Investments: Why Saving is Not Enough

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In a few of my blog posts on this website I have reminded you of the importance of saving 20% of your income. Saving is vitally important to give yourself a platform to build towards financial freedom but saving on its own will not be enough. Let me explain, the current rates of interest offered by most financial institutions are relatively low, in most cases they are below 1.5%. This is lower than the current rate of inflation.

Saving into an account that offers this kind of interest rate will not magically produce a large lump sum or provide a regular passive income that will enable you to become financially free. Sadly even many pension funds built up during the working lives of adults in the UK will not deliver the levels of capital growth necessary. In addition to saving you will need to make investments; investments offer the chance for your money to grow significantly in the medium to long term. It is worth stating that investments usually have more risk attached to them;  there are usually greater risks and potentially greater rewards.

Investments

Below I have listed several types of investment that could potentially move you closer to financial freedom. This is not an exhaustive list so I encourage you to do your own research to discover the investment approaches that are most appropriate for you.

Property

Property is my favourite type of investment here in the UK. The purchase of  a Buy to Let property was until recently a very popular investment allowing investors to benefit from capital appreciation and rental yield. Changes in the tax relief that landlords can claim , introduced to dampen the buy to let market and create opportunities for first time buyers, are having their intended effect. It is now not as easy to set up profitable buy to lets.

For investors with less available capital, property crowdfunding is a way to join other investors and pool resources to invest in properties. Property Partner is an example of a crowdfunding property company that enables smaller investors to participate in property investment without having to buy a property outright. The returns from property crowdfunding are good and it is open to investors of all levels.

Stocks and Shares

By purchasing Shares, it is possible to invest directly in the performance of one particular company. Investors who hold shares in a number of companies refer to them as Stocks. Imagine if you had invested in Amazon or Apple in the early years, the return on your investment that you would have received would have been phenomenal. Investors can benefit from the increased stock price and dividends that the company might declare and distribute.

Unit Trusts and OEICs

Investing in one particular stock can work out well if the company does well but you could also lose all of your money if the company folds. A less risky approach is to use an investment fund to invest in a range of companies. The two most popular types of investment funds are Unit Trusts and OEICs. With a Unit Trust, you purchase units of a fund that is made up of the investments of many investors. This could be a tracker fund or an actively managed fund; a fund manager makes the investment decisions for the fund.

An OEIC is very similar to a Unit Trust except that the fund is run as a company and you purchase shares instead of units. Returns are paid through regular distributions, they could be quarterly or monthly dependent on what the fund guarantees.

Exchange Traded Funds (ETFs)

Exchange Traded Funds( ETFs ) are a relatively new investment product and  are similar to Unit Trusts and OEICs in that they are open ended but the difference is that they are are listed on a Stock Exchange. They also include a wider variety of assets that Unit Trusts and OEICs.

Cryptocurrencies

Cryptocurrencies are easily the most volatile of all investments that I have included on this list. It is possible to both make or lose a fortune with cryptocurrency investments in the space of a few hours or days. Many professional investors including Warren Buffet do not consider cryptocurrencies a suitable investment and believe them to be little more than a gamble. However, blockchain technology which provides the platform for cryptocurrencies via its distributed ledger system, is here to stay. To read more about cryptocurrencies, read this post, Has the Cryptocurrency Bubble Burst?

If you have the stomach for it, and can afford to lose what you invest cryptocurrencies, most notably Bitcoin could provide the significant capital growth you will need for financial freedom. Despite what some professional investors thinks cryptocurrencies have made many new billionaires and millionaires in a short space of time.

 What Should you Do?

Research the investments or investment approaches that appeal to you. Have you already made some investments? What type are they? Please let me know in the comments section below.

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My aim with each blog post is to help you move to a better financial future. I believe that there is not enough financial education in the national curriculum and I intend to share anything helpful that I have learned along the way. I am by no means a financial expert. None of the information on this website constitutes financial advice and is provided as general information only.  This is my personal finance blog; my marketing blog is over here and I have been blogging there since 2010. I hope you have found this information useful. Thank you for reading.

Best regards,

Mike

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Has the Cryptocurrency Bubble Burst?

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Unless you have been living under a rock for the past ten years, you will have heard of cryptocurrencies. Cryptocurrencies are decentralised digital currencies based on blockchain technology; a cryptocurrency enables value to be transferred from point A to point B without an intermediary; traditionally your bank or a company such as PayPal would act as the intermediary.

The value transfer is validated via a distributed ledger. Blockchain technology, which provides the technological platform for cryptoocurrencies, has the potential to disrupt many industries in addition to the financial services sector. Most people outside of the sector, associate blockchain technology with cryptocurrencies and refer to Bitcoin when thinking about cryptocurrencies.

