You Need To Know This About Money BEFORE You Turn 30

Among the countless stereotypes about young people is the belief that they manage money poorly. How to manage money well is not something that is ever taught in school or University, but if you take the time to master the money game you will have it in abundance.

In this post, we’re discussing the 6 things you should know about money before you turn 30. The more of it you can earn and invest from as young an age as possible the better. You need to make sure you’re on top of all the points in before it’s too late. Now, let’s check it out…

FYI: Stake are giving away a free US stock to new UK investors, worth up to $150, to everyone who signs up via this offer link. More info on the Offers Page.

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Multiple Streams Of Income Is (Usually) Much Better Than One

Most people’s job income is their lifeline. If this is you and your wage income suddenly stops, you could be in serious trouble because you have bills to pay and responsibilities. In the event of losing that single source of income, the likely best case is you are forced to spend your savings, which means either your retirement will get pushed back or you’ll have to forgo whatever you were saving for.

But for many the outcome is far worse, with the loss of your home a real possibility and/or racking up a load of expensive debt. Most people have one job and depend on it like a new-born baby depends on its mum. They are totally reliant.

It’s common to think that a salary is a reliable source of income but ask anyone who’s been fired or made redundant, and they will tell you the exact opposite.

This powerful chart shows how many people were made redundant in the UK by month since 1995. The typical monthly figure is between 100,000 to 200,000 people. And during the bad times it has been 300,000 and even 400,000 people per month. Essentially, no job is safe, so you need a backup plan.

The wealthy very rarely rely on one source of income. Take a professional football player for example. They make millions from their day job and yet they still earn money on the side through sponsorships.

1.1 million people in the UK have a second job but as many as 25% claim to have a side hustle. We’re not proposing that anyone gets a second job on top of a full-time job but you may want to consider a side hustle.

One source of additional income that everyone should work on obtaining is investment income but realistically this is not going to be achieved overnight. Having multiple sources of income from your work is more easily achievable if you’re self-employed or a business owner.

Consider a website like Amazon which might be the ultimate example of income diversification. They are not reliant on any one customer, any one product, any one country, nor any one industry. What once was an online bookstore expanded into other physical products, and then into all manner of services, including music and video streaming, cloud services, financial services, logistics, and everything else.

On a much smaller scale, and so perhaps a little more relatable, a plumber will likely serve thousands of people in a small local area. No single customer will materially damage the plumber’s income if they choose to go elsewhere the next time their drain is blocked.

Multiple income streams are one of many advantages of being a self-employed plumber over being an employed office worker (other advantages being increased freedom, and greater control over their hourly rate). But the job with the single income stream is the one that the education system herds you towards.

You Need A Game Plan

A lot of people drift through life without a destination. They have no goals and therefore no plan. It’s little wonder why they don’t achieve much.

But if you want to accomplish great things – no matter how big or small – you need a game plan. You need to know how you’re going to cover your immediate living expenses, and simultaneously you need to have a long-term plan for achieving comfortable wealth, with a clear roadmap to how you are going to get there. Without a game plan, it’s just a pipe dream.

First things first, you need to draw up that budget. A lot of people find budgeting tedious but more times than not it’s because they don’t have a long-term game plan. Once you know what you’re striving towards budgeting becomes, dare we say it, fun.

People budget in different ways, but what we’ve found is if you overcomplicate it, you stop doing it. This is our tried and tested budgeting master plan:

  • The day you get paid, transfer a pre-determined amount into a separate account, which will cover all your fixed bills for the month.
  • Also on the day you get paid, transfer a pre-determined amount into a separate account, which is for irregular or non-monthly expenses. Christmas comes about once a year but from now on you budget for it monthly. Some excellent banking apps like Starling allow you to have separate pots all within the app. This budgeting method is often known as savings pots or the jam jar technique.
  • Again, on the day you get paid, you transfer another sum of money to your investment platform. From your budgeting calculation you’ve already determined what you can afford or what is required to achieve your long-term plan. We call this pot our freedom fund and it’s so satisfying to watch it grow.
  • Whatever’s remaining in your bank account is what you have to left spend during the month. If you find it’s not enough you need to go back and adjust your budget.

Only 30% of Americans, so presumably a similar number of Britons, have a long-term financial plan – no wonder most people are skint!

Insurance Matters – You Are Not Invincible

We reckon this could be one of the most overlooked parts of financial planning and we’ll admit it’s not something we even thought about until more recent years. I was always put off because the only time it was ever mentioned was when a seemingly dodgy financial broker was trying to push it, cos he clearly got some huge commission.

But as you go through your twenties you start noticing that nobody is invincible and sadly some people start falling ill; some even don’t make it. If you have loved ones that depend on you, you have a responsibility to ensure that in the case of your premature death they are financially taken care of. You do this by taking out life insurance.

The second type of insurance you should take out is Income Protection Insurance. This insurance product is designed to pay you an income if you are unable to work. Some policies will pay out for a few months, while others will pay out until you reach retirement age.

Unless you can somehow fund your lifestyle without income protection insurance, such as with investment income, we strongly urge you to take out a policy that pays out until retirement, which is exactly what we both did.

Because we feel so strongly about this, we’ve teamed up with the same broker that we both used, and if you visit our lifestyle insurance page you can read a little more and get a quote.

The System Isn’t Rigged

Some people who struggle financially blame the financial system, claiming that it’s rigged. But the fact of the matter is, just because they haven’t become financially successful doesn’t make it impossible. There are thousands of examples where normal people have become not just wealthy but insanely rich.

One such example is the rags to riches story of J.K. Rowling. You will know her as a best-selling author who has sold more than 500 million books and became a billionaire. But prior to her success she was desperately poor, jobless, and with a young child to provide for. She described her economic status as “poor as it is possible to be in modern Britain, without being homeless.”

Becoming a best-selling author might be difficult to relate to, so how about an incredible story about a janitor who secretly amassed an $8 million fortune by the time he died. He achieved this through smart spending and good investing habits, reports CNBC.

His family was “tremendously surprised” upon finding out about his hidden wealth. “He was a hard worker, but I don’t think anybody had an idea that he was a multimillionaire,” his stepson said.

There is no secret to becoming wealthy. It’s simply a case of adding value that other people are willing to pay for, spending less than you earn, and investing the rest. The more value you add, the more you will earn, and the more you can invest. Sooner or later, your invested money will be making more than you do. You can make as much money as you want if you are willing to put in the necessary work.

You Must Seek Out Pay Rises – They Won’t Come To You

Too many people moan that their employer doesn’t pay them enough, and yet they never seek out a pay rise. Your employer is running a business and their goal is to maximise profits for the shareholders, not to be handing out pay rises if they don’t need to. Pay rises aren’t given for nothing and certainly aren’t given to those who don’t reach out to take them.

Most employers will expect you to work a job for at least a few years before being eligible for a proper pay rise of more than a derisory 1 or 2 percent. So, to climb the career ladder at breakneck speed, the best thing you can do is to job-hop between companies. You’ll earn a promotion each and every time.

If you want to be paid more and stay at your current employer, you need to effectively tell your boss what the craic is, but this only works if you’re well-liked by the entire management chain. You’ll be amazed at how high up the chain your measly pay rise request goes to be authorised.

Your boss and your boss’s boss are unlikely to give you a promotion without first doing more than what you are already paid to do. You should literally ask your boss what you need to do to earn a promotion and then deliver that. At the very least, you make your boss aware of your desires and this will give you an idea of whether a promotion is even possible.

Start Investing For Your Future NOW

When it comes to investing, the earlier you start the better because compounding takes a very long time to make a serious impact! The longer you put it off the more you have to contribute to make up for the time you missed.

If you’re putting it off because you think your financial situation will get better, you’re taking a huge risk. From our experience, life gets more expensive as you get older, not cheaper.

If you invest £100 a month for 40 years from age 20 at 8% return, your pot is worth £324k at age 60.

But if you miss the first 10 years, and then invest £100 a month for 30 years, your pot is worth only £142k.

If you did start early, you might even be able to Coast FIRE if you wish. Coast FIRE is when you have enough in your investment accounts that without any additional contributions, your net worth will grow to support retirement at a traditional retirement age. For instance, stopping investing at age 40 and allowing your pot to grow by itself until you’re 60 and ready to retire. Then you can spend more money on lifestyle and enjoy your later career a bit more.

All your peers will be squirrelling away as much money as they can for the last couple of decades before they retire and probably still won’t have enough, whereas you who learnt these financial lessons early, could be coasting all the way to a comfortable retirement.

What other financial tips does everyone need to know before turning 30? Join the conversation in the comments below.

Written by Andy

 

Featured image credit: Dean Drobot/Shutterstock.com

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

Big Bold Money Moves To Make In 2022 To Explode Your Wealth

Today’s post is about taking massive action to significantly change the course of your life.

We’ve covered the need for regular monthly saving and investing on this site a lot – the small incremental steps that almost guarantee eventual success. That is all very important stuff and must be done, but arguably more important are the big, one-offs events that transform your finances in one go.

Looking back over the last few months and years, have you taken some specific action that you can single out as the point when you achieved something big financially?

Let’s make this next year count, with massive action. It’s time to put a stop to all of your years merging into one long line of working and saving.

If you want to grab some free cash, check out the Offers page. Loanpad, EasyMoney, Octopus Energy, and others are all giving away £50 in welcome bonuses. Free stocks potentially worth hundreds of pounds are available too.

Alternatively Watch The YouTube Video > > >

What Is Massive Action?

Massive action in the personal finance world is when you spend a short amount of time to implement a major change to your life which from that point on results in a bigger income, lower costs, and/or more free time.

It is an event, rather than a lengthy process – though it may be followed by continuous action such as starting and then managing a business. Massive action instantly changes everything about your money making potential or return on investment. Massive action might also be a restructuring of your working life which results in you having more free time to work on your life goals.

