Category Archives: Savings

Finding a second income that works……

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Having a second income is becoming more and more popular, partly due to necessity to meet increases in living expenses which can make all the difference in having disposable income left before payday, or because the perceived security of employment is considerably lower than it was in previous generations.

Many women may have taken career breaks to raise children or find that by the time rising childcare costs are met, (the average cost for UK childcare is £242 per week full time*) there is little change left over for essentials, let alone small luxuries.  The average monthly cost of living in the UK ranges from £706.81 in Hull for a single person (£1437.74 for a couple) to £1676.51 in London (£2937.07 for a couple) ** so although wages can be commensurate with location, the cost of living progressively rises, meaning everyone faces the same degree of financial challenge regardless of where they live in the UK.

In line with the percentage of marriage breakdowns, it must be recognised that while there are around 1.8 million single parents, making up nearly a quarter of all families, almost 90 per cent of them are women, a colossal responsibility that needs appreciating, negotiating, and supporting. Many women also feel the pressure to elevate not just their own lives, but the lives of their dependents with integrity and often inexhaustible commitment.

It’s true to say that while men generally keep a steady working momentum and have a vocationally progressive finger on the pulse of what’s happening in their working world, a woman faces various disruptions – children being the primary responsibility, but also relationship breakdowns and the role of a carer which is more commonly embraced by women.   This leads to an inevitable erosion of momentum and self-belief in picking up where they left off in a working environment in which they were happy and established, or even beginning something fresh and new.

Female empowerment, a phrase that has many implications, refers to a broad range of extra impetus a woman must overcome in order to believe they can embrace the strength and confidence they need to break through their own mindset and sometimes unfair perceptions of women in the workplace.

Statistics show that financial independence and success has a hugely positive impact on their offspring, the commitment and drive to improve the standard of living for the family with balance and dedication plays a significant part in being a great role model and inspiration for your children, and indeed partner, family and friends.

Following the last recession,  it became ever more needful to find sustainable financial security, in terms of shared responsibility within relationships and families.  As a nation the UK lives in a perpetually anxious state of another imminent impact, the latest political uncertainty further compelling our anticipation.

Studies made by the BITC (Business in the community) *** show that unleashing the full female workforce potential could be worth £23 billion a year to the economy.  Numerous references are made to their role played in the board room, down to women’s qualifications and the need for that to be embraced by many sectors; for example, 1 in 3 female graduates have a degree in health related studies compared to 1 in 11 for men.

Home based businesses are also being successfully established and grown by a healthy support network embraced by many entrepreneurs; anything from network marketing brands, starting a blog, affiliate marketing, or playing to existing career strengths and freelancing, ie copywriting, design or social media management.   Some flourish at making products and selling them via an online shop like Etsy, eBay, or Amazon.   Physical work such as waitressing and bar work, cleaning work, helping in schools, dog walking – all kinds of convenient and flexible work can be utilised to make just that little bit of difference.

One has to be wise to online scams that promise you’ll get rich quick which usually means the opposite, but the collective experience of the accrued wisdom and explorations already made are available in several networks (ie Women in Business, Athena etc), as well as providing business opportunities themselves.   Help is of course on hand for the necessary insurances, registering with HMRC, tax returns and administrations.

It’s also good to note that 72% of women who run their own business say they’re in their dream job!

Why not investigate what is available now? It can lead to less anxiety, a feeling of greater security and also the ability to put aside savings for the future, helping to bolster your resources and enjoy the fruits of your labours later in life.

  • Birchwood Investment Management Limited is authorised and regulated by the Financial Conduct Authority.

* https://www.moneyadviceservice.org.uk/en/articles/childcare-costs

**https://www.moneynest.co.uk/cost-of-living-uk/

*** https://gender.bitc.org.uk/all-resources/factsheets/women-and-work-facts

 

Spend Wisely at Christmas to Start the New Year Financially Stable

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Christmas is fast approaching and some of us will have already started our Christmas shopping by taking advantage of the early sales to try and grab some bargains. Last Christmas British parents were expecting to spend an average of £1,149 on Christmas, with over half of them (64%) admitting they were likely to overspend; according to research conducted by OnePoll*. This is astounding when you consider that this is just under the average amount people normally spend on a family holiday (£1,385).

