks, hacks, products and habits that are not helping you to become rich, even though common wisdom says that they have a positive effect on your wallet.

Please chip in down in the comments and give your opinions on all of these – we’re sure there will be many more that we don’t cover, so tell us what else you think is pointless too. Now, let’s check it out…

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#1 – Save A Penny A Day Savings Challenge

Just thinking about this pointless savings technique winds me right up. If you don’t know what it is it’s a savings technique that rears its ugly head at the very end and beginning of every year. It involves saving 1p on 1 January, then 2p on 2 January, then 3p on 3 January and so on.

Each day, you put aside what you saved the day before, plus a penny more – right the way up to £3.65 saved on the last day of December. It’s supposed to make saving feel easy. Do this for a full year and you’ll have a grand total of £667.95.

So, what’s the problem and why is it pointless? First off, if you’re skint and you’re using this technique to try and save without noticing, you’ll eventually run out of steam.

'Save A Penny A Day' savings challenge over 1 year

Each month gets harder and harder. January starts at £4.96 saved and December ends with £108.50.

You potentially could have saved a lot more in the beginning of the year but because of some stupid challenge you chose not to. Then, in the later months – which are typically more expensive due to Christmas and higher gas bills – you are expected to save significantly more, which you may not be able to. And, if you could save more towards the end of the challenge, why would you not at the start?

Our second beef with this nonsense is the practicality of it. Are you literally expected to transfer a sum of money each day into your savings account? Who can be bothered with that administrative ball-ache?

And thirdly, saving and budgeting is meant to be intentional. You should know how much you can afford to save each month before the month begins. The ‘pay yourself first’ budgeting technique – which works – has already handled your savings.

#2 – Round-Ups

This is another pointless savings technique, which we’ve criticised before but apparently is quite popular with young people.

There are a number of apps that offer this gimmicky service. Whenever you spend on your card, your purchases are rounded up to the nearest pound, and the spare change will be siphoned off and added to your savings or investment account. Again, it is supposedly a way to save without noticing.

As before, a good budget has already determined what you can save for the month, so if you’re doing this on top of a budget we have news for you – your budget sucks!

Another reason it’s pointless is because the spare change is not taken instantly. The apps tend to collect every week or couple of weeks, so you’ll have random amounts being deducted when you’re not expecting it, which is no way to control your money.

What’s more, realistically you’re going to save barely any money at all unless you have a serious spending problem. Most items you buy are priced ending in 99p or 95p, so you could literally be saving pennies on each transaction. Have you ever heard of a rich man who made his money via round-ups? No, we haven’t either.

If you want to save money, then save money intentionally, and save big. It’s counter intuitive to link spending and saving in this manner. Before we move on, we want to say that if you refuse to save intentionally, then please do carry on using both of these pointless savings techniques because they are at least better than nothing… but only just.

#3 – Credit Card Points

We both love reading books on personal finance and investing on the off chance we might learn something new or get a new perspective. Recently I’ve been reading the UK version of the book ‘I Will Teach You To Be Rich’ and the opening chapter about credit cards made me mad. The author was banging on about getting credit card points, which here in the UK is almost non-existent. A few years back you could earn a few percent cashback but today, you’ll be lucky to get 0.5%, which just isn’t worth the hassle.

The highest paying cards are Amex, which are not accepted everywhere in the UK, which means your spending needs to be split over multiple cards making budgeting more painful than it needs to be. The reason you earn points in the first place is because the card providers have calculated that you will spend more. They’re not charities and don’t give away money for nothing.

#4 – Chase The High Interest Savings Account

Back in the day when I was younger and the interest on savings accounts and Cash ISAs was actually good, I used to take the time to move my money around to the account which paid the best interest or at least make sure I was earning a competitive rate.

Today though, what’s the point? The top cash ISAs currently pay around 0.6%, which means if you have £10,000 in savings, you’ll earn a miserly £60 in an entire year. The interest you earn on your cash savings is almost irrelevant anyway. The bulk of your money should be invested in the stock market, property, or wherever else you feel will provide a decent return.

The amount you hold in cash should be a small emergency fund and whatever you have put aside for irregular or non-monthly expenses such as savings for a holiday or Christmas.

Far better we think, to accept the likely measly interest paid by the same bank that you use for your current account, and here’s why:

  • Instant Access – you can shift money at a moment’s notice, which is vital when it’s your emergency fund. Nothing infuriates me more than when I send money to different banks and the money is lost in the ether for a day or two. Show me the money!
  • In One Place – When your savings and current account are together with the same bank you can easily monitor it all at the same time, in one app, which is super convenient. Personal finance is complicated enough without having to login to yet another app.

To boil it down, with interest rates as low as they are, choosing a savings account should really come down to choosing the best current account for you, and taking whatever easy-access savings account is offered by that same bank.

#5 – Life Insurance If No Dependants Or Family

We believe that insurance is usually a waste of money if you can afford the consequences easily or if there are no consequences.  So, in the case of Life Insurance, which is designed to pay out a sum of money upon your death, if you don’t have dependants, then it’s pointless taking out a policy.

The primary reason for Life Insurance is to ensure your spouse or children are financially taken care of in the unfortunate event of you dying prematurely. You may also have retired or sick parents who rely on your financial support for care and survival. In these cases, Life Insurance is of vital importance.

However, if you’re young and single with none of the responsibilities mentioned, then Life Insurance is likely to be totally pointless for you. If your situation changes, then you can get it then.

For those of you watching with dependants, then Life Insurance is likely to be critical. Visit our Life Insurance page to learn more and get a quote from our preferred partner.

#6 – Turning Plugs Off At The Wall

China’s power stations and factories are spewing out millions of tonnes of toxic gas and fumes, but Dorris thinks she’s saving the world by turning off her appliances at the wall. She thinks that standby light is causing global warming and she’ll also save a small fortune in energy bills.