The End Goal

So how will taking massive action result in you getting rich? Your end goal might be to massively increase the income you earn from your 40 hour work week. Or, maybe you’ll slash your expenses so much that you can retire a few years earlier. Maybe you’ll engineer a shorter work week, making more time for family and friends. Or, maybe… you’ll establish multiple income streams.

This last one is the secret that sets the rich apart from the working and middle classes. Nearly everyone in the UK has just a single income stream – their job.

They may have a few quid from dividends or interest trickling in each month too from savings accounts and investments, but because no massive action has been taken these pots are small for most people, and the income insignificant compared to their wage.

Having several income streams in addition to your main wage, each providing at least a few hundred quid to your total income, is all but guaranteed to result in you becoming rich.

Let’s now look at the practical bold money actions you can take to initiate this change and rocket-power your wealth.

#1 – Reset Your Primary Income Stream

Before you get started on building multiple income streams, first focus on your main one. If you’re not satisfied with what you’re earning from your job or maybe you’re having second thoughts about your career choices, then it might be the time to hit that reset button.

Usually, changing jobs alone isn’t enough because you’ll probably end up in another one with similar pay to what you’re already on, in a similar field to what you’ve done in the past. Your CV will allow little else.

Instead, consider abandoning your current career path altogether and going through the short-term pain of retraining. Unless you’re passionate about your job it’s unlikely you’ll ever rise to the top anyway. Your massive action in this regard might be paying those fees for a new degree or professional qualification.

As an example, someone who puts themself through a professional accountancy qualification can make around £40,000 on the day they qualify.

If you’re stuck in a lower paying career, signing up to a professional course like that could mean you make significantly more money going forward for the same number of hours worked each week.

On the flip side, it’s just as bold to scrap a qualification that you’ve already earned, in favour of taking a different path. We both did this, choosing to end lucrative careers in order to strike out on our own with this website and our YouTube channel.

#2 – Start Your Own Venture

You’ve heard us preach the virtues of starting a business or side hustle before, so all we’ll do here is remind you that this can be an excellent second income stream alongside your main job. Quitting your job is optional, once you’ve built your venture large enough.

As such, we believe most people would benefit from having a side hustle, especially if you can monetise a hobby. In fact, in the UK, 1 in 4 people do have a side hustle, and have already taken the massive action to set this up, contributing an estimated £72 billion to the UK economy.

Some of these hustles will be true businesses capable of going to the moon, and some will just be second jobs. But if you enjoy what you’re doing and are making extra money then it’s all good. Some practical steps you can take to make sure that you commit to the idea of a side hustle are as follows:

[1] Register your new business as a limited company on Companies House. The act of making it official may seem inconsequential, but it makes it feel real and exciting, and gets the ball rolling.

[2] If your business idea requires you to learn new skills (which it will), go all in and sign up to a proper course that teaches those skills.

Maybe you want to learn carpentry, so you can make and sell furniture on the side. When you hand over your money and attend the course, you’re far more likely to make a success of it than if you just bought a book or watched some free videos on YouTube.

[3] Announce your services to the world. You should be making good use of all the local Facebook groups in your area to tell the world about the service you’re offering. All your friends and family will know, and it will be harder to go back.

If your service isn’t confined to the local area, find the time to build a website.

#3 – Materially Downsize Your Outgoings

The amount you can invest each month is significantly affected by your outgoings too. But trimming a bit of fat from your household budget is unlikely to make that much of a difference.

There are, however, perhaps 2 main expenses you need to focus on that can be vastly reduced with massive action, improving your savings rate and future wealth.

These 2 areas are cars, and housing. Starting with housing then, you can save hundreds of pounds a month and many years off your mortgage payments if you were to move to a cheaper city.

Londoners could more than halve their housing costs by relocating to Manchester. Residents of leafy Cambridge could have a similar lifestyle in York, again for a fraction of the price.

Regarding cars, there are a few actions you can take to slash hundreds of pounds a month from your car expense.

  • If you’re a multi-car family, drop to one car. Even the most basic of cars costs at least £200 a month, and often more once you factor in insurance, tax, depreciation and maintenance.
  • If you’re leasing your car, stop doing that! Buy a second-hand car instead. Even a 3-year-old equivalent model to your current lease car will save you a fortune.
  • If you drive a BMW, Mercedes, Audi, Tesla or other top-end car, trade it in for a Ford or a Kia. You can invest the difference, and it won’t cost so much to service.

#4 – Get A Lodger

While this probably fills most homeowners with dread, getting a lodger is not a permanent fixture – if you don’t get on with them, you can ask them to leave. But they CAN bring in £400 or more a month in passive income – I once enjoyed this boost to my income for nearly 2 years.

#5 – Investing Action

Starting to invest in the first place can be a mental leap too far for some. This won’t be an issue for many of our viewers who have already taken massive action in opening their first investment account, but for many people it’s a big psychological hurdle to overcome.

We suggest starting out by putting a material, yet losable, amount of cash into an investment account, which might be a couple of hundred quid. That first deposit is like breaking through a mental wall.

I remember my first investment well. Other than a brief dabble at age 16, I had done nothing until around 6 years ago, where in a moment of inspiration whilst chilling in a holiday cottage I decided enough was enough, opened a Stocks & Shares ISA, and whacked £500 into a stock market fund.

This action spurred me to then properly research what it was I’d just bought – it was something undiversified and expensive like a managed fund – but this was how I began investing like a pro, from that first leap forwards.

Most people do already invest, though they may not realise it, because their pensions are invested in the stock market. But the quality of the investments in a workplace pension, as we said before here, are often substandard.

You could potentially increase your retirement wealth by hundreds of thousands of pounds by simply taking a weekend to understand what your pensions are invested in and moving that money into better and more suitable funds. You might also want to perform this exercise on your Stocks & Shares ISA if you have one. Here’s some videos to get you started [How To Build The Perfect Vanguard Portfolio & The Ultimate ETF Portfolio – Low Fees, Low Taxes, High Returns!].

Wealthier investors might choose this next year to be the one where they add a seriously high returning asset to their portfolio – a buy-to-let property.

I’ve taken massive action 4 times now with buy-to-let – buying one isn’t as simple as buying a stock. The cash profit I earn monthly from my 4 rentals brings in at least an extra grand of income each month. More information on my property strategy here.

#6 – End Relationships

A controversial one perhaps, but sometimes the relationships you have with partners or friends can be holding you back from achieving your potential. With regard to partners, their financial priorities may not be in line with yours.

Maybe they are a big spender. Or maybe the two of you have conflicting life goals, such as financial freedom and travelling the world at age 40 for you, versus work and a community-based life for her. Is it time for a fresh start?

Likewise, if your mates like to blow their wages and waste their weekends and are dragging you down to their level, then maybe it’s time to find a better network as you are the average of your 5 closest friends.

#7 – Master Good Debt

The massive action which started my rental property portfolio was doing a low interest equity release on my own house for some 50 grand, which was added to my home mortgage. I stand by my assertion that it was the best thing that I’ve ever done, and was the single biggest influence on my wealth today.

I’d go as far as to say my wealth would be a third the size that it is now, if I hadn’t taken on good debt to buy investment assets with.

#8 – The Big Clear-Out

Andy (MU co-founder) has just moved house and has realised he had a tonne of stuff that was clogging up his space and mind. So, recently he’s been selling all his possessions on eBay and Facebook, minimalist style. Well ok, not all his possessions – just the stuff that is surplus to requirements. Most of which was just gathering dust in the loft anyway.

There are 3 financial benefits:

[1] There’s less stuff to distract him from the job of making money.

[2] Less time and money goes on replacing or maintaining stuff he didn’t need when it breaks.

[3] He’s making over a grand, which he could invest.

#9 – Claw Back Time From Your Employer

As we’ve stated, you can and should also take massive action to free up more of your time. This time can then be used to implement some of the big-money actions we’ve already covered.

There really is no need to work 5 days a week, every week, without pause. Why not arrange a 6-month career break like Andy did, or drop a day and go part-time to 4-day weeks, like I did?

The action in this case is to give your boss an ultimatum. You need to tell them that this is what you want to do, and if they can’t make it work, you will have to leave. Always be prepared to walk away and find another employer who can give you what you need.

What bold steps have you made in your life or career? Join the conversation in the comments below!

Written by Ben

 

Featured image credit: Ollyy/Shutterstock.com

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

Why Is Getting Rich So Difficult?!

Almost everyone wants to make more money and get rich, but it never happens for most people. In this post we’re going to be looking at why it’s so difficult to get rich and we’ll even throw in some tips on how you can do it.

Amassing and keeping wealth is one of the hardest things you can set out to do – but is it easier or harder to get rich today than it was in the past? We’re also going to give our take on this. Now, let’s check it out…

And check out the MU Offers Page here (including £50 cash bonuses, FREE STOCKS from Freetrade and Stake, and Stockopedia 25% discount & FREE trial).

Alternatively Watch The YouTube Video > > >

What Is Rich?

Although most people dream of becoming rich, most of us have never given two thoughts as to what rich actually is! It’s probably fair to say that most picture being able to buy luxury items like yachts and fast cars without batting an eye. That is certainly on the rich scale but where is the threshold that divides ‘not rich’ and ‘rich’?

Everybody will have their own definition, but we define rich as the ability to live comfortably without having to work, as your lifestyle is funded by assets you own – what we call financial freedom or financial independence. High levels of financial wealth provide wealth of time and better health (in theory).

Why A Job Probably Won’t Make You Rich

We’ll keep this section brief as we’ve done enough job bashing over the years, but the fact of the matter is if you want to become rich it’s unlikely that a job will suffice.

Most jobs don’t remunerate you enough to achieve wealth in a short amount of time. Even in a well-paid job it often takes a few decades to squirrel away enough to quit work. Having a high income without free time is not rich by our definition.