It is important to not get too immersed in keeping up with the Joneses and giving your children the latest toys; but to remember what Christmas is about – the joy of giving, spending time with your family and friends over the festive season but more importantly to avoid starting the new year worrying about how you are going to pay it all off.  However, with figures from the Bank of England** showing that British families spend on average £2000 a month normally throughout the year on living expenses and other costs, but in December spend on average £500 more – it means more and more families are starting the new year in a poor financial state.

Children when they are tiny are happy to simply play with just a cardboard box and wrapping paper and as they get older are happy with one of two good quality presents rather than being inundated with lots of presents they will never get around to playing with (but will sit on your credit card bill for months afterwards).  1 in 3 Brits are putting Christmas on a credit card according to charity National Debt-line; ***and with Christmas present sales starting as early as August, you can often forget where you have stored them only to find you have actually massively overspent on your intended budget.

It’s always a good idea to make a spreadsheet before you start your Christmas shopping to set an overall budget of what you can afford to spend, which is then broken down into individual spend on family and friends. With some parents spending an average of £121 per child**** but other parenting forums suggesting it is nearer £300 per child, you need to set a realistic budget that you can afford and just buy them two presents they really want. You can then put any extra you would normally spend into their savings account for them therefore, investing in and protecting their future.

You could also ask Grandparents and other family members to do the same – a small present to open on Christmas day and the rest in money to either save for something they really want e.g. a bike or go towards a bigger future expense e.g. a car, university fees or a house deposit. If you do the same for their birthdays this will amount to thousands over their childhood to really help them start to learn how to become financially independent.

It is never too early to start your children off saving and to educate them on the importance and value of money. Get them involved by encouraging them to do chores which they can earn money for and show them what items cost by getting them to help you with the weekly shop.

There are a number of options available now with regards to saving and investments but try to get your child involved in the decision to see how their money grows; which in turn will motivate them to add to it themselves as the years go by.  It all depends on how much you want to contribute and how regularly, as some investment products have fees that would eat into smaller amounts of cash over time.

A child savings account can be opened with just £100 or if you have a bigger amount to invest or want to pay in smaller regular amounts, it can be worth considering a Junior ISA, a tax-free savings account for under 18’s. Other options are Stocks and Shares Junior ISA’s, Premium Bonds, Investment Trust Saving Schemes, Pensions and Direct Shareholdings.

The new year is the perfect time to reflect on your life and whilst we think nothing of setting health and fitness goals; we don’t always do the same with our finances.  Social media often gives the impression that others are leading a more expensive lifestyle so we try to keep up with each other, whereas in-fact the family you are comparing yourself to may actually be broke and spending everything as it comes in. Do what’s best for you and your family whilst trying to be as financially savvy as you can.

Set a budget at the start of the year to work out your day-to-day living costs and then work out your other priorities in terms of home improvements or holidays and try to keep to it as much as possible. Try to also think longer-term as no-one knows what is around the corner and it’s important to put even a small amount away into a savings account for a rainy day or should you become unemployed or cannot work due to illness.

If you would like financial advice on how to invest in your children’s future through savings or investments or any other aspect of this article; please contact us at info@birchwoodinvestment.com 

* https://www.express.co.uk/news/uk/888822/UK-christmas-spending-british-families-presents-food-drink-holiday-abroad 

** https://edu.bankofengland.co.uk/knowledgebank/how-much-do-we-spend-at-christmas/ 

*** https://www.telegraph.co.uk/christmas/2016/12/05/much-should-spend-christmas-presents-year/ 

**** https://www.moneywise.co.uk/investing/investing-children/savvy-ways-to-give-your-kids-money-christmas

 

How to mitigate social care costs during your retirement

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With MP’s calling for a potential levy for over 40’s to cover the spiralling cost of social care for the older generation; when is the right time to start preparing financially for your old age? * With social care being greatly affected in recent government cuts, there already exists a £2.5 billion funding gap. Therefore, MP’s are proposing that when people turn 40 they would start paying into a fund to ensure they benefit from a free social care provision at the point they need it.