Sorry Dorris, that just isn’t true. The Energy Saving Trust estimates that you could be paying around £35 a year for devices you’re not actually using. In the usual media hysteria, every article I’ve seen thinks this is enough justification to convince you to switch everything off when you’re not using it. That’s not even 10p a day making the entire exercise completely pointless.

Moreover, many devices such as TV’s, which are likely to be the worst offenders for energy usage in standby, are programmed to carry out software updates at night, so leave them plugged in for goodness’ sake.

#7 – Ethical Investing

We know, we know, we must be monsters. First, we’re saying leave your TV on standby and now we’re saying ethical investing is pointless. What evil will we say next? Well hear us out.

Ethical investing has grown in popularity in recent years and there are now many ETFs or funds badged with an ethical sounding name and objective. But everything is not what it seems.

Due to the surge in popularity for ethical funds it is being claimed that fund managers are taking shortcuts in order to meet this demand, which has led to some potentially less ethical funds being mis-labelled. Apparently, the underlying investments of the so-called ethical funds are actually little different from similar mainstream funds that are from the same fund providers.

One such case involves Vanguard, which runs the £389 million fund SRI European Stock. This fund is designed to mirror an index comprising 614 listed European companies, while excluding companies in the index which do not meet socially responsible criteria. Just 25 of 614 companies have been screened out. That still leaves an abundance of stocks in the SRI European Stock fund that most investors would expect to be routinely excluded from green ethical funds.

For example, still included are alcohol companies (the likes of Heineken and Carlsberg); gambling businesses (Entain and Evolution); mining giants (Rio Tinto and Anglo American); and oil producers such as BP and Shell. It even includes building supplies company Kingspan, criticised in the Grenfell Tower inquiry.

If socially responsible investing matters to you, then you should go back and re-evaluate your fund selections, because the name seems to matter little. Your intended ethical investing to date may have been pointless as the fees tend to be higher and you’re not getting what you paid for!

#8 – The Lifetime ISA

The Lifetime ISA is in some cases a very useful savings product but under certain circumstances if you’re not careful it can be not only pointless… but damaging to your money goals.

The Lifetime ISA is designed for two purposes: first-time home buyers and retirement savers. But if you’re one of these, don’t just assume a Lifetime ISA will help you.

The reason why it’s pointless for some first-time buyers is because it has a limit of £450k on the purchase price of the property. In many areas of the country that is way too low; you don’t get much home in London on that kind of budget for example.

Also, because of the cost of moving home – particularly due to excessive stamp duty – and the trend of starting families later, some people choose to skip the typical cheap starter home and buy a larger family home as their first house.

In these situations, your first property may exceed the £450k limit on the Lifetime ISA but now you can only access the money by incurring a massive financial penalty, which is ridiculous.

The problem is amplified because the limit is not tied to inflation or increasing house prices and they tend to rise fast. There is every chance that when you first start saving for your first home the house you desire is say £300k but by the time you are ready to buy – say in 10 years’ time – the house could easily exceed the limit. A £300k house growing 5% for 10 years would be worth £489k.

So, if you’re using a Lifetime ISA consider very carefully whether it’s fit for your needs.

What other money tips, tricks, hacks, products and habits are totally pointless? Join the conversation in the comments below.

Written by Andy

 

Featured image credit: Linda Bestwick/Shutterstock.com

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The Truth – Why You Can’t Afford To Buy A Home

It seems that every government policy to help first‑time buyers get onto the housing ladder has in fact pushed up house prices even more! The average price of a property in the UK jumped by 10% to £253,000 over the year to December 2021. And that’s just the average. Try living in London, where poky properties passing as legal homes average over £500,000.

Swathes of twenty and thirtysomethings can’t get on the property ladder, and the disparity between house prices and wages may make your low salary seem like it’s the fundamental problem. House prices after all are 65 times higher than what they were in 1970, while wages are only 36 times higher.

It’s more complicated than that, as we’ll show, but this certainly doesn’t help.

A 10% deposit for the average house is now nearly as much as the average pre-tax salary. And since house prices grew by £24,000 this year, you would need to have saved £2,000 a month just to keep up, assuming you’re already at the borrowing limit for your salary level set by the mortgage lenders.

Industry guidelines say that mortgages should not be larger than 4.5 times a borrower’s income, so as prices rocket, your deposit has to cover the full amount of the price growth as the banks won’t lend you any more cash. But there has to be some kind of a limit to how much you can borrow, for simple affordability reasons, so it’s not the bank’s fault that you can’t afford a house. Something else is going on.

As a wannabe homeowner, you wouldn’t be blamed for thinking that the housing wealth of others is being protected above and beyond your need to get on the ladder.

As an investor in property following this closely, I’m inclined to agree with you! Why is it that the many government policies for helping first-time buyers never seem to actually… help? And are they in fact just making it worse? Let’s check it out!

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#1 – Scrapping The Stress Test

This first one’s not the government’s fault, but the devolved Bank of England’s. They have confirmed plans to scrap the rate rise stress test for mortgage borrowers, making it easier for you to get a bigger loan. The test checks if borrowers could still afford the mortgage in the event of an interest rate rise of 3%.

It’s great news for people looking to buy right now, since removing this restriction would make it easier for borrowers to take out larger mortgages, helping those who were stopped from buying a house by this rule.

But it’s terrible news for those still saving up for a deposit. That’s because mortgage experts have warned that bigger mortgages would also send house prices even higher than they are already.

Simple market forces mean that when buyers have more cash at their disposal due to a bigger mortgage, sellers will put up their prices to match.

#2 – Help To Buy

Now we turn to the government’s flagship policy to help first-time buyers: the Help to Buy equity loan. This has allowed homebuyers to borrow up to 20% (or 40% in London) of the cost of a new build property from the government, reducing the size of the mortgage needed. Users of the scheme could also get away with having a deposit of just 5%.