Moreover, the chances are that you didn’t start out in that high-paid job. It usually takes a significant amount of time working your way to the top, so even when you achieve the job that pays well it will take years of continuing to work before you can enjoy the fruits of your labour.

Doctors for instance spend around 10 years studying and training before they get a real doctor’s salary. After a decade, their financial journey is only at step 1.

So, in essence while you can eventually become rich slaving in a job, it will take more time than most people are understandably willing to give.

Can Investing Make You Rich?

Investing in the stock market is often considered to be the only sure-fire way to get rich by a lot of people. But there are two major problems: Most people are not investing enough, and the compounding effect takes years if you don’t have much money to start with.

Here’s a quick and realistic example of building wealth through investing:

We think financial freedom is achieved for a single person once they have around £30,000 annually in passive income, and therefore need an investment pot of around £750,000. This can be achieved by investing £500 a month, earning 8% returns, less 3% inflation, increasing the monthly contributions in line with inflation, and investing for a little over 33 years. And herein lies the problem; that’s a long game for most people to play.

This leads many people to try and take shortcuts, which only worsens their financial position. Short-term trading without the skills to do it will likely hurt you. We’ll probably get hate for this one but speculating on crypto or meme stocks is essentially gambling. It might make you rich…. possibly, but it’s not comparable to a safe, steady, and boring index investment that has a long historical record of success.

To sum it up, investing will make you rich eventually, or at the very least will make you richer and more financially comfortable. And additionally, investing is essential for staying wealthy – no matter how you make your money, whether it’s a job, a business, an inheritance, or whatever, that money needs to be invested otherwise you might not be rich for very long.

You’re Too Busy Firefighting To Get Rich

If jobs don’t cut it, hopefully we’re in agreement that owning a business is your best chance of getting rich in a short timeframe. However, starting a business seems like an impossibility for many because the journey is fraught with problems and risks.

The biggest problem of all is most people are living permanently close to the breadline and are too busy firefighting on a day-to-day basis. Their focus is on covering their immediate living expenses, such as keeping a roof over their family’s heads, so that they have zero spare time to ever invest in a business or side hustle that ultimately could change their life.

If you’re working a full-time job or even two jobs just to survive, even if you have time in the evenings, your best mental energies have already been spent. If you’re going to build a successful business, it’s going to require enough of your quality attention.

You might even have other responsibilities, like children or elderly parents to care for, which makes working on a business near impossible.

Very few people are willing to put in the work and make the sacrifices. When you’re young it takes a special kind of person to neglect friendships and relationships to focus their time on a business, especially if they’re working another job in the day. As a parent would you be willing to miss your kids Sunday league football game or school play? Most would consider that too much of a sacrifice!

One solution to this problem is to concentrate on your career a little longer and work towards a promotion and a payrise, and then with the increased pay aim towards going part time to perhaps a 4-day week. This new free time can be reinvested into a side hustle.

I did this but Ben (MU Co-founder) went even further, going from 5 days to 4 days to 2 days to none. But he also invested in rental property, which gave him a small secondary income to supplement my reduced salary. He established the rental properties with a mixture of existing savings and remortgaging his home mortgage to extract a significant wad of cash. Learn more in this post.

Need Money To Make Money?

In an extension to the previous point, most people don’t have the finances to fund a start-up business, but lack of finances may not be the dream killer in the way you think it is. You regularly hear the excuse from those that never do it, “that it takes money to make money.”

Having ourselves started a small business we can safely say this isn’t completely true although money does make it easier and certain types of businesses might be unachievable without a larger budget. Although, even when money is required, a good business will attract funding from outside sources if you make it happen. But crucially many businesses are possible on a shoestring.

A lot of businesses can be started with just a tiny sum of money and a lot of your time. The real financial problem is how to find money to live on while your business is in its infancy and not producing enough profit, if any.

Personally, we ran our business as a side hustle until it started producing a moderate income. Now that we’re running the business full-time, we have no choice but to draw a salary and dividends, but we know this is financially handicapping our business, hence why it makes getting rich so difficult.

If we happened to be on Dragons Den, we would be condemned for doing this, but we have no idea how the Dragons expect the entrepreneurs to live without any income.

Psychological Fear Of Losing Money

Most people fear losing money, which is why they avoid investing. There is a culture in the UK, encouraged by poor education, that pushes people to take safe harbour in a bank account rather than risk their money by investing it.

And if investing in public stocks is seen to be too risky, then spending money on a business is close to impossible for most people mentally. Even when you opt for starting a business on the cheap it will require a little upfront investment and reinvestment of profits.

It’s understandable to fear start-ups as each and every penny spent could be throwing money away if it doesn’t result in increased revenues. The worse your financial situation the more difficult it becomes to make the required investments.

No Mentors & No Connections

Wealthy people seem to be as rare as unicorns. People tend to hang around with similar people to themselves, which makes it difficult if you’re trying to break into the elite group.

If you want to achieve something in life, whatever that might be, it’s wise to take note of how other people achieved what you want and to replicate their success. Whatever you’re trying to do, someone has walked a similar path before.

A mentor will be able to show you the ropes, will guide you, and will likely be able to connect you with the right people. If we use another Dragons Den example, many of the entrepreneurs give away huge amounts of equity – not necessarily for the money but for the experience, guidance, and connections of the Dragons. The Dragons might be able to get them a crucial meeting with a key buyer that could supercharge their business overnight.

If you’re like us and unfortunately don’t have any personal mentors, then take advantage of the experts that are publicly operating in your space. Everyone these days is sharing their knowledge online. Love him or hate him, the best mentor available to us was Robert Kiyosaki, who spoke to us through the book, Rich Dad Poor Dad.

Wealth Is In Houses

In this post we reported that most wealth in the UK is stored in property and pensions. We all know that property prices are increasingly becoming more expensive and that the housing market is excluding those at the bottom, which only widens the rich-poor divide.

It’s not uncommon for someone to say that their house earned more than they did in any given year. Although there are some advantages to renting, generally you will be better off financially if you own property.

The longer you are not on the property ladder the more difficult it becomes. If your salary goes up 10% from £25k to £27.5k, but house prices also go up 10% from £250k to £275k, then your goal is forever out of reach because banks won’t lend to you beyond a certain salary multiple.

Lifetime ISAs are potentially a good way to save for a house deposit as the government will top up your contributions by 25%. Check out the Lifetime ISA guide for more info and the best providers.

Business Taxes

Tax is obviously necessary to run a country, but small start-ups need tax breaks to get off the ground, which are few and far between.

Individuals get a personal allowance, which protects their first bit of earnings from being taxed, but limited companies don’t get a tax-free allowance. They incur 19% corporation tax from the first tiny bit of profit, which is demoralising. You’re trying to get the wheels turning and the government are pushing you back in the wrong direction.

Has Everything Already Been Invented?

Now for a couple of counter points. Funny man Karl Pilkington said, “we’ve run out of new inventions cos everything has been invented.” He said it was so much easier in the past because as soon as you needed something, that was a new invention as it didn’t exist yet. In one of his TV shows he said something along the lines of if you have a bowl and wanted to scoop food from it you would have invented the spoon. It was that simple!

Karl is a comedy genius but he’s forgetting in this case that today the rate of innovation is only increasing, which means it must be getting easier. You may well be watching this video on a little device that fits in your pocket, can communicate with anyone on the planet and gives you the world’s information at your fingertips.

Access To Suppliers, Customers, Jobs, And Information Is Better Than Ever

Those inventions – being a phone and the internet – have also made the world smaller. For those that choose to, you can locate a supplier or manufacturer who could bring your idea to life. This is a quick Google search away, whereas in the past we can only imagine this came at great effort and expense.

You can take niche ideas and reach your customers globally. Ideas that were impossible before because of a small local market that didn’t offer enough demand have now become viable. No longer do you have to waste money on untargeted advertising, which ultimately failed, when you can now pinpoint your exact target audience… and it’s only getting better.

On the jobs front, we all have better access to education than ever before. Although, we still think there is a long way to go in making education affordable it’s undeniable that higher education boosts earnings as evidenced by data provided by the ONS.

For those educated to an A to C grade GCSE standard, gross annual earnings level out at around the age of 30 at an average of £19,000. For graduates, their annual income rises at a rapid rate as they get older, before plateauing around the age of 39 at an average of £35,000. The key to turning this into wealth though lies in investing what you’ve earned.

Why do you think getting rich is so difficult? Join the conversation in the comments below.

Written by Andy

 

Featured image credit: Fida Olga/Shutterstock.com

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

Does Being Fat Make You Poorer?

Every study into the connection between wealth and health looks at it from the angle of how wealth impacts health – how being rich or poor affects your fitness and longevity. We want to know if it works the other way around too – does being physically fit and healthy improve your ability to make money? Do the statistics support this?

And if there is an element of cause and effect between getting fit and getting rich, is it due to you gaining increased money making abilities… or is it due to other people such as potential employers giving you more opportunities if you’re in good shape physically?

In this video we’re finding out if a good diet and regular exercise leads to financial rewards. Let’s check it out!

Talking of sport and exercise, if you want to increase your monthly income, why not try your hand at Matched Betting. It’s a step-by-step technique to profit from the free sports bets and incentives offered by bookmakers and could make you £500+ every month for less than an hour a day of effort. You don’t even need to know anything about sports, as bets are placed on both possible outcomes, for a guaranteed win. Check out our guides to find out more and for the latest offers.

Watch The YouTube Video > > >

Written by Ben

 

Featured image credit: Ollyy/Shutterstock.com

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

Is Gen Z Being Cheated? Do THIS Or Be Left Behind

Much has been made of the financial gap between the young and the old. From house prices, to rents, to taxes, to university fees, to the changing demographics of the country, and even the response to the pandemic – all seem uniquely designed to screw with young people.

In this post we’ll be laying out all the perceived ways in which Generation Z are being cheated by the system. Then we’re going to fact-check that narrative and see if there are any ways in which Gen Z is actually better off.