When the majority of people look ahead at their retirement, they realise they must have a substantial pension to support them to maintain a decent standard of living, but many do not consider the potential costs of social care, either within their home or moving out into a care home.

Recent research from ‘Think Tank Demos’ indicates that 1 in 4 Brits think that social care is free and only 5% of over 40’s are prepared financially for any costs they may incur in later life. **

This is very worrying and may partly be due to people in their 40’s and 50’s settling down later in life compared to the current over 60’s and 70’s (their parents), so they’ve not been on the property ladder for as long and are still saddled with longer mortgage commitments. These mortgages may not finish until well into their 70’s, plus they may potentially also have credit card debts and loans, limited pensions or savings in place, and very little spare money to commit to their retirement and social care costs.

Family commitments and the rising cost of living means many just won’t be prepared for the costs of their later years.  They may be counting on inheritance money from their parents’ properties in order to pay off their own mortgages (as was the case for many people now in their 60’s and 70’s) but with an ever-ageing population this is becoming increasingly unlikely as this generation may now need to sell their homes to pay for their own social care.

Although, the older generation may have benefitted from having substantial work pensions, state pensions and reasonable savings in place, this does not necessarily mean they are completely covered. Many married very young, had children in their early 20’s and now their children are grown up, are enjoying a new lease of life travelling the world spending all their spare cash!  So it may come as a shock if their house needs to be sold to cover social care costs, bearing in mind it may not be enough, especially with the average care home now costing £30,000 per year.  They also need to consider these costs when lending money to children as this could leave them out of pocket later on.

Therefore, what’s the solution?

It may be that the older generation have plans in place to co-habit with their children and/or grandchildren when the time comes that they need looking after. This could involve them selling their home and moving into their child’s house or both parties’ selling their properties to buy one larger property which is then gifted to them upon their death. This can benefit both sides but the issue of inheritance tax and the 7-year rule needs to be considered as well as any additional children/siblings’ right to the inheritance – so rules and contracts must be put into place.

However, if this is not an option and with the growing issue of more parents living further away from their children, it’s advisable that both generations have alternative provisions in place.

It’s important to not bury your head in the sand and get sound financial advice to put plans in place ready for retirement and social care so the worry and stress is not left to your loved ones. With the rising cost of living, many people in their 40’s are understandably not paying into pensions whilst raising young families, but it’s essential to try and save even if you can only put a small amount away each month and have sufficient life insurance plans in place.

It’s all about balancing your current finances whilst planning for your retirement; especially with the age level on the state pension being continually raised every year. If you plan to retire at 65, you’ll need a pension pot worth around £400,000 to provide you with an annual income of £20,000 which is a sizeable amount of pension to work towards.***

There are many ways you can start saving for your retirement and social care provision in your 40’s; paying into a pension, saving any spare cash in ISA’s and investments, paying off loans and credit cards and trying to chip away at your mortgage. Plus trying to avoid taking out any loans or additional mortgages in your later years unless you have guaranteed sufficient funds to cover them.

If you would like financial advice on any of the areas covered in this blog please contact us at info@birchwoodinvestment.com

* https://www.independent.co.uk/news/health/social-care-tax-over-40s-retirement-pension-nursing-home-meals-a8418171.html

** https://www.independent.co.uk/money/spend-save/british-social-care-pension-plans-investment-pay-savings-state-government-a8108686.html

*** https://www.moneywise.co.uk/managing-your-pension/pensions/how-to-plan-retirement-your-40s-50s-60s-and-70s

 

Parents urged to seek financial advice before lending to children

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With house prices soaring and mortgage lenders enforcing stricter lending criteria for borrowing; it is becoming more and more difficult for first-time buyers to get on the property ladder; which has resulted in more people turning to the ‘Bank of Mum and Dad’ than ever before.