Lower mortgage, lower deposit. Sounds good in theory, but there were effectively no limits on the amount of money that builders could make from the scheme, and the ticket price of new builds went up accordingly. New builds already have a premium built into the price, so you have to wonder whether this type of scheme really helps first-time buyers onto the property ladder.

Plus, a study from the National Audit Office found that the scheme mainly supports buyers who do not need the money, and crucially, has helped to inflate already high property prices.

As a side note, we must point out that there’s no equivalent help for people who currently do not own a home but have in the past. People who’ve broken up with partners for instance might be in the same or a worse situation financially as a first-time buyer and in the same age bracket but get zero help back onto the housing ladder.

#3 – The Stamp Duty Holiday

This next one’s on Rishi – it’s clear that the stamp duty holiday during the pandemic, which meant there was no stamp duty on properties up to £500,000, helped to push house prices to new records, and they never went down again once the holiday was ended.

This one must be particularly irritating to first-time buyers because they already pay no stamp duty on houses worth up to £300,000, so this policy only helped existing homeowners, while pushing up market prices for everyone.

Existing homeowners had the chance to save up to £15,000, while the market for everyone has risen by £24,000 in the last year alone.

#4 – Lifetime ISAs

In what is perhaps the best policy idea so far, the government’s introduction of a Lifetime ISA gets less and less helpful as house prices rise. The Lifetime ISA gives a 25% bonus on savings for a house deposit, but stupidly it has an arbitrary cap meaning you can only use it on properties worth £450,000 or less.

The insane part of this cap is that the benefits aren’t even pro-rated! If you buy a house worth £451,000, you cannot use the Lifetime ISA at all – you lose your built-up 25% bonus, and you have to pay a penalty to access your money! That limit, by the way, has stayed the same since it was introduced in 2017. If it had risen with house prices, it would now be £549,000.

If you live in an area where house prices are around £400,000, there’s every chance that they could have risen to the cap of £450,000 by the time you’re ready to buy a year or so from now, completely scuppering your chances of buying if you’re saving within a Lifetime ISA.

We could tell you to move somewhere cheaper, but how far should you be expected to move out of the cities? Londoners will be living in the Scottish Highlands before much longer.

#5 – Planning Law Shake Ups Cancelled

What home buyers really need from the government is not another tweak, or tool, but for it to build some more goddamn houses. In 2021 the government was gearing up, finally, for a major overhaul of the planning system, the biggest barrier to home building.

But… the plans were abandoned after the Tories lost a by-election, since the affluent voters in the area who failed to vote Tory were unhappy with houses being built in their area.

#6 – Low Interest Rates

This next one’s on the Bank of England, but it wasn’t really their fault, given the circumstances. Between 2007 and 2009, given the financial world was burning around them, the Bank lowered interest rates from 5.75% to 0.5%.

This helped to fix the economy but caused house prices to rocket. What really matters with house buying, aside from the initial deposit, is the affordability of the monthly payments.

A £600k house with a 10% deposit might require a mortgage payment of £2,000 a month when the base rate is at 0.25%, whereas in 2007 that house could have been worth just £320k and still have cost you the same in terms of your monthly budget when the base rate was 5.75%. When rates were lowered, simple market forces ensured that the prices of houses, which are in limited supply, rose in line with monthly affordability.

#7 – Brexit

This next one is a mixed bag of good and bad news for aspiring home buyers. Let’s start with the good news.

The irony of Brexit is that Londoners who were most in favour of open borders immigration will be the ones who benefit the most by a fall in house prices if the population size of the UK were to decrease or even if growth slows, which is more likely.

In the UK, in the 10 years leading up to the 2008 financial crisis, house prices tripled. That’s largely because for every 4 new people that entered the economy through population growth and immigration, only 3 new houses were built. Simple supply and demand.

Brexit is also believed to be a major factor involved in the recent pay rises seen across the UK – a double edged sword, because house prices can rise further still if some people are being paid more highly. But if you did get a significant pay rise this year, you might be better able to save for a deposit.

If, however, you’re one of the unlucky people who did not get a pay rise in the last year, houses will still have risen slightly due to those who did now being able to afford a bigger mortgage, but your wage still sucks. As we said, a mixed bag.

#8 – Lockdowns

While a dwindling number of people still think the lengthy lockdowns didn’t cause any harm, there’s no doubting that this government policy had a seismic impact on the housing market.

Home workers, cooped up all day, probably already realised that their houses were too small to live in comfortably… but were forced to confront this reality when they were stuck in it 24/7. The demand for spacious family houses has skyrocketed. It’s no longer just about supply of housing, but also a matter of quality, and space.

#9 – Stamp Duty For Pensioners

We hate stamp duty in general and have moaned about it often on this channel because it’s a transaction tax that interferes with what should be a free-flowing housing market. If there’s one area where stamp duty is holding back the property market the most, it’s when it’s charged to pensioners.

As we just discussed, people now care more than ever before about the quality and size of their home. But a huge chunk of the 4-or-more bed family homes are in the hands of older couples whose kids have long since grown up and flown the nest.

If these people could be incentivised to downsize and give up their huge houses so that a young family could move in instead, it would vastly increase the supply of quality family homes and bring prices down.

However, the government actively disincentivises pensioners from moving home, because if they did, they’d be instantly whacked with a huge stamp duty tax to pay. An older couple moving from a £500k 4-bed house to a £400k 3-bed house would have to pay stamp duty of £10,000! No wonder they don’t downsize.

Reasons To Be Cheerful

It’s not all bad news for aspiring homeowners. Thanks to the tax rises and energy price increases heading our way in April, we’re all about to made poorer… great news for house prices!

Ironically, when everyone has less cash, house prices go down to meet what the most well-off savers can afford to pay. The cost of living crisis might actually precede a slight fall in house prices. Yay…

There’s also the prospect of further interest rate rises this year, which will increase your mortgage interest but… it will also lower everyone’s affordability calculations and hence the amount the banks will lend, and therefore lower the maximum market prices that properties can be sold at. Silver linings, eh?