Finally, we’re going to look at the actions that you need to take NOW to avoid being one of those left-behind. Let’s check it out!

First up: Commission-free trading platform Stake (the go-to investing app to buy and sell US stocks) are giving away a FREE US stock worth up to $150 to everyone who signs up via this offer link and then funds their account with £50 or more within 24 hours. Don’t forget to claim yours!

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Issue #1 – Housing

The biggest planned shake-up of planning laws for 70 years has just been abandoned after a backlash from government backbenchers and their older home-owning voters. Reforms designed to help hit a target of 300,000 new homes annually by the middle of the decade will be watered down.

Planning reform is just one solution to the housing crisis that’s causing misery to so many young people who are unable to afford their own home. When reforms like this are cancelled it just compounds the problem.

Where 19% of 25-to-34-year-olds were private renters in 1997, that figure was 44% in 2017. And those aged 35-to-44 are three times more likely to be renters than they were 20 years ago.

Another problem with housing is that there isn’t enough stock of good, 4-bed-plus family houses.

The blame for this is often laid at the feet of the old, who continue to live in castles too big for their needs after their kids leave home, while young families are forced to live in new-build cardboard boxes.

But the true fault lies with the government. Their stamp duty tax on house purchases actively punishes people who choose to downsize.

An older couple choosing to help out the younger generations by moving out of their £500,000 4-bed house into a £350,000 2-bed face an immediate stamp duty tax payment of £7,500. It’s not surprising that they choose not to do this. The tax system is therefore structured to limit the availability of family houses for young people.

Regarding rising house prices and rent prices, are they ever going to stop? A decent-ish 2-bed flat in Birmingham rents for around £1,000 a month. How can a small cube in an apartment block cost so much?

The situation is echoed across the country, with people forced to pay ridiculous prices for substandard living conditions.

At our age, our parents’ generation were all about 10 years into paying off their mortgages on big houses.

Fact Check

Which really matters – house prices, or how much your mortgage payment is each month? The fact is that interest rates were much, much higher in the past.

We’ve taken the inflation adjusted average house prices going back to the 1970s, and worked out from the Bank of England base rate in each of those years roughly how much a family would be paying for their monthly mortgage, in today’s value of money:

Surprisingly, the current generation is living in one of the BEST times to buy a house, in terms of affordability, thanks to record low interest rates since the 2008 financial crash. People in the 80s, 90s and early 2000s had it much, much worse.

And looking next at the inflation adjusted house prices in isolation, though Gen Z really does have a deposit problem, it’s not a unique one – equivalent inflation adjusted prices were previously seen in the years before the financial crash:

Issue #2 – Taxes

Young people don’t seem as annoyed as they should be about ever-rising taxes – those who came before them didn’t have to pay anywhere near so much.

The tax burden right now is the highest it’s been since 1948, at 35.5% of GDP, and it’s expected to rise further before the next election. The trajectory since the 90s has been a steady upwards climb, and the government has big spending plans for the next decade that will need more taxes to pay for them, such as going green and ‘levelling-up’.

Tax is paid predominantly by those of working age. Pensioners, who are the ones who actually vote, tend not to tolerate big tax rises on their wealth.

Indeed, in a policy representative of the age divide, the government is hiking National Insurance taxes on younger, asset-poor workers so that the social care of older, asset-rich people can be funded without those retirees having to part with their wealth or insure themselves against the costs of care.

As the Resolution Foundation noted, ‘a typical 25-year-old today will pay an extra £12,600 over their working lives from the employee part of the tax rise alone, compared to nothing for most pensioners’. Pension income will not be subject to the levy.

You can double this hit when you factor in that Employers NI has gone up too by the same amount – an indirect tax on your future wage potential.

Fact Check

A counter argument in favour of the elderly holding onto their assets would be that those assets will eventually be passed on to Gen Z through inheritance. Indeed, inheritance may now be the only viable way that the average Gen Z-er can scrape together a house deposit.

But obviously, not everyone stands to inherit so you still have to question how fair this is.

Issue #3 – Education

University has been devalued as an institution. It used to be that only the brightest young minds went to university, and those who went found that it transformed their fortunes.

Now, everyone and his dog has a degree. People working on the checkouts in supermarkets have degrees. Degrees are increasingly worthless. It’s work experience that gets people the best jobs – not degrees alone.

But you still have to go to uni to be on a level playing field with your peers. You have to spend 3 years racking up £50,000 in student loan debt to get a basic job.

This generation is unique in that they almost have to be saddled with debt (which they’ll never pay off) just to get the minimum wage.

Young people suffered the worst financially from the lockdowns in terms of opportunities lost, damaged education, and careers interrupted – the current batch of school and college leavers have had a particularly rough couple of years.

Not only has their learning been disrupted but many of them have been given top grades as no exams were taken – damaging trust in the grading system:

Genuinely clever kids have the same top grades as kids who in other circumstances would have got lower grades. Will they unfairly miss out on places at the top universities as a result of the increased competition?

An obvious issue is student loans, which never existed in the modern form for previous generations. University even used to be free.

There’s no denying that university fees are high, but we don’t believe student loans are as damaging to your finances as they appear to be.

Fact Check

Student loans aren’t really loans: they’re a tax on your income that you only pay if you get a high enough salary, currently taxed at 9% on any income earned over £27k for Plan 2. That “debt” you think is weighing you down isn’t really doing anything of the sort.

The alternative to this student tax used to be to force the whole country to pay for your degree through higher income taxes.

Whether asking 20-year-old cleaners to pay the university fees of 20-year-old students through higher taxes is fair or not will depend on how you think a tax system should be run. There’s an argument that everyone benefits from having an educated population. We ourselves are split on the subject. Either way, the taxpayers would be footing the bill – the question is whether it should be just those with degrees paying that tax, or everyone.

Issue #4 – Changing Demographics

Mass immigration since the 1990s has pushed down wages in the UK. It’s simple supply and demand economics.

There was an almost infinite pool of people willing to take a limited number of jobs in the UK. That’s why you see office workers on close to the minimum wage, and why nobody wanted to be a delivery driver before the current food and fuel crisis. This has made it difficult for Millennials and Gen Z to earn good money from good careers.

Fact Check

Whether due to Brexit, or the knock-on effects of Covid travel restrictions, or both, there are signs that low wages are starting to improve in certain sectors, like truck drivers and brickies. But for as long as there are skilled social care nurses on low wages, the problem won’t have gone away.

What You Need To Do NOW To Not Be Left Behind

Despite a few positive signs, we think it’s fair to say that Gen Z is the first generation in a long time to be worse off than the generation that came before them.

Given this, it’s crucial that young people take extra steps that their parents and grandparents didn’t have to.

Step #1

To address your immediate money issues, you need to stop what you’re doing and reflect on your career. Do you need a better paid job or even a complete career change?

Could starting a business pay better than what you’re making now? One advantage of working for yourself is that you don’t have to split the profits of your labours with an employer.

Or could you top up your job income with a side hustle? Check out our matched betting guides for just one way to make extra money on the side for just a few hours a week.

Step #2

Something you must do is get a firm understanding of your pensions. Previous generations more or less had their retirements handed to them – you must work harder for yours.

Too many people are contributing too little to their pensions. The rule of thumb is that someone starting saving at age 20 should be putting aside 10% for the rest of their working career. Fall behind and you’ll have to pay much more later!

Where you invest your pension matters too. We’ve shown in this previous video how UK workplace pensions are geared towards underperforming investments, often with too little investment risk taken on the part of young people. The result is a mediocre growth rate and much smaller pension pot. We show you in that video how to take control of your own pension funds.

Step #3

Perhaps even more important than your pension is that you get on the housing ladder a.s.a.p, unless you’re happy to rent forever. With house prices growing ever higher, you’re only going to be left further and further behind the longer you fail to prioritise this goal.

If that means cutting back on the new car until you’ve built that house deposit, so be it.

If you know you won’t be able to afford a house for years to come, a good alternative would be putting your savings into investments like stock market funds and gold to protect against inflation. Those with houses already should be doing this too.

Houses, stocks and gold are financial assets, in the sense that their prices generally go up. Everyone who doesn’t own assets will be left behind financially in the years to come. Those who own assets will be swimming with the tide of inflation rather than against it.

Do you think Gen Z is being cheated? Join the conversation in the comments below!

Written by Ben

Featured image credit: View Apart/Shutterstock.com

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

5 Personal Finance Misconceptions Costing You A Fortune

Hey guys, in this post we’re going to be looking at some of the really common personal finance misconceptions that many people believe to be true. Some of these misunderstandings could be very damaging to your finances, so let’s set the record straight today. Let’s check it out…

As always don’t forget to grab your free stocks and free money when you sign up to any of a number of investing platforms and financial services. Check out the Money Unshackled Offers page for info.

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Misconception #1 – You Need To Avoid The Higher Tax Bracket

Everyone moans when the government has their hand in their pocket but it’s evident that many people don’t actually understand the tax system. Worryingly, some people believe that if they earn more money before tax, when they enter into a more expensive tax bracket, they’ll actually take home less.

The misconception is that when you earn over a certain amount and become a higher-rate taxpayer paying 40%, then this tax rate would apply to all your earnings. This is not true in the slightest.

In the UK we use a progressive tax system, meaning taxpayers will pay the lowest rate of tax on the first level of taxable income in their bracket, a higher rate on the next level, and so on.

For example, Max earns £60,000 a year. He gets the personal allowance of £12,570, which is tax-free. The 20% tax bracket currently applies to earnings between £12,570 to £50,270 or in other words the first £37,700 that exceeds the personal allowance. That means Max gets taxed at 20% on £37,700 and 40% on the next £9,730 earned.

For those who aren’t as fond with numbers as we are you can bang earnings into tax calculator, like the one at thesalarycalculator.co.uk, and it will tell you the amount of tax that will be paid.