Back in 1977, the average deposit paid by a first-time buyer was £1,094, 20 years later in 1997 it had increased to £2,200 and by 2017 it had risen to a staggering £25,867 – an increase of 2264% from 1977*.

As a result, industry figures** show that more than one in four UK housing transactions are now financed by the Bank of Mum and Dad, whether it is by loaning their children a deposit, gifting it to them as an early inheritance or being a guarantor on their mortgage.

However, many parents are rightly confused on financial decisions and it is crucial therefore, that parents get the correct advice on loaning or gifting money to make sure they are using the most tax-efficient avenue for both themselves and their children with repayment terms or agreed terms in place. This is to ensure they don’t get into financial problems a few years down the line or during retirement; especially as this age group have retired much earlier than their children will manage to do and therefore, their money needs to last considerably longer.

There are many ways parents can help their children; with the most important one being to teach them and encourage them to have good financial habits from the start. Showing them how to budget from an early age by saving their pocket money, birthday and Christmas money in a savings account is the first step; followed by making sure they keep up with credit card repayments, mobile phone bills, utility bills and any repayment loans they have to maintain a good credit score, which will all help when it comes to getting their first mortgage.

Parents have several options to help if their children are saving but simply cannot get on that first step of the property ladder. Re-mortgaging their own home, setting up a new mortgage or freeing up equity could all help but this is not always the route many parents want to take. Other alternatives are parents getting a joint mortgage with their children on a new property, being guarantors on their children’s mortgage or simply helping them shop around for better mortgage deals or Help to Buy schemes.

Before lending any money, parents should consider if they can afford to give it away; they may be financially secure now but it could all change during retirement. If they do not have the funds in the bank and would therefore need to re-mortgage or release equity, they need to ask themselves would their child want to see them go without or get into debt to help them. Another grey area is the issue of inheritance tax as there is a limit on how much money can be given away. If their child is buying a property with their spouse, partner or even a friend, they need to consider what happens if this relationship breaks down, so it’s imperative that terms are confirmed so all parties know where they stand.

To ensure the right decision is made for all parties and to avoid the risk of relationships going sour, parents need to get clear financial advice by contacting an approved financial adviser. There is a common misconception that financial advice is expensive and as a result many people do not take up the advice they greatly need; but this is generally not the case and sound financial advice can mean mitigating any risks of losing money further down the line.

Birchwood Investment Management Ltd have been advising clients for over 35 years, so if you would like to discuss any of the areas mentioned above please contact us – 01438 840888 or info@birchwoodinvestment.com

*According to a Savills report – https://www.openaccessgovernment.org/how-much-can-first-time-buyers-expect-to-pay-in-2018/44009/

** taken from http://www.financialreporter.co.uk/mortgages/bank-of-mum-and-dad-desperately-need-financial-advice.html

Pensioner bonds could be a savings gem for expats as well

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Expats who are looking to cash in on the UK Government’s new pensioner bonds are being warned there are conditions they will need to meet if they are to benefit.

The 65+ Guaranteed Growth Bonds have been so popular in the UK since their launch on January 15 that the National Savings & Investments (NS&I) website crashed and phone lines were jammed as pensioners rushed to sign up.

The products pay 2.8pc for the one-year bond and 4pc on the three-year bond. These rates, which are substantially higher than those offered by banks and building societies, are before tax. Expats can reclaim tax if they are a non-tax payer within their country of residence. However, there are some conditions.

A NS&I spokesperson said: “People that live in other countries can apply for 65+ Bonds if they have a UK bank or building society account in their own name which can receive BACS payments. This is subject to local laws and regulations – for instance US citizens and/or those who are US residents for tax purposes cannot purchase 65+ Bonds due to restrictions.

“For those applying by post, a cheque will need to be provided that is drawn on a UK bank or building society account in the customer’s name.”

Chancellor George Osborne announced earlier this week that the scheme will be extended by three months and an additional £5 billion worth of bonds are likely to be made available. It means one in 10 pensioners will benefit from a total of £15 billion-worth of bonds prior to the general election.