Do you own, or are you still saving up? How hard has it been for you? Join the conversation in the comments below!

Written by Ben

 

Featured image credit: William Barton/Shutterstock.com

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

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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

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

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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

 

Featured image credit: mixphotos/Shutterstock.com

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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…

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#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:

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S&P 500 To Crash 50% / “ISA Millionaire” Numbers Revealed / Crypto Ban

Hello and welcome to Money Unshackled News. The headlines:

  • The S&P 500 is in freefall. Legendary investor Jeremy Grantham predicts the S&P 500 will crash almost 50%. Here’s where to invest to protect your wealth.
  • New figures from HMRC reveal that the UK has around 2,000 “ISA millionaires.”
  • Soaring food costs and the energy bill crisis drove inflation to 5.4% in December. The energy industry has called on the government to intervene ahead of huge expected rises to household bills in April.
  • Microsoft is set to acquire Activision Blizzard in a $69 billion mega deal as gaming content land-grab heats up.
  • Russia set to invade Ukraine with 100,000 troops stationed at the border. Dire consequences for the world and investors could follow.
  • And in other Russia news, as the third largest crypto mining country, Russia proposes a ban on crypto trading and mining.

We’ve gathered all the latest money news from the past few weeks that matter most to your finances. Let’s check it out…

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Jeremy Grantham Predicts The S&P 500 Will Crash Almost 50%

The S&P 500 is currently in free fall. Legendary investor Jeremy Grantham predicts the S&P 500 will crash almost 50% after the 4th US ‘superbubble’ in the past century pops. Jeremy Grantham is the co-founder of asset-management firm GMO which had $120 billion of assets under management at its peak, and he has predicted the last three market bubbles.

He said the S&P 500 index may slip to around 2,500 – even with multiple efforts underway to prevent it. This is a drop of 48% from January’s peak, and the tech-heavy Nasdaq Composite, meanwhile, might see an even sharper downturn, he added.

Grantham said, “This time last year it looked like we might have a standard bubble with resulting standard pain for the economy. But during the year, the bubble advanced to the category of superbubble, one of only three in modern times in U.S. equities, and the potential pain has increased accordingly.”

He goes on to say that “Even more dangerously for all of us, the equity bubble, which last year was already accompanied by extreme low interest rates and high bond prices, has now been joined by a bubble in housing and an [emerging] bubble in commodities.”

He compared this bubble to Japan in the 1980s, which saw two asset bubbles at the same time – real estate and stocks. The US, in contrast, has three and a half major asset classes bubbling simultaneously for the first time. These are stocks, bonds, real estate, and commodities. He said, “When pessimism returns to markets, we face the largest potential markdown of perceived wealth in U.S. history.”

By now he has scared the living daylights from anyone who has their money invested, so what advice does he give to investors? He advises to avoid U.S. equities, invest in value stocks of emerging markets and several cheaper developed countries, most notably Japan. He likes to have some cash for flexibility, as well as a little gold and silver.

And for all the Crypto fanboys, unfortunately for you he takes a dig at digital money. He says cryptocurrencies leave him increasingly feeling like the boy watching the naked emperor passing in procession.

For those that don’t remember that folklore: two swindlers offer to supply magnificent clothes to the emperor that are invisible to those who are stupid or incompetent. Everyone goes along with the pretence, not wanting to appear inept or stupid, until a child blurts out that the emperor is wearing nothing at all.

HMRC Reveal That The UK Has Around 2,000 “ISA Millionaires”

New figures from HMRC reveal that the UK has around 2,000 “ISA millionaires”, sitting on pots worth an average £1,412,000 according to the data obtained by InvestingReviews.co.uk.

Included in these incredible numbers are 60 investors who are in the £3 million+ bracket with the average pot among them standing at £6,199,000. And 80 investors had pots valued between £2 million and £3 million.

Becoming an ISA multi-millionaire is more difficult than you might think, due to the historical deposit limits. The predecessor to ISAs was the Personal Equity Plan (or PEP), which was only launched in 1987 with just a £2,400 allowance. With the annual allowance for the PEP being around £6,000 for most years after that and the ISA being around £7,000 for many years, the data released by HMRC indicates a small number of investors have benefited from supercharged returns over the years.

AJ Bell commented that if somebody had saved the full allowance since 1987 and earned 5% returns a year, they would only have built up almost £708,000 in their pot.

Investors starting from scratch now could expect to reach millionaires’ row in around 22 years by making maximum use of their annual ISA allowance, assuming a compounded 7% annual return, InvestingReviews.co.uk said.

Currently, there are around 2.7million Stocks and Shares ISA holders of which 37 per cent are maxing out their allowances, which at £20,000 per year is very impressive.

Inflation Soared To 30-Year High

In mainstream financial news, the biggest problem facing ordinary people is soaring inflation. The BBC report that surging food prices have pushed inflation to a 30-year high. Soaring food costs and the energy bill crisis drove inflation to 5.4% in the 12 months to December, up from 5.1% the month before, in another blow to struggling families.

Food writer and anti-poverty campaigner Jack Monroe said the inflation index measure “grossly underestimates the real cost of inflation” and what it means for people in poverty. She went on to list some examples.

“This time last year, the cheapest pasta in my local supermarket was 29p for 500g. Today it’s 70p. That’s a 141 per cent price increase as it hits the poorest and most vulnerable households,” she said.

“Baked beans: were 22p, now 32p. A 45 per cent price increase year on year.

“Canned spaghetti was 13p, now 35p. A price increase of 169 per cent.”

As for energy, the energy price cap is due to be revised on 1 April and as a result, fuel bills could increase by another 50% in the next few months pushing the average bill to around £2,000 a year. This is a potentially terrifying prospect for many people up and down the UK who simply cannot afford these price increases. The energy industry has called on the government to intervene.