Even if you don’t fully understand the numbers, it’s important to understand how the tax brackets are applied. Some people are even avoiding overtime or promotions because they think it will cause them to take home less.

If you’ve seen our videos or posts before when we’ve stated that’s it’s not worth working more, generally we mean that after income tax, NI, pension, and student loan deductions, the money earned is too small to be worth our limited and precious free time for the extra effort. But crucially, that overtime would result in more take-home pay.

Misconception #2 – Weddings Have To Cost A Fortune

According to hitched.co.uk the average cost of a UK wedding is £32,000. They surveyed over 2,800 couples to get to that eye-watering number. As someone who values their free time so highly, I cannot understand how that is the average cost of a wedding in the UK, which would take years of hard graft in order to save up for.

We reckon a couple could travel the world for more than a year and still have change to spare – some could probably travel for a few years on that budget and have the time of their life.

Alternatively, that’s a sizable deposit that could have gone towards their dream home. Or for those that want to set themselves free that is a very good-looking retirement pot that could easily grow to be worth more than £100,000 in just 25 years. And as for those taking on debt to get married… tut tut.

417) wedding expenses

Above are the top 10 expenses for the average wedding. £5.4k is spent on the venue, £4.6k on the honeymoon, £3.9k on food and another £1.6k on drink. Then you have huge amounts on the ring, dresses, photography, and on and on it goes.

Money Saving Expert have a useful article giving tips on how to slash the cost. We won’t repeat it all here, but one interesting point is that you can get an all-in wedding reception for £4,500 … at Wetherspoon’s. It includes a three-course meal with wine for 100 people, a DJ, decorations and a wedding planner. And apparently this isn’t just any Wetherspoons, it’s a swanky pub in the heart of central London.

Fair enough that might not be to your taste, but the point is that there are loads of stories of people getting married on the cheap – and in many cases for even less than the cost of a swanky Wetherspoons reception.

As someone who doesn’t particularly care for weddings, before even spending a penny I’d encourage you to first consider whether you’re getting married because everyone else does or whether you actually want it. Sounds obvious but many people are too busy going through the motions and following society’s life plan that they never consider what they actually want.

Misconception #3 – I Can’t Retire Until I’m 65+

This is a two-pronged misconception. Many people believe that they cannot retire until they are at least 65 when they qualify for the state pension – and also that they will need to top this up with a workplace pension, which they assume to be the only way to privately save for retirement.

Our regular viewers who have a keen interest in investing will know this is not true at all. You can retire whatever age you please and this could be 20, 30, or even 40 years before the state dictated retirement age.

The state pension dates back to 1908 and was originally reserved for those who were 70 but back then life expectancy was short. Only 24% of people reached State Pension Age and of those the average life expectancy was a further 9 years. Basically, the government was paying barely anything out.

Fast forward to today and people are drawing on the state pension for 20+ years, which is a huge and possibly unsustainable burden for the government. The state pension cannot be relied on still being around to fund your retirement when you get to your 60s.

You must save for retirement privately and if you use the right savings vehicles, you can start drawing down on your retirement pot at whatever age you like. The only caveat is you must build it big enough to out survive you.

Anecdotally, most people give no consideration to retirement planning other than saving into a matched contribution workplace pension. In the rare cases of having a good salary and a generous employer making big contributions this could be quite a chunky pension that allows you to retire in your mid to late 50’s, which is the earliest a pension can be accessed. Unfortunately, for everyone else, retiring in your mid 50’s is unlikely unless you actively plan for your retirement.

Crucially, you can retire even younger than this if you prioritise your future and utilise a variety of other wealth building tools. Someone that saves £500 a month for 30 years could quite easily have a retirement pot in today’s value of money worth £600k, allowing a 20-year-old to retire at 50. This can be done using a combination of a pension and a Stocks and Shares ISA, which allows you to access the money at any age.

Another powerful retirement wealth builder is buy-to-let property and there are no limitations in what age you can access any income that it generates, nor any restrictions of when you can sell the properties to release your wealth. Obviously buy-to-let property is not easy if you do it all yourself, but the gains can be life-changing.

Check out this post next if you want to see a worked example of how much profit property can produce by having someone else do all the work for you and find out how you can get help starting to invest.

One further way we’re growing our wealth fast is the use of spread betting to invest in S&P 500 futures. Here we explain exactly what we’re doing. Very briefly, we’re using leverage to earn mega tax-free returns that can be accessed with no age restrictions. It’s a super complicated subject, so tread carefully with this one.

Misconception #4 – Buying New Is Always Better

Whenever you buy something that you want are you guilty of always buying new? There’s a misconception that used items are old, tired, and trampy. Hands up, for most items I’m guilty of overpaying just to get my hands on a needlessly brand-new item.

But there are numerous times when buying used items gets you almost as good of a purchase as new ones, but for significant cost savings. The most obvious one is a car. Some used cars are in such good nick that they still have that new car smell.

Other items where old is almost better than new include exercise equipment. Many people buy these items with the intention of starting a get fit and healthy regime but fall off quickly and then try to unload these bulky goods that take up too much room. You can then snap up a bargain!

With items like dumbbells, you can even resell later for a similar price to what you paid on the second-hand market, so they effectively cost you nothing during the time you owned them.

Many things that your kids need can also be bought used for considerable cost savings, especially when your kids are far too young to even notice or care. A brand-new pram can cost hundreds or even thousands of pounds but buy used and it can cost less than £50. Trust us, your kid(s) won’t even notice.

Used furniture is another huge cost saver. I’ve cleared a few things recently to make room and have been selling them at almost giveaway prices, for items that are in close to perfect condition. Understandably, for those of you like me who are still a little snobbish when it comes to new items, maybe you can buy used for things you won’t use that often. Outdoor furniture is a prime example of something that you will only use twice a year, but you can save a small fortune by buying used.

New build homes are also often worse than older homes. Forget the new-build premium, which is another problem – we’re talking about build quality here.

Properties these days are thrown up in no time with poor quality workmanship and corner-cutting. They are also super stingy with space, trying to pass off cupboards as double bedrooms. Older properties – even those built just 15 years ago – are usually far bigger with additional space for stuff that is often overlooked when you’re shopping around; things like storage space.

Misconception #5 – A High Salary Makes You Wealthy

The average person on the street – and the government, and the banks – thinks a high income from a job means you are wealthy, but there is fundamental difference between income and wealth. Wealth – when managed right – should be permanent savings. But salary income is the money you earn and often disappears as fast as it comes in.

A smart person will slowly turn income into wealth by investing wisely over time. Conversely, a dumb person with wealth will run it down to zero.

Wealth is how much assets you have. For example, a pensioner living in a house valued at £1 million is wealthy, even though her pension brings in a tiny income of just £100 a week.

Moreover, not all wealth is the same. In our example, although our pensioner has £1 million in wealth it is in an unproductive asset meaning it’s not producing any income. Income generating wealth is superior and includes the likes of businesses that you own and investments you have.

People tend to be interested in how much another person earns in their job but cares less about their wealth. It should be the other way around.

Someone who earns £100k a year from their job but blows the lot will work every day until they die. But someone who has financial wealth of £500k held in productive assets and only lives on the £20k a year generated from their investments theoretically never needs to work another day in their life.

Furthermore, a high wage income can be taken away from you at any moment. You could lose your job and may find it impossible to get another paying anywhere near the same. This frequently occurs in older age.

Most professionals should expect their pay to peak between the ages of 40 and 49, according to earnings data from the ONS, while salaries fall to their lowest level during their 50s. Or to put it more succinctly, you have got to turn income into wealth before it’s too late!

What personal finance misconceptions do you think are most common? Join the conversation in the comments below.

Written by Andy

 

Featured image credit: Ivelin Radkov/Shutterstock.com

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

The 7 Biggest Money Lies We Tell Ourselves

When it comes to your finances have you ever told yourself a little white lie to justify spending, going into debt, or simply not saving, or made excuses why you haven’t done something when you know you should have? In today’s post we’re looking at the 7 biggest money lies we all tell ourselves.

It doesn’t matter how good you are with money; we reckon everyone tells themselves these money lies to some extent. Let us know down in the comments if you’ve been telling these porkies to yourself. Now, let’s check it out…

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Lie #1 – I’ll Be Happier When I Have £x

Some research done in the US from 2010 showed that people tend to feel happier the more money they make only up until the point that they earn about $75,000 a year.

Once your basic needs are met, more money will not make you any happier. The major issue we’ve identified with money and happiness studies is that they always seem to intertwine the concept of more money with more work.

This is the trap that we see so many professional managers up and down the land fall into. You’ve only got so much time, so giving away all of it to your employer in the pursuit of a little extra money is clearly going to have a negative effect on your happiness. If you’re not happy with £40,000, then you won’t be happy with £50,000.

Anecdotally, most people we speak to say they were at their happiest when they were in school and at university – times in their lives when they had little to no money.

Ben and I (MU cofounders) became mates at university and while there we had an awesome time, and in a single year we each must have lived on less than £10,000 a year to cover rent, bills, food and living costs. Lack of money certainly didn’t make us unhappy.

In the years following when we had to endure soul crushing work, our colleagues and managers couldn’t understand why we pursued shortened workweeks for less overall pay, when they and everyone else only ever wanted more and more money.

We think that once you earn £40,000 or more in the UK, then it’s not worth working longer hours to earn any more. At that point you need to think about earning more time to do things that interest you – new hobbies, spending time with family, rest and relaxation, or whatever you like.

Ideally what you want to do if possible is to break the link between your time and how much money you earn.

Lie #2 – I’ll Start Saving Later

Most people know they need to either start saving or save more but they convince themselves that everything is ok – they will “start saving later”. Deep down they know that if they are unable to put a few quid aside now, how on earth will they do it in the future? Their financial life is likely to get harder – not easier.