Cryptocurrencies: Origin and Development

Bitcoin was the first cryptocurrency created. It was created by Satoshi Nakamoto in January 2009, the identity and whereabouts of Satoshi remain one of Bitcoin’s mysteries but what is clear is that Bitcoin has disrupted the financial services industry ever since. Subsequently, many other cryptocurrencies have been introduced with Ethereum being one of the most significant. For more information about how cryptocurrencies work from a technological standpoint, read this article. 

A new cryptocurrency is introduced to the market via an Initial Coin Offering (ICO), a fundraising exercise similar to Initial Public Offerings (IPO). These ICOs enable new companies to finance their blockchain technology based projects. The company’s founders and development team behind each project will write a whitepaper to explain their vision and plan. Potential investors research projects, read the respective whitepapers and invest in companies via ICOs. This website show’s the current market price for the hundreds of cryptocurrencies now in existence.

Cryptocurrencies as Investments

The success of ICOs and the emergence of Bitcoin millionaires attracted many individuals motivated purely by financial gain. Bitcoin, once priced at just a few cents in United States currency ( Pre 2012) experienced a rise in price up to $19,783.06 in December of 2017. It’s current price is $6,672.98.

In a lot of cases, ICOs were launched with no intention of delivering on a project, they were money making scams;  the people behind them disappeared after the process. In recent years, the vast majority of new coins are worthless. Buying cryptocurrencies is akin to gambling at a casino or at betting on a horse. Extreme price volatility is standard as is the chance that the promising coin you bought with be worthless in 12 months.

Has the Cryptocurrency Bubble Burst?

Cryptocurrencies are here to stay, it is no coincidence that the start of the current bear market coincided with an influx of institutional investors trading bitcoin futures on the Chicago Board Options Exchange and the CME Group exchange from December 2017. Many of these professional investors began ‘shorting’ bitcoin. In layman’s terms, this means they bet on the price of bitcoin going down. Large financial institutions have now investments in bitcoin, it appears that cryptocurrencies are now part of the investment landscape; they are not in a bubble. Bitcoin and other cryptocurrencies have been down before and bounced back. My guess is that this will happen again and like many I hope to be in a position where I can capitalise.

What Should You do?

First of all, do your research and if you are still keen to buy cryptocurrencies, Coinbase is a relatively safe place to start. You can sign up for Coinbase here and because I referred you, when you sign up and buy or sell $100 of bitcoin or more, we’ll both earn $10 of free bitcoin!

Join Coinbase

Have you bought any cryptocurrencies? What has been your experience? Let me know in the comments section below.

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Why you Should Track Your Net Worth

My aim with each blog post is to help you move to a better financial future. I believe that there is not enough financial education in the national curriculum and I intend to share anything helpful that I have learned along the way. I am by no means a financial expert. None of the information on this website constitutes financial advice and is provided as general information only.  This is my personal finance blog; my marketing blog is over here and I have been blogging there since 2010. I hope you have found this information useful. Thank you for reading.

Best regards,

Mike

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Has the Cryptocurrency Bubble Burst

Why you Should Track Your Net Worth

This post may contain affiliate links please read our disclosure for more info.

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I hope those you who did not already have a monthly household budget, have now had chance to create one. If not, this post will help you, How to Create a Budget That you can Stick to.  One stage on from creating a monthly budget is to create another simple spreadsheet that records your total net worth.

Calculating Your Net Worth

Net Worth can be defined as the sum of all of your assets minus your liabilities.  For many of you, the thought of creating a spreadsheet with all your assets and liabilities recorded in one place might fill you with dread. If you have large student loans or credit card debts, recording your total amount of liabilities and assets might be a painful process. However, this is a necessary step to track your net worth.

Your personal net worth looks at the bigger picture, it’s not just your monthly income and outgoings. You also get the opportunity to track all of your assets as well as your liabilities. Assets include properties, savings, investment accounts, stocks and shares and businesses owned where applicable; liabilities include, mortgages, student loans, credit card debts and loans.

For the sake of simplicity it is acceptable to leave out all regular monthly expenses that are paid out of your monthly salary or wage. When thinking about net worth I always remember a quote attributed to the mathematician, Karl Pearson.

“That which is measured improves. That which is measured and reported improves exponentially.”

Karl Pearson

Improvements to Your Net Worth

This is exactly why we are doing this! Your net worth will improve. When you complete your first total net worth tracker spreadsheet, it will take some time. By the way,  feel free to think of a more exciting title than Total Net Worth Tracker Spreadsheet. 🙂

When you come to update it after a month, unless you have suffered some financial calamity,  your total net worth will have increased. For example, if you have made payments to student loans and or credit cards, their totals will come down slightly and your net worth will have gone up. If you are like me, you will find this incredibly motivating!  As an aside, do not compare yourself to others, just track your own progress. In time, deficits will turn into surpluses. Money that was originally to pay debts can be diverted into savings accounts when those debts have been paid. Tracking your net worth is an excellent habit and will help you to transform your finances.