One of the issues is dependence upon oil and gas from other countries. Theconversation.com say that the UK government should be taking a stronger position on developing the Cambo oil field off the Shetland Islands, which is estimated to have 53.5 billion cubic feet of gas undeveloped, not to mention 180 million barrels of oil.

These days companies seem to simply index their prices with inflation, rather than increase them because their underlying costs have gone up, so high inflation is sort of a self-fulfilling prophecy.

The Mirror reports that millions of phone, TV and broadband customers are facing £42 a year hikes on their bills under a series of price rises from the likes of TalkTalk, BT, Plusnet, Vodafone and EE.

Here at Money Unshackled we try to find a silver lining and inflation is good for at least one thing – the erosion of debt. Both the British public and the government are up to their necks in debt, and if we are able to maintain our earnings in line with inflation (a big ask), paying down the debt should in theory be a lot easier.

The best example we have seen of this is student loan plan 1 debt, which is the student debt held by people who started Uni between 1998 and 2011 in England, Wales and Northern Ireland. The interest rate on this is calculated as the lower of the Bank of England base rate + 1%, or the rate of inflation.

A few years of high inflation and relatively low interest rates would make that debt disappear, so for some it’s not all bad news.

Takeovers Heat Up

In takeover news, Unilever has had its third offer for GlaxoSmithKline’s consumer health business rejected. The business includes brands like Aquafresh and Sensodyne toothpaste, Panadol painkillers and Nexium antacids. The final bid was £50 billion, and Unilever have said they will not be increasing the offer.

The Financial Times said that Glaxo is likely to try to proceed with a planned demerger of the consumer health business in the middle of this year unless another bidder emerges.

In other mega takeover news, Microsoft is set to acquire Activision Blizzard in a $69 billion mega deal. It’s one of the biggest acquisitions in the tech industry in recent years, one that will boost Microsoft’s standing in the growing gaming industry, making Microsoft the third-largest gaming company by revenue, after Tencent and Sony.

The agreement is pending regulatory review and Activision Blizzard shareholder approval, with the deal set to close in 2023.

Activision Blizzard own game franchises such as Call of Duty, World of Warcraft, Candy Crush, and Overwatch. Activision has hundreds of millions of people playing its games, which could help Microsoft win subscribers to its Game Pass service, says CNBC. Overtime massive game franchises could become exclusive to Microsoft.

This acquisition comes on the back of the ZeniMax purchase in late 2020 in a $7.5 billion deal, which added game franchises including The Elder Scrolls, Fallout, and Doom to Microsoft’s growing intellectual property. Microsoft are not messing about when it comes to a land-grab of video game content.

Russia Set To Invade Ukraine

In other takeover news, Russia is set to launch a hostile takeover bid for Ukraine. Russia already has a small holding in the eastern European country after acquiring the Crimea in 2014 and is looking to take full ownership. Joking aside this a serious situation we find ourselves in and it could have devastating consequences for both the region and the wider world, including a heavy financial toll.

Mainstream media is reporting that Russia has an estimated 100,000 troops deployed near Ukraine’s borders. US President Biden says his guess is that Russia will move in but has warned that a full-scale invasion would be a disaster for Russia. From what we can tell it would be a disaster for the world, as the West would have to act. To do nothing would set a precedent and likely stoke further aggression from Russia in the future. Let’s not forget that World War 2 started after appeasing Hitler for far too long while he annexed European territory.

The West’s main tools for dealing with Russia, outside of military action, could be to disconnect Russia’s banking system from the international Swift payment system, and/or to prevent the opening of Russia’s Nord Stream 2 gas pipeline in Germany.

Other sanctions are mostly unknowns for now, but if they are indeed severe, both a military conflict and/or the sanctions could have a serious impact on the world economy, reports barrons.com.

As Russia supplies a lot of gas to Europe, any gas supply sanctions self-imposed by the West or a counter-reaction by Russia would lead to spikes in the price of natural-gas above the punishing increases we’re already experiencing.

Proposed Crypto Ban

In Crypto news, Russia’s central bank proposes a ban on crypto trading and mining within Russian territory. The announcement surprisingly did not appear to knock the price of Bitcoin any further down. Russia is the third largest cryptocurrency mining country after the US and Kazakhstan, and it has developed a thriving mining industry after China last year outlawed the practice. Russia’s share of Bitcoin mining rose to 11% last year from 6.8% in 2020.

Meanwhile, in the UK, the Treasury plans a crackdown on ‘misleading’ cryptocurrency ads by making them subject to the same regulations as marketing for other financial products such as shares and insurance.

Bitcoin’s price is down more than 50% from its November high. Is this a buying opportunity? Or could the price fall further? Join the conversation in the comments below.

Written by Andy

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

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The Nightmare Ahead For Investors In 2022

The economy fell 9.4% in 2020 and bounced back by roughly 7% in 2021. But now the recovery looks like it will start to slow in 2022. Where once there were worries of mass unemployment after covid, instead we now have huge labour shortages that are likely to continue throughout the year, stopping businesses from operating at full capacity. Not only are there fewer staff available, but people have been told to work from home again, with a presumable fall off in productivity.

Elsewhere in the economy, the interest rate rise in December was mild, but likely a warning of further rises to come.

The Bank of England’s toolbox to fight the massive wave of inflation currently engulfing the country is running empty, as any significant action they take now will have massive negative consequences for homeowners, businesses, investors, pensioners, and the government finances.

GDP may be heading back to where it was before the pandemic and presumably higher, but business investment is not, suggesting that despite the so-called recovery, businesses are still struggling. Businesses are not able to grow, still in firefighting mode.

source: ONS data

The biggest political issue of 2022 is widely expected to be the cost of living crisis, with energy bills skyrocketing and taxes due to go up in April.