Some people are living with their parents and literally have no bills and yet still haven’t saved a single penny.

People move on to have expensive kids of their own and buy bigger and bigger houses – you don’t see many 45-year-olds downsizing to 1 bed flats. Also, once you have become accustomed to a more expensive lifestyle it’s extremely difficult to go backwards, which you’ll likely need to do in order to start saving.

As we mentioned we loved our no-frills student lifestyle, but I could never go back to living like that. My expectation bar is now set way too high. Ignorance was bliss.

Just recently I’m annoyed that my new flat doesn’t have soft close toilet seats as that’s now what I’m used to. I know that sounds ridiculous when said out loud, but my standards have been raised. These won’t be that expensive to replace but it’s just one example of lifestyle creep that individually is so small that it’s barely noticeable. Now, multiply it across your entire life!

Most people are no different, so if you’re young start saving now before you raise your expectations, and if you’re a little older you may just have to bite the bullet, slash some expenses, and find a way to save now.

And if you’re still BSing yourself, saying that you don’t need to worry about retiring because you’re only in your twenties, you need to understand that money invested now is worth way more to your retirement than money invested later.

If a 20-year-old invests £100 a month for just 10 years and then stops contributing but allows the pot to continue growing until age 70, earning 8%, their final pot is worth £444k.

But if somebody else elected not to save a penny in the first 10 years and then invested £100 a month for the next 40 years, they would end up with just £349k, almost 100k less despite 3 decades of extra saving.

Lie #3 – It’s The Government’s Fault

We’re guilty of blaming the government for many of our and society’s money problems. While we truly believe that their financial mismanagement is indeed creating problems for everyone, they are not the underlying reason for everyone’s money difficulties. The government often make things harder but not impossible!

Constant tax rises and red tape really does grind our gears because it makes life so much more difficult for everyone but let’s be honest, we are still able to keep enough of our money to make it worthwhile earning more. And we all have the capability to make a boat load of cash if we work harder, smarter, and do what other people won’t. Our hypothesis is that most people don’t have the drive to earn more. Simple as!

We live in an age that allows us to access the world’s information at our fingertips. We can learn about any subject imaginable for either free or a very small fee. We can also connect with recruiters, business contacts, suppliers, and everyone else, anywhere in the world, with ease, at any time, in any language. No longer are we confined to traditional working hours either, so you are able to hustle when it’s convenient to you.

One of my favourite success stories is that of Phil Knight, founder of Nike. He started the shoe company by flying over to Japan and somehow negotiating with foreign speaking suppliers. He then had a torrid time dealing with a banking system that didn’t lend back then. Looking back this seems like it was impossible.

Today we have it so much easier, and the government don’t prevent us from being successful.

Lie #4 – Everyone Does This, So It’s Okay

This is a really common lie to tell yourself. There seems to be a herd mentality for getting in deep money problems. It’s the equivalent of being happy with an average BMI, which in the UK is 27 – or in other words still overweight!

And just because everyone else has chosen to jump into a money cesspit doesn’t mean you should follow them. So, what are we talking about exactly? Massive car payments, luxury holidays, expensive unnecessary tech, too many nights out, excessive monthly subscriptions, needless patio furniture, and branded clothes and accessories you don’t need. These are just some of the many ways people blow all their money away.

It really is a case of just copying everyone else despite knowing that you can’t afford it. Over time these unnecessary expenditures become almost essential. For example, how many monthly subscriptions do you have?

These are services that just a few years ago didn’t even exist but as everyone buys them you must have them too. A few years ago, we bet most people didn’t even spend £120 a year on music but today we all have subscriptions to Spotify or Amazon Music spending exactly this. By the way we’re not preaching to you; we’re probably as bad as the next guy and there’s no way I’m cancelling my music subscription.

If you do want to start resolving the problem, we suggest first tackling the easiest and most profitable win. Don’t fall into the monthly car payment trap. The car industry has somehow duped people into the perpetual new car cycle every 2 or 3 years. Just because everyone else does this and chooses to be broke doesn’t mean you have to. They can choose image while you choose wealth!

Lie # 5 – I Get Paid Well, So This Crappy Job Is Worth It

This is a really sad one because we’ve seen so many older workers in this trap. Literally decades away from retirement, working a job that zaps their life from them, but they convince themselves they must suffer the same repetition and corporate crap day-in, day-out.

Why do they tolerate this torture? Because it pays well, they are addicted to the pay, and they believe they cannot earn good money elsewhere and/or are afraid of the change.

We always urge people to regularly switch jobs to keep their skillset fresh, their earning power high, and so they can move up the career ladder more swiftly. But inevitably some people choose to stick to the same job for far too long and often become institutionalised.

Some of these workers find themselves on very high salaries that do not represent the market for their experience level, and so cannot leave without a huge salary cut, which most are reluctant to do. This is a dangerous mental predicament to be in!

We don’t have a miracle answer to resolving this problem for you once you’re in the mess. If deep down the job isn’t worth the pain, it’s time to make sweeping changes to your financial life and start pursuing a career or business that gives each day new meaning.

Lie #6 – A Little Bit Of Consumer Debt Is OK

Attitudes to debt have changed drastically over the years and so have the means of taking on debt. Our parent’s generation would have saved up before making a purchase but today it’s the norm to just buy on credit – credit cards, overdrafts, store cards, payment plans, loans, and buy-now-pay-later services.

In fact, although we’ve said the lie is ‘a little bit of consumer debt is ok’ it could be worse than this. Some people are actually bragging about their consumer debt as if it’s something to be proud about and is a badge of honour.

Let’s be clear – consumer debt is never okay because it makes you poorer and usually is offered by stores so you can buy things you can’t afford. Previously we highlighted the lie of ‘Everyone Does This, So It’s Okay’ and this is another perfect example of this.

Just because your friends are using debt to fund a lifestyle they can’t afford doesn’t mean you should too. This debt fuelled consumption is fed by a series of lies including: ‘I deserve the things I want’, and ‘I have to buy it; it’s on discount.’

If you have to borrow to buy something, then we’re sad to say you don’t deserve it as you haven’t yet earned it. And discounts are used by retailers to encourage sales. It’s not the first discount and it won’t be the last. Don’t let a perceived saving influence your buying decision, especially when debt is involved.

Lie #7 – I Can Spend My Savings

While being in debt is super common these days, many of those that are able to stay in the black are never able to grow their wealth any further because as long as money sits in their account it is there to be spent.

Every penny that comes into your life should have a purpose. When you save you should be assigning a reason for that saving. Retirement savings – or as we call it, a freedom fund – should be one pot that you won’t withdraw from until you’re retired, but it’s good practice to have savings pots for big purchases like holidays, cars, and other irregular expenses.

If you don’t do this, you’re lying to yourself as it’s highly likely that you cannot afford to spend your savings. Can you really afford that holiday using your savings if the money should really be earmarked for something else?

Kid yourself for long enough and you’ll fall into debt when an unexpected large expense arises. Moreover, managing your finances like this often means the retirement pot gets neglected the most because it seems like the need for it is the most distant.

Hopefully you’ve found this post interesting and helpful, and don’t forget to grab your free money with InvestEngine and start investing for your future.

What money lies have you told yourself or what have you seen other people do? Join the conversation in the comments below.

Written by Andy

 

Featured image credit: pathdoc/Shutterstock.com

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

9 Things Idiots Do With Money. Don’t Do This.

We’re looking at 9 things idiots do with money. By avoiding these blunders, you will be more financially comfortable, in control of your financial life, and dare we say it – happier.

Please don’t hate on us if you’re doing many of these yourself. We’re obviously using the word idiot in a light-hearted sense, and rest assured that we ourselves have done some of these foolish things with our own money.

There’s a wide range of silly things that people do with their money and in this post we’ve got many different angles covered – from terrible spending habits, saving and investing fails, general finance mistakes, and property mishaps. Let’s check it out…

As always don’t forget to grab your free stocks and free money when you sign up to a number of investing platforms and financial services. Check out the Money Unshackled Offers page, linked to here.

Alternatively Watch The YouTube Video > > >

#1 – All-In On Bitcoin, Tech Or A Single Stock

Although diversification must be one of the most talked about investing concepts, it amazes us just how few people actually diversify properly. Our guess is it’s because diversification is totally misunderstood.

These people tend to throw way too much of their money into Bitcoin, Tesla, or the tech industry, or whatever else has done well recently and give no second thought to a properly diversified portfolio. We know people that are 100% invested in Bitcoin – which is utter madness.

FYI, we’re not hating on Bitcoin. But this seems to be the one asset that even your typical “average” person seems to be investing in, with no knowledge of portfolio diversification, nor of investing generally. The same can be said for anyone who is only invested in a handful of stocks.

Many people hate on diversification believing it lowers returns. Do diversification incorrectly and yes, you will get a worse return – often called diworsifcation!

Diworsification occurs from investing in too many assets with similar correlations that add unnecessary risk to a portfolio without the benefit of higher returns. However, diversifying properly has been said to be “the only free lunch in investing” because an investor can potentially achieve greater risk-adjusted returns.

#2 – Paying Off Their Student Loans (UK Only)

This point only relates to UK student loans as the student loan system here is very unique in that what you pay on a monthly basis is determined by your earnings, not the amount of debt you have. Only in a few specific circumstances is it worth paying off your student loans early.

Most student loans get written off after 25 or 30 years depending on the plan, and most graduates who started uni in or after 2012 will never pay off the debt before it gets written off, so paying off early could be a costly mistake.

Secondly, most people borrow money throughout the course of their lives. They might borrow with a mortgage to buy a house, a loan to buy a car, a business loan to start working on their dreams, and in too many cases they carry very expensive credit card, store card and overdraft debt. It doesn’t make sense to overpay cheap student loan debt, to then have to take out other debt on normal commercial terms later.