What Should you do Now?

Create your total net worth spreadsheet and update it each month. Here’s a downloadable spreadsheet that you can use. 

Are you already tracking your net worth ? If so, what has been the improvement in the last 12 months? Let me know in the comments section below.

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If you have enjoyed this post you will also like the following posts:

Have you saved Enough into Your Pension? 

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What are the Best Savings Accounts for Children? 

How to Teach Your Children About Money

How to get Value for Money When Buying Foreign Currency 

Save up to £500 Per Year With a Sim Only Mobile Phone Deal 

How Much Should You Save?

10 Ways to Make Money Now

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My aim with each blog post is to help you move to a better financial future. I believe that there is not enough financial education in the national curriculum and I intend to share anything helpful that I have learned along the way. I am by no means a financial expert. None of the information on this website constitutes financial advice and is provided as general information only.  This is my personal finance blog; my marketing blog is over here and I have been blogging there since 2010. I hope you have found this information useful. Thank you for reading.

Best regards,

Mike

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Have you Saved Enough into Your Pension?

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Have you saved enough into your pension? For a large proportion of the United Kingdom population the answer is no. Most people are not saving enough for their retirement.  Does your vision of retirement include freedom to travel and time to enjoy a comfortable standard of living? If we all to have the retirement that we aspire to one day, we will need to make sure that we are on track to achieve it.  It is time to get serious and work out how much that will cost.

Pensions: Why Many People Are Failing

There are a lot of assumptions built into pension calculations, assumptions that are not true for many people. For example, the assumption that you will work 40 years of continuous employment with your salary continually increasing by X% and you maintaining your pension contributions at 12% of your salary for 40 years. Some of the realities of life such as redundancies, women taking time out to raise a family, individuals starting businesses, part time work, time out for studying and credit credit or student loan debts don’t exist in this Continuous Pension Saving Utopia.

I think when people realise that they are not on track to hit their pension goal, they give up and hope someone other than themselves will solve the problem. Let me be more specific, if you would like to live on a retired income of £25,000 you will need to have a pension pot of £500,000. That is assuming that you use your pension pot to purchase an annuity giving you the annual income of £25,000.  Try this pension calculator to work out how  much you would need at other income levels. As you can appreciate, £500,000 is a large amount especially when it’s considered that the average pension pot in the UK is around £50,000. 

What Should you do Now?

Pension Pot 

Work out the total pension pot you currently have, if you have had several jobs during your career  you may need to do a little detective work to track down all of your workplace pensions.  This article will help you find your pensions. 

Up Your Contributions

Re-evaluate your household budget, can you afford to increase your contributions? If you are in a workplace pension then you should maximise the contributions that you make because these will be matched by your employer. If you are self employed, you should also increase your contributions.

Develop a Plan B

It may be that increasing your pension contributions alone will not be enough for you create a big enough pension pot for retirement. If that is the case, you should develop a Plan B.

Property is a great way to supplement your pension savings, you could downsize your main residence and use the profit for your retirement. Alternatively, you could rent out a spare room and earn extra income that way. There are other ways too, they include equity release and property investing. You can read more about these ways via this link. 

If you own a business, this could become your Plan B. Depending on the nature of your business, you may be able to sell it and contribute money to your pension savings after the sale.

Don’t Lose Heart

The fact that you are reading an article like this is a positive in itself. You still have time to improve your level of preparedness for retirement and there are a number of ways you can do so.

Are you on track with your pension savings? If not, what are you going to do about it? Let me know in the comments section below.

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If you have enjoyed this post you will also like the following posts:

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What are the Best Savings Accounts for Children? 

How to Teach Your Children About Money

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Save up to £500 Per Year With a Sim Only Mobile Phone Deal 

How Much Should You Save?

10 Ways to Make Money Now

What’s the Best Strategy for Clearing Debts? 

What are the Different Types of Savings Accounts?

My aim with each blog post is to help you move to a better financial future. I believe that there is not enough financial education in the national curriculum and I intend to share anything helpful that I have learned along the way. I am by no means a financial expert. None of the information on this website constitutes financial advice and is provided as general information only.  This is my personal finance blog; my marketing blog is over here and I have been blogging there since 2010. I hope you have found this information useful. Thank you for reading.

Best regards,

Mike

Follow me on Pinterest

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Are you and Your Partner Financially Compatible?

This post may contain affiliate links please read our disclosure for more info.

Image credit: http://thepayoffprinciple.com

If you are going to be successful and achieve your financial goals you will need to face up to obstacles head on rather than wait and hope that they disappear of their own accord; usually, they do not disappear of their own accord. Are you financially compatible with your partner?