Some politicians like Jacob Rees-Mogg are fighting back against tax rises from within the cabinet, but it may be too little too late for many families. And when people reign in their spending, then businesses and investors will feel the pinch to their profits.

Is 2022 going to a tough slog for investors? Or is there anything to be hopeful for, with initiatives like the metaverse taking off, and the return of dividends post-pandemic? Let’s check it out!

And by the way, Stake are giving away a free US stock worth up to $150 to everyone who signs up via this offer link – T&Cs apply, see the Offers Page for full details.

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The Inflation Effect

After insisting for months that inflation was “transitory” (meaning temporary), central banks are having to concede that it’s not. Inflation looks like it is here to stay.

It’s currently hovering around 5%, which is pretty damn high. In real terms it means that if you’re not getting a pay rise this year of 5% you’re effectively getting a pay cut.

Inflation was mostly caused by the reaction to covid, both at home and abroad. The main culprits are believed to be the large scale money printing by central banks to pay for schemes like furlough, and supply chain issues due to borders being thrown up around the globe.

The transition to greener energy has pushed up the price of energy too; UK labour shortages have pushed up prices in general; and Chinese workers demanding more pay for their work has pushed up the price of goods coming from the world’s manufacturing hub. The problem for investors going into 2022 is… none of these factors are going away anytime soon!

So, it looks like we’re going to have a long run of inflation and there’s not much that can be done about that.

To ease inflation, central banks would have to either start taking money out of the economy, or raise interest rates. Neither would be a good thing for investors – but nor is inflation.

Let’s look at the 3 main options for dealing with inflation and how they impact investors:

  1. No significant action is taken, and inflation stays high and possibly gets worse. Your investment returns are eroded by inflation. A return on investment of 8% becomes a real return of 3% after deducting 5% for inflation.
  2. Interest rates are raised significantly. Money flows out of the stock market into high interest investments like cash savings accounts. The result is that stock market prices go down.
  3. Cash is deleted from the economy. The opposite of money printing, central banks have the power to delete cash from existence by selling bonds for cash and removing that cash from the economy. You saw the stock market skyrocket during the covid money printing – the opposite may happen in the case of banks reducing the money supply.

All 3 outcomes are bad for existing investors, though lower prices are good if you’re buying more. But the most likely course of action we think is option 1: no real action. Central banks may raise rates a little but will do nothing of significance and will wait for the market’s underlying issues to resolve themselves.

These include the container ship shortage, the microchip shortage, and the problem of rising labour costs across the world, particularly in China.

As a sidenote, if you’re an investor in property with a load of mortgage debt, then inflation (without an accompanying significant rise in interest rates) might actually be helpful – your loans stay the same size, but inflation means that their real value goes down. Inflation of 5% effectively wipes 5% off your mortgage debt.

In the same way, governments of the world aren’t very incentivized to address inflation right now. Inflation erodes public debt and can be a blessing in disguise for countries like the UK that are drowning in the stuff. But for the people inflation is often known as the ultimate stealth tax!

Other reasons to think that inflation is here to stay for the long term include:

  • A reversal of globalization, with a trend towards less free movement of trade and of labour.
  • We’ve not had normal interest rates now for 14 years. The economy is reliant on low interest rates and easy credit and can only transition away from this slowly over many years. Central Banks can’t raise interest rates significantly to counter inflation for many years to come without smashing the economy.
  • Now inflation is embedded, people expect decent pay rises, exacerbating the issue because it will be a huge cost to businesses who will need to try to pass this cost on to customers. That chart we saw earlier showing the collapse in business investment isn’t helped by a larger wage cost.
  • China has been the engine of global growth for many years, growing at 8/9/10%, but if that’s going permanently down now to around 5% and lower, then that has a long-term knock-on impact for every economy and stock market.

Aside from inflation, the economy does seem to be bouncing back from covid, which to a long-term investor should be a good thing. But in the short to medium term, it might be better to be investing in a weaker economy.

The fear of the pandemic response being dragged out for at least another year is at least creating some resistance to the tax rises we might otherwise see in a strong economy, and the money-printing that helps push up stock prices is more likely to continue rather than be rolled back so long as we’re in crisis mode.

But in the UK and presumably elsewhere, many industries including retail are on their last legs. 2021 was meant to be a boom year for retail after the 3rd lockdown ended, but when non-essential retail opened in the spring, instead of a runaway boom, we saw several months in which retail sales fell.

source: ONS data

Below 100 on the chart is below normal pre-pandemic activity. There are big drops during the lockdowns, and we were supposed to see amazing growth around Freedom Day in 2021. Instead, we saw stagnation.

The predicted spending spree from lockdown savings never happened.

The omicron scariant knocked confidence out of the economy in the run up to Christmas, further delaying the release of savers’ cash into the economy and thereby into investor’s profits.

And now it may never happen – people will rely on their savings from the pandemic to get them through the energy price rises and tax hikes in April.

The household energy price cap is reviewed then, likely resulting in a £600 energy bill increase for the average household.

Also in April, National Insurance goes up by an effective 2.5% (that’s 1.25% paid directly by you, and 1.25% that your employer has to pay out of their wages budget, impacting your future pay rises). The foretold Roaring Twenties is looking like it’s not going to happen.

Impact On The Stock Market

In the UK, stock valuations remain stubbornly low compared to markets like America. The Brexit effect on this is unclear, wrapped up as it is in the covid debacle. The types of company in the UK are dusty and old fashioned, which doesn’t help the FTSE 100 fight back quickly when it takes a knock.

One positive we saw in 2021 was the return of dividends, after companies reduced or withdrew them during the pandemic:

source: AJ Bell

It’s important though that companies came to their senses and recognised that for many people, receiving those dividends is an important part of their income, and is what pays the bills. Plus, the entire capitalist system is based on the trust that there will be fair reward for risked capital.