#3 – Overpaying Their Mortgage

A mortgage is amongst the best type of debt you can ever have, as it has a relatively low interest rate, and is super long-term (meaning your monthly capital repayments are small compared to the size of the debt). When you overpay your mortgage, you can’t easily get that money back.

Paying down the mortgage early might knock some time off the length of your mortgage-term and the total spent on interest but that’s money that could have been invested and making even more money. For instance, it could be invested in the stock market at an 8% average annual return. You can always overpay your mortgage in later life, if you really wanted to, after you’ve built up some sizeable wealth first.

Ben once whacked £1,000 into his mortgage as an overpayment when he was 27. He’d just bought his first home, and thought it was the right thing to do. Luckily, he soon realised the error of his ways before he sunk any more cash into what is effectively a glorified no-withdrawal savings account.

#4 – Fail To Insure Their Biggest Asset

Insurance always feels like a waste of money when you don’t ever claim on the policy but when the unthinkable happens, you’ll be glad that you were pro-active with your emergency planning.

Financial idiots think that it will never happen to them. They will never get a debilitating illness leaving them unable to work. They will never die at a relatively young age leaving their loved ones unable to cope financially.

Risk statistics - Income Protection Insurance

Here are the risk statistics for a 25-year-old male during their working life. Effectively 1 in 2 people will face a disaster!

We don’t think it’s smart to insure low ticket items like mobile phones but for the big stuff that would shatter your finances if they were to occur, it’s only logical to take out a policy. Everyone rightly does this with house insurance and car insurance. But why not insure your biggest asset? You!

We both have income protection insurance – with Ben’s costing just £17 per month – and he also has life insurance to help his wife and child in case he was to die prematurely.

A while back we did an entire video on income protection insurance specifically aimed at those who want to lock-in their financial freedom today, linked to here – it’s definitely worth checking out!

We also have a little more info on lifestyle insurance here, and you can get a quote from the same company we use ourselves, here.

#5 – Unintentional Saving

A fairly new saving technique that is popular with younger people and many innovative finance apps have introduced is a feature known as round-ups. This is where every time you buy something, the app will round up the price to the nearest pound and automatically save or invest the change.

Savvy savers and investors do not use gimmicky services like this because they know exactly what they can save each month from day 1 as they have budgeted for it – their saving is planned for and intentional.

Secondly, the act of saving should not be linked to how much you spend. A service that encourages you to spend more is not good for your wallet.

And thirdly, from the round-up services we’ve seen, they don’t collect the spare change as and when the transaction happens. Instead, the money is collected weekly or every 2 weeks, so you will have random amounts of money leaving your account when you’re not expecting it – obviously not good for sensible budgeting.

If you are incapable of saving anything and this is the only way that you can put money aside, then don’t let us talk you out of it, but just know it’s far from a sensible saving plan.

#6 – Don’t Prioritise Spending Where It Matters Most

We’re probably all guilty of this at times – I know I certainly am. The fact of the matter is that for the majority of us money is a limited resource, so we need to allocate it to the parts of our life that is most important and where we get the most value. Essentially, don’t spend a lot of money on stuff that you will barely use.

People spend about 8 hours a day or a third of their life in bed, so it makes financial sense to spend money on a good mattress and a good pillow. Recently, I bought an expensive pillow made from Nordic Chill fabric. God knows what this is but now I’m more likely to get frost bite than I am to get hot and bothered in the night. That’s a good thing by the way: I was previously always flipping the pillow over looking for the cold side!

Conversely, Ben may as well have thrown money down the drain when he bought some expensive outdoor furniture, that he almost never uses. Foolishly (his words), he spent more on this than he did on his sofa which he probably sits on every day, compared with the outdoor furniture that he sits on just a handful of times a year in the UK’s glorious weather.

A common money saving tip is to cancel your gym membership, but for some people this could be some of their most worthwhile spending. A gym membership allows them to stay fit and healthy, and for some is a great way to socialise with likeminded people.

How many people are working from home and still sitting on that backbreaking kitchen chair? For them it would probably be a good idea to open the wallet and buy a comfortable office chair. This is somewhere you’re sitting for 8-hour days after all – you only live once, and you may as well be comfortable.

Generally, you want to spend good money on stuff you will use extensively except when cheaper alternatives will offer a similar experience like a used car, rather than a brand new one. And don’t spend much on the stuff that doesn’t matter to you. Sounds obvious but everyone seems to be spending in the wrong places.

#7 – Buy The Biggest House They Can “Afford”

Financial idiots buy the most expensive house they can afford, and to be clear we’re not talking about someone who earns an average salary or less and is forced to buy an expensive house. For low earners they may have little choice – it’s either an expensive slum (as is the state of the sorry UK housing market) or it’s never getting on the housing ladder.

We’re saying that higher earners who chose to cripple themselves with mortgage debt in order to buy the most expensive house they can afford is idiotic. They believe (and are probably right to) that the housing market will continue to rise, and they will benefit from huge leveraged gains.

But your home is not really an asset like an investment is, as your home takes cash out of your pocket. It would make far more financial sense to buy the house they want that is comfortably within their means, and use what’s left of their cash to invest elsewhere.

For example, if these people want to benefit from the housing market, then with the extra money they now have they could invest in BTL property, which has the benefit of putting cash into your pocket and still benefiting from the same leveraged house price appreciation.

#8 – Long-Term Mortgage Fixes

It amazes us that nobody seems to be critical of long-term mortgage fixes such as 5 or 10 years except us. In some rare cases it might make sense, but we can’t think of any. Long-term mortgage deals are a bad idea because life is too unpredictable. These products usually come with higher interest rates than short-term fixes, and with early repayment charges of around 5%. For example, that’s a £15,000 fee on a £300,000 mortgage. Outrageous!

With a timeframe of 5 years anything could happen that forces you to sell the property and incur the wrath of the Early Repayment Charge. You might break up with your partner, you might lose your high paying job, you might want to move up the property ladder, you might want to relocate, you might want to release equity… it could be any reason.

It might seem like locking in the interest rate is a good idea right now but that’s only true if somehow you’re immune to all of life’s curve balls.

If you’re concerned about sudden interest rate hikes, we don’t think this is likely. The Bank of England, who sets the base rate, knows that any sudden large increase would destroy the economy as millions of homeowners would be in deep water. We expect interest rates to rise slowly, giving homeowners chance to circumnavigate any problems.

#9 – Don’t Save Enough For Retirement

The UK’s private retirement savings are in crisis. A few years back the government did a great service and introduced auto-enrolment for pensions. Many good companies were already offering pension plans to their staff, but many weren’t, so auto-enrolment forced these disgraceful companies to do the same.

The problem is auto-enrolment is extremely misleading and even on the government’s own site we didn’t find the truth. Everyone believes that they pay in 4% of their earnings but the hidden truth is that only 4% of qualifying earnings is paid into a pension. This is topped up to 5% with tax relief.

Qualifying earnings is the name given to a band of earnings that are used to calculate contributions for auto-enrolment. For the 2021/22 tax year this is between £6,240 and £50,270 a year. This means on a £25,000 salary you only make pension contributions based on £18,760.

Earning £25k, you would only save £62 a month with a 4% contribution, your employer would only pay in £47, and you get less than £16 tax-relief, giving a total of just £125 per month. According to uktaxcalculators.co.uk that would give an inflation adjusted pension pot of just £100k after 47 years.

That’s better than nothing but not much for a lifetime when you thought you had been saving diligently. You would burn through £100,000 in no time. Most studies suggest you need closer to £400,000 to live a £25,000 per year lifestyle in retirement, and that is assuming the state pension still exists to top it up, which is a big if!

Things get far worse when we consider other savings. According to Raisin.co.uk, the current average savings pot of someone in the UK is £9,633. Those in the younger age brackets have considerably less savings. One shocking figure is that 42% of those aged between 25-34 have stored away less than £1,000. This is financially irresponsible and a ticking time-bomb.

What else do financial idiots do with their money? And be honest – which of these have you done? Join the conversation in the comments below.

Written by Andy

 

Featured image credit: photoschmidt/Shutterstock.com

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

Big NI Tax Rise Rant: How Much Poorer Will You Be?

The UK government is out of money. They’ve borrowed to the hilt to pay for irresponsible spending over the past few decades and more recently to pay for the economically ruinous lockdowns, and with inflation looking to hit over 4% by the end of 2021, interest rate rises are sure to follow.

This terrifies the government: every 1% rise in interest rates would increase the UK’s debt financing costs by another £25bn every year, and it’s already eyewatering at a budgeted £45bn.

With debt exhausted, Boris now turns to taxes to pick up the slack in his ambitious spending plans.

National Insurance is being raised to 13.25% from 12% in just one of many planned tax rises, which the government promised NOT to do in the 2019 election.

It’s a direct tax on workers’ incomes, reducing your monthly take home pay and effecting all families, especially those with smaller disposable incomes.

Raising taxes just as a cost-of-living crisis is taking off must be a bad joke – it will result in the loss of a few extra hundred quid each year that you already don’t have to spare, which you’ll now have to hand over to HMRC.

Just how badly will the tax rises affect you? Let’s check it out!

Console yourself against the upcoming tax grabs with some free goodies from investment platforms on the Money Unshackled Offers page, including free £50 cash rewards for opening an account with easyMoney or Loanpad, and free stocks from Freetrade, Trading 212 and Stake worth up to £200.

Alternatively Watch The YouTube Video > > >

The Timing Of This Tax Rise Couldn’t Be Worse

Britain is heading into winter in a bad shape economically. Runaway inflation is dragging us into a cost-of-living crisis.

Drivers will be painfully familiar with the petrol shortages caused by a lack of truck drivers. Especially if you rely on being able to drive to get paid.

Food shortages, again due to us not having enough lorry drivers, are expected to push up food prices over Christmas. And the furlough scheme having ended at the start of October means there could be up to a million redundant jobs and incomes.