First of all, a quick definition, when I use the use the term financially compatible,  I mean to share the same financial goals, vision and habits. Are you both saving regularly and maximising investment returns? Is your discretionary expenditure linked to value for money? I do not mean that you need to be earning the same salary. It is great if you are but it is not essential for financial compatibility. The key word in this context is together, ideally you need to be able to plan your financial future together and work towards it. This could mean saving to buy a home, a goal of becoming debt free or financial freedom (retirement) at an early age.

Financial literacy is not a skill-set everyone has, some are willing to learn whereas others are more interested in living for the moment instead of having a financial plan. Not everyone approaches personal finance and their financial responsibilities in the same way.

Are You Financially Compatible?

Disagreements over money remains one of most common causes of divorce. If one person is a disciplined, lifelong saver and the other is frivolous with money, there will be friction between the two. In my opinion, if these differences are entrenched there is no chance of achieving your financial goals together. It does not seem very romantic to consider a partner’s financial compatibility when you are just getting to know them but if you don’t, you could be storing up problems for yourself later on. Hopefully, if you are in a relationship you have already taken an opportunity to discuss money with your partner.

Depending on your starting point, following a budget for a prolonged period can be hard work. To achieve financial freedom for example, you and your partner will need to work as a team and to be consistent. You need to be in alignment.

Create a Financial Plan Together

If there are only slight differences between you then thankfully, with a calm approach, compromises can be agreed upon.

If that is the case, the following steps will help:

  • Arrange to have regular money meetings with your partner; during these meetings discuss financial goals and budgeting and agree a way forward.
  • If one of you is the natural saver, take the lead in these meetings but be careful to avoid being judgemental.
  • Build in quick wins on your financial journey together, this could be paying off a credit card with a low balance or saving for a planned weekend away.
  • Allow yourself small celebrations when you hit your financial milestones, be creative with these and do not spend a lot of money on them.

By working together you will dramatically improve your financial health and you will strengthen your relationship. Well done! Your future is looking bright.

Have you sat down with your partner and discussed finances? How did the conversation go?  Let me know in the comments section below.

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If you have enjoyed this post you will also like the following posts:

Why Choose a Gold IRA?

What are the Best Savings Accounts for Children? 

How to Teach Your Children About Money

How to get Value for Money When Buying Foreign Currency 

Save up to £500 Per Year With a Sim Only Mobile Phone Deal 

How Much Should You Save?

10 Ways to Make Money Now

What’s the Best Strategy for Clearing Debts? 

What are the Different Types of Savings Accounts?

My aim with each blog post is to help you move to a better financial future. I believe that there is not enough financial education in the national curriculum and I intend to share anything helpful that I have learned along the way. I am by no means a financial expert. None of the information on this website constitutes financial advice and is provided as general information only.  This is my personal finance blog; my marketing blog is over here and I have been blogging there since 2010. I hope you have found this information useful. Thank you for reading.

Best regards,

Mike

Follow me on Pinterest

ARE YOU AND YOUR PARTNER FINANCIALLY COMPATIBLE_
 

How Much Should You Save?

This post may contain affiliate links please read our disclosure for more info.

Image credit: http://yourmoneyrelationship.com/

For many people, saving money is not exciting; when they consider what their savings may allow in the future it can become more exciting.  This may mean the chance to have an expensive family holiday or a more comfortable retirement.

Save Money

Whatever your level of salary or wages, you should aim to save 20% of your earnings. Depending on where you currently are in terms of your financial health, this 20% figure could seem insurmountable or very manageable. Please remember this is a guideline.

This guideline is based on the following breakdown of income; 50%  on mandatory expenditure including accommodation and associated bills, 30% on discretionary expenditure and 20% on savings.

Is this the Dream versus Reality?

Level of Household Savings UK

The chart above is from Trading Economics  and clearly demonstrates that in the UK most households are not getting anywhere near the 20%  figure.  My own anecdotal evidence is  that there are times when I have been able save above the 20% and other times when no saving has been possible at all.

For our US readers, the situation is actually slightly worse, as you can see from the chart below. There is data from other countries as well on the website, so please explore to find figures for your country if you are not from the UK or US.

How much should you save

I would like everyone who reads this post to take a step forward to a better financial future. We have just started a new month, commit with me to saving 20% of your income, or as close to that as you can.  If you comfortable doing so, leave a comment below indicating the percentage of your income that you will save this month, this month being June 2018.

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If you have liked this post you will also like the following posts:

What are the Different Types of Savings Accounts?

10 Ways to Make Money Now

What’s the Best Strategy for Clearing Debts?  

My aim with each blog post is to help you move to a better financial future. I believe that financial education is largely absent from the national curriculum and I intend to share anything helpful that I have learned along the way. I am by no means a financial expert. This is my personal finance blog; my marketing blog is over here and I have been blogging there since 2010.

I hope you have found this information useful. Thank you for reading.

Best regards,

Mike

How much should you save