Dividends may have returned in 2021 but AJ Bell expects dividend growth to slow in 2022, and even worse will provide a negative real return thanks to inflation.

It also remains to be seen whether companies start to lean more towards share buybacks when it comes to returning cash to shareholders according to AJ Bell, in light of the government’s 1.25% rise in dividend tax.

As many as 22 members of the FTSE 100 have announced buyback schemes post-pandemic, to the tune of £18.7bn of cash to be returned to investors. Shell and Diageo have already made clear their intention to buy back more shares in 2022.

Will 2022 be another successful year for American tech stocks? The noises coming from Silicon Valley are all positive, with their CEO’s gushing with ideas for the future.

We’ve seen NFTs just start to take off, we’ve seen billionaires and actors launched into space, and just before Christmas we were all treated to Mark Zuckerberg’s vision of the metaverse.

If the rest of the world’s companies are in a quagmire fighting supply chain issues and inflation, maybe cash-rich software stocks like Facebook are the best placed to simply apply the blinkers and power ahead.

Tech in the 21st century is like electrification was in the 20th century, or railways in the 19th century – it’s a total gamechanger, and we think that investors with good exposure to tech such as by owning the S&P 500 will continue to do alright long-term.

Could part of the pandemic boom in trendy stocks have been due to the higher savings rates seen as people were locked down? People had more money to play with, and maybe there was a boredom element from being sat around at home. This is surely over now, and the boost to prices that came with it.

Danger Of A Reversal Of The Recovery

Given all the crap going on in the economy, none of us can rule out a serious reversal of the recovery. Some commentators are warning that consumer pessimism is indicating a possible recession. Others point to the multiplication of energy costs that traditionally is an indicator of a recession ahead.

A recession in the economy doesn’t necessarily require a crash in the stock market alongside it, though that is usually the case. But then, there are always reasons not to invest, and the sensible thing may be to just ignore the news, keep your head down, and carry on investing no matter what happens in 2022.

Will 2022 be a bad year for investors? Join the conversation in the comments below!

Written by Ben

 

Featured image credit: fizkes/Shutterstock.com

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The FASTEST Way To Pay Off Debt

Normally we prefer to focus on ways to get rich but before you can begin doing this you need to pay off your bad debt first. Quite frankly, becoming wealthy for most people is nothing more than a dream because statistically speaking they’re more likely to be struggling with debt.

Let’s kick-off by first looking at some of the terrifying UK debt statistics to put the debt problem into perspective: The average total debt per UK household in October 2021 was £63,000. Total unsecured debt per UK adult was just over £3,700 and the average credit card debt per household was almost £2,100.

People in the UK have personal debt at almost £1.75 trillion, up £60 billion from the year before, which is an extra £1,136 per UK adult over the year. The problem of personal debt is only getting worse.

Beyond the numbers, the biggest debt problem of all is the changing attitudes to debt; it has wrongly become acceptable! Past generations would shy away from debt, instead choosing to save first, and then buy. Today that’s been flipped on its head and it’s far too common to spend first and work out a way to pay for it later. In a nutshell debt has been normalised.

If other people want to be burdened by debt that’s their choice, but we want you to make the decision now that enough is enough. In this post, we’re going to lay out a 7-step plan that you should follow to pay off your harmful debts as fast as possible. Now, let’s check it out…

Alternatively Watch The YouTube Video > > >

Step #1 – Understand Your Debt

First off, you need to take stock of exactly how much you owe, who you owe it to, how much interest you’re being charged, and what the minimum payment is.

Literally draw up a table, so you can tally up the total amount owed and what the total minimum monthly payment is. You should be aiming to pay more than the very minimum or otherwise you could be paying off debt until what seems like the end of time, but we’ll calculate what you can afford to pay in a moment.

Step #2 – Draw Up A Monthly Budget

You absolutely need to understand what money you earn and what exactly you spend. Start with the obvious monthly costs that stay the same month-in, month-out. The bulk of your monthly spending is likely to be fixed (or consistent) such as the rent, energy, broadband, food, petrol or bus, and so on.

Then you need identify irregular or non-monthly expenses such as Christmas, holidays, clothes, and so on, and calculate an equivalent monthly figure for all of those, which you put aside each month into a separate account and can spend when the time comes.

It is these irregular or non-monthly expenses that cause most people to blow their budgets which is what forces them to go into debt in the first place. But irregular expenses shouldn’t come as a surprise; Christmas was on the 25th of December last year, and it will be on the 25th of December this year too.

For the time being, plug in your minimum debt payments into your budget, which should give you something like this:

 

Income: £2,500

Fixed Bills: £1,400

Irregular Expenses (Monthly Average): £400

Minimum Debt Repayment: £400

Other Spending £200

Surplus: £100

 

Bear in mind we’ve heavily summarised this for simplicity. In this example, we’ve got a surplus of £100, which should also be directed to clearing off that debt.

Step #3 – Cut Out The Fat

If you’re in debt, it’s highly likely that you won’t have a surplus in your budget and will in fact have a deficit. This needs to be corrected pronto! Even those with a surplus should follow this next step to speed up your debt repayments.

You need to cut out the fat, or in other words, cut unnecessary spending. You need to go full on ninja and slash everything you don’t need.

Go through your budget with a fine-tooth comb and identify which of your spendings are necessary and which are not. Holidays, eating out, coffees at Starbucks, nights out, expensive tv subscriptions are a thing of the past. Even the stuff you identified as something you need should be scaled back if you can.

We all need a roof over our heads, but if your debt’s really bad, might you move somewhere cheaper? Can you do the food shop in Aldi instead of Waitrose? Can you catch a bus instead of driving the car?

This might sound counterintuitive, but you may want to continue with one very low-cost entertainment expense such as Netflix or your PlayStation Plus subscription. People tend to spend a lot more when they’re bored so these can entertain you for next to nothing and help to prevent you spending more elsewhere. With some of the “free” PlayStation games I’ve literally clocked up hundreds of hours of gametime – and now it’s conformed… I’m a saddo.