The cost of wholesale gas has increased 6-fold and electricity 4-fold, and it is yet to be seen how much of this will be passed on to customers this winter.

The price rises are due to lockdowns messing with supply and demand, and outlawing cheap and readily available coal to rely on wind farms that haven’t been spinning because apparently, it’s not been windy.

As these price hikes are passed on to consumers, experts say many will have to even sacrifice meals to keep the heating on this winter – a dire state of affairs for modern Britain.

Regardless of where the blame lies for these price rises, the economically literate thing to do when people can’t afford to buy food and fuel is to immediately lower income taxes. This gives people that little extra money in their pockets to be able to struggle on as normal.

Alternatively, they might lower VAT, to bring down the prices of goods. Either way – the answer is to lower tax.

Instead, they are choosing this moment of national crisis to announce the opposite – that everyone will be given a kicking when they’re already down.

What It Will Cost You

Paying National Insurance is mandatory if you’re 16 or over, and either an employee earning above £184 a week, or self-employed making a profit above £125 a week.

From April 2022:

  • the current 12% rate on earnings between £9,564 and £50,268 will rise to 13.25%
  • the current 2% rate on earnings over £50,268 will rise to 3.25%
  • employers will also have to pay more, contributing 15.05% in National Insurance on employees’ earnings over £170 per week, up from 13.8% now. Expect these costs to be passed on to you, the worker, in lower future pay rises.

Here’s how much extra tax you’ll have to pay as a result of this tax rise, depending on your salary:

  • £20,000 salary: £130 extra each year
  • £30,000 salary: £255 extra each year
  • £40,000 salary: £380 extra each year
  • £50,000 salary: £505 extra each year
  • £80,000 salary: £880 extra each year
  • £100,000 salary: £1,130 extra each year

Those on a higher salary pay more in actual pound terms, but remember that people tend to live within their means, and have houses and other living expenses to pay for that are proportional to their salaries.

Also, realise that employers NI is going up too by the same amount, which is tax they have to pay on your salary as your employer. That is money that could otherwise be spent on giving you a better pay rise or bonus. Look at these numbers, and double them. That’s likely the true cost you’ll have to bear.

Promises Broken

In the election of 2019, Boris promised not to raise National Insurance. Here’s the manifesto pledge, signed by Boris himself. Iron-clad, some might say.

The Conservative party is no longer the party of Low Taxes; in fact, they are the party of the highest taxes in UK peacetime history. But if you’re not happy with that fact, what can you do about it?

The UK is a 2 party system, where either Labour or the Conservatives have been in power since 1915, and our first-past-the-post method of elections makes it almost impossible to change this.

Both Labour and the Conservatives are in favour of big tax rises, and of massive borrowing. If they say they’re not, look at their actions; not their words.

Whether it’s stamp duty, corporation tax, dividend tax, council tax, national insurance, capital gains tax – all the main parties are keen to raise them, or at best keep them as they are. No one is talking about lowering any taxes.

There is no established party to the economic right of the Conservatives: no party in favour of lower taxes, lower borrowing and lower government spending. Vote for any party right now and under our system you will get a high spending, high borrowing, high taxing government.

A Record High Tax Burden

After the income tax and corporation tax increases in the March Budget, the government had already raised the burden of taxation to 35% of GDP, the highest since 1969. GDP is the value of all the goods and services that we as a country are able to create in a year by working, so the government was already planning to take 35% of our earnings through all taxes combined.

The new tax rises will increase the tax burden to about 35.5% of GDP, the highest since the second world war.

Voters Are Gullible When It Comes To NI

Voters prefer an NI hike to an Income Tax hike, because they wrongly think that NI is set aside for the NHS. It isn’t. It all goes into the central pot.

This delusion is helpful to the government, and is probably why they raised NI, not Income Tax – even though it amounts to the same thing. They can also raise NI more stealthily than Income Tax because Income Tax gets headlines, while NI is generally ignored.

A Third Income Tax

The NI tax rise will start out as an increase to the NI line on your payslip by 1.25%. But from April 2023, this will be split out into 2 taxes: National Insurance will go back to 12% and 2%, and there will be a new tax on your payslip called a Health and Social Care Levy, at 1.25%.

That’s right: as if the tax system wasn’t baffling enough, you will now have 3 income taxes on your payslip, all going into the same central pot.

You might assume that something called the ‘Health and Social Care Levy’ would definitely be spent on Health and Social Care, but remember that National Insurance started out as being money earmarked for ‘insuring the nation’ against illness and unemployment. Its original purpose has been forgotten. It’s now just the 2nd income tax on your payslip. Now there is a 3rd, it gives future governments more options to increase income taxes sneakily over the years.

Where Will Your Money Go?

The tax rise will reportedly raise £12bn per year, which is supposedly earmarked for the NHS, specifically for reforming the social care system. But will it make much of a difference? The NHS already costs £230bn a year. It’s hard to believe that voters will see results for the extra tax they’ll be charged.

But the Treasury has many ways to get around the earmarking of funds – all the money effectively goes into the same central pot. So is this tax really being used to fund the NHS?

The UK’s addiction to debt costs us £45bn a year, according to the UK’s budget for 2021-22. But this figure is already out of date – in June 2021 alone, according to Bloomberg we spent £8.7bn on debt interest, due to inflation pushing up the cost of servicing index-linked gilts.

That works out at a £104bn annualised cost, an extra £59bn above budget. Is this the true reason we are being taxed more?

Or is it green energy? At the COP26 climate change event that the UK is hosting in November, the UK will announce it will start paying £12bn a year in “Climate Finance” to developing nations, the same amount incidentally as will be raised by this NI increase.

Social Care: What’s All The Fuss About?

A common argument from the pro-high-tax side of the argument is that tax rises are needed to pay for the damage caused by the response to covid. Maybe so. But the NI tax rise has specifically been justified as being to pay for a social care reform, NOT covid. So, why is social care an issue?

Social care is a political hot potato dodged by government after government over the decades. It was the topic that destroyed Theresa May’s election campaign in 2017.

Social care is a really important problem to solve, to make sure that we all get treated with the best health care and with dignity in our old age. Apparently, the system is falling apart at the seams.

Theresa May’s answer was for the rich to sell their assets to pay for their own social care. Boris is raising taxes on everyone as an alternative. There’s a good argument that this is fairer, as everyone uses the system.

But is now the right time to be splashing the cash on a mega-project like this at the expense of the workforce when we’re coming out of an economic disaster? Maybe there never will be a good time, and we just need to bite the bullet?

Other Tax Rises Heading Your Way

If you’re an investor or you are a self-employed small business owner, your income is being taxed more from April 2022. The tax rate on dividends is increasing from 7.5% to 8.75% for basic rate taxpayers, and from 32.5% to 33.75% for higher rate taxpayers.

For an entrepreneur on £40k a year who takes his pay in dividends, his tax bill is about to go up by £320 a year. If you are an investor and get paid dividends, make sure you’re shielding your assets in an ISA.

The government is also ramping up corporation tax to ridiculous proportions – up from 19% to 25%, effective April 2023.

This effects employees, business owners, investors, pensioners and consumers – basically, anyone who relies on companies to do well in order to be paid an income and/or have access to cheap products.

Employees can expect this tax on companies to be partially offset in their future pay rises, or lack thereof. Consumers can expect the tax increase to be partially passed on to the price of products in the shops.

Business owners are being taxed directly. Investors and pensioners are being taxed indirectly, as the stocks that make up their portfolios and pensions become less profitable and are less able to grow or to pay dividends.

Find out more about this insidious tax rise and many others not covered here in our video on tax rises announced at the last Budget, linked here.

The Future Of Tax In The UK

We are now stuck in a cycle of bigger spending, funded by bigger borrowing and bigger tax burdens, to offset problems in the economy – many of which were caused by over-borrowing and over-taxing to fund over-spending.

Companies and people are taxed too much which leads to low productivity, which means less tax is created, which then leads naïve governments to increase the tax rate. And also, to pay for the ever increasing cost of borrowing, the government also has to either borrow more or tax more. And on it goes.

The future of the UK – and sad to say of much of the developed world too – is unfortunately towards an ever bigger state, with an ever higher tax burden.

What do you think about the tax rise, and is it the right thing to do? Join the conversation in the comments below!

Written by Ben

 

Featured image credit: Simev/Shutterstock.com

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

What Net Worth Do You Need To Be In The Top 10% In The UK

Hey guys – I don’t know about you, but when I’m adding up my finances each month, I like to think that I’m probably doing OK versus the average dude in the street. The problem is that the bar has been set so low.

What we should all be wondering is how we compare against the highest net worth savers in the UK – what are they doing differently to us?

Today we’re deep diving into some fascinating data on the net worth of people in the UK, focusing on those in the top 40% of the population by wealth, taken from some analysis done by the Resolution Foundation.

Not only will you see how you compare to others on the wealth scale, but there are also lessons to be learned here from how those with a high net worth have structured their finances.

  • We’ll look at how wealth breaks down into main residence, pensions, investments and so on at each level of net worth.
  • We’ll look at the level of risk being taken by the rich versus those in the middle.
  • We’ll also look at the rates of return the wealthy are getting compared to those of the Average Joe.
  • And, we’ll find out the main reason why the wealth of the middle classes has shot up in the last decade.

All this, and so much more, in the video below. It’s jam packed full of charts and analysis (that we know you’ll love)! Check it out 😊

First, an offer: commission-free trading platform Stake are giving away a free US stock worth up to $150 to everyone who signs up via this link. Stake are the go-to investing app to buy and sell US stocks – there are thousands of stocks to choose from, and they charge zero trading fees, and zero FX fees when you trade.

Watch The Video Here > > >

How do you compare to high net worth savers, and what are you doing to advance up the ranks? Join the conversation in the comments below!

Written by Ben

 

Featured image credit: iQoncept/Shutterstock.com

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