By this point you should have a calculated plan to pay down the debt. If the maths isn’t working out, then you need to go back and be tougher with your cuts. If that’s not possible, there are still solutions to be found in the next steps.

Step #4 – Reduce The Interest Rate

It goes without saying that you want to pay as little interest as possible on your debt as slashing the interest rate will help you pay down the debt much quicker. Assuming lenders are still willing to lend to you, it might be a good idea to transfer whatever debts you can to a 0% credit card or cards.

There is a usually a small fee of around 2% from the new credit card provider but you could lock in 0% interest for maybe 2 years depending on what cards are available to you. The transfer fee is much cheaper than the 19% APR on a typical credit card.

Moneysavingexpert.com lists all the best offers and, in many cases, they can check your eligibility before applying to prevent any damage to your credit rating.

Another option you might want to consider is a debt consolidation loan. A debt consolidation loan is a type of loan that’s used to combine all your existing debts into one pot, so your debts become much easier to manage. The rates vary significantly between providers and on your personal circumstances. Technically, a debt consolidation loan is simply a personal loan, so you’re free to do whatever you want with the cash once received from the lender, but you’d be mad if you didn’t repay your existing debts.

Another option you may have is to shift the debts to your mortgage if you have adequate equity and can pass the mortgage provider’s affordability requirements. To do this you can borrow more on your mortgage and use the cash released to pay down the other (more expensive) debt. Mortgages tend to be extremely low cost – at time of filming rates are around 2% – and are also long-term, so provide you an opportunity to not have to take drastic lifestyle changes.

However, remember that because a mortgage is a secured debt, if you fail to make your mortgage payments you will be in danger of losing your home, so this last option should be considered very carefully.

Step #5 – Pay Off The Debt

There are a few different strategies you can use to pay down debts and they tend to cause disagreements within the finance community about which method is best.

On YouTube a lot of the content is dominated by American channels, and we don’t know if it’s different over there – we see no reason why it would be – but either way this next point doesn’t seem to get mentioned. Here in the UK, the first debts you should clear are your ‘priority debts’.

Priority debts mean that if you don’t pay, you could lose your home, have your energy supply cut off, lose essential goods or go to prison. They include things like: rent and mortgage, gas and electricity, council tax, and court fines. It’s important that you still make the minimum payments on your other debts whilst you clear these.

Once your ‘priority debts’ are sorted you need to tackle your other debts. The two strategies are the debt avalanche method and the debt snowball method. Both methods require you to make minimum payments on all but one of your debts.

The mathematically best way to clear the debt is the debt avalanche method, whereby you pay as much as you can on the one with the highest interest rate. The theory is that by concentrating on the one with the nastiest interest rate you pay your total debt down quicker by avoiding additional interest.

The debt snowball method ignores the maths and tells you to you pay down the smallest debt first and work your way up from smallest to largest, regardless of the interest rate. Advocates of this strategy argue that there is a psychological benefit to clearing the quantity of creditors you owe, and we think they have a point.

So, which is best? Well, that depends on you. Personally, we would always tackle the most expensive debt first if the interest rates varied significantly. Say you have one credit card charging 40% and a loan charging 10%. The credit card is going to be spiralling out of control if it’s not dealt with urgently, whereas the loan’s interest is far more reasonable.

Another contentious point is whether you should have an emergency fund if you’re in debt. Critics of debt such as Dave Ramsey over in the US argue that you need a $1,000 starter emergency fund before tackling the debt. This would be about £700 here in the UK. Some people would even argue that you need more than this as £700 won’t save you from many disasters.

Many people might struggle emotionally with this but as long as you have access to a credit card that isn’t already maxed out, then this kind of is your emergency fund in case something substantial comes up whilst you’re clearing your other debts. It doesn’t make financial sense to be paying say 20% on a credit card if you have some cash sitting there. If an emergency arises you can pay the 20% then and only then.

Step #6 – Make More Money

Cutting back and budgeting can only go so far. No matter how many times you have sliced and diced your budget, if the maths still doesn’t work, you need to grow your income instead. In fact, even if you’re not in debt you should be thinking about how to grow your income so you can move on to further financial goals like investing and retiring early.

Can you work extra hours? Dave Ramsey would be telling you to get a 2nd and 3rd job. If your debt is particularly bad this might be something to consider. But we prefer exhausting other avenues first such as getting better paid work for the hours you currently spend working.

Speak to your boss and see if there are opportunities for a promotion or added responsibilities. This might not be achieved overnight but let the world know your intentions. Alternatively, it’s quite often the case that it’s easier to promote yourself by simply switching employer.

Or, if you want more control you should think about setting up a side hustle to bring home some extra bacon. Somebody I know restores antique furniture and sells that on Etsy. Someone else used to buy women’s shoes from car boots and resell on eBay, and someone else did wedding photography. It could literally be anything.

Our favourite side hustle we like to promote is matched betting because you can do it with no skills, and you can quite easily make hundreds of pounds or more a month tax free (the amount you make is heavily determined by how much time you put in) – enough perhaps to allow you to start saving more for your future.

Matched betting is a betting technique that covers all outcomes of a bet, which unlocks very lucrative bookies’ free offers, which is how you make the money. Whilst it involves using gambling sites, because you have covered every outcome you can’t lose as long as you follow the instructions precisely. Visit our Matched Betting page for more info and videos. There you’ll also find discounted offers for the required software.

Step #7 – Get Help

If after all this, you still can’t stop drowning in debt then it’s time to get help. Moneyhelper.org, which has replaced the Money Advice Service, has a list of free debt advice services, which we’ll link to below. From what we’ve heard on the grapevine stepchange.org is particularly good, so please do check them out if you need help.

What other tips can you give to help those trying to get out of debt? Join the conversation in the comments below.

Written by Andy

 

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