Paul's Blog

A new study has found that paying to free up your time is linked to increasing your level of happiness. Individuals taking part in a psychological experiment said that they felt happier when using $40 (around £30) to save themselves time rather than buying material goods.

Stress over not having enough time can lead to reduced well-being, as well as being a contributing factor in conditions such as insomnia and anxiety. However, it has been reported that even the wealthiest people are generally unwilling to pay others to carry out tasks they dislike.

Whilst the average level of income is increasing in many countries around the world, a new phenomenon known as ‘time famine’ is being observed, particularly in Europe and North America. This is recognised as stress over the demands made on an individual’s time each day. The study, carried out by psychologists in the US, Canada and the Netherlands, looked at whether using money to free up time can counteract this stress.

Over 6,000 adults – in these three countries and Denmark – including 800 millionaires – were questioned about how they spent their money on buying time. Whilst those who did so said that they felt a greater sense of satisfaction in their lives, less than one in three reported spending money to buy themselves time on a monthly basis.

This then led to a two-week experiment taking place in Vancouver, Canada. Sixty adult participants were asked to spend $40 on something that would save them time during the first weekend. Purchases included having lunch delivered to work, paying for cleaning services, or even paying children in their neighbourhood to run errands.

On the second weekend, the participants were told to spend the money on material goods, with purchases including wine, books and clothes. The researchers found that the time saved reduced feelings of time stress, increasing happiness more effectively than the material purchases.

The study backs up previous research that concluded those who prioritise time over money are generally happier than those who prioritise money over time. So, next time you come home from work and plan to start your ‘second shift’ of housework, think about whether spending some of your salary to free up that time would make you happier than going on a shopping spree.

Sources
http://www.bbc.co.uk/news/science-environment-40703519

Recent changes announced by the government to the state pension will result in nearly six million people currently in their forties having to wait longer until they can retire. It’s a development which has raised concerns over the dependability of the state pension, which for many makes up the lion’s share of their retirement income and is the most valuable state-funded perk for even more people.

For the seven decades between 1940 and 2010, the state pension age remained constant for both men (65) and women (60). However, thanks to the 1995 Pensions Act, the age for women was increased to 65, a change which was to be phased in between 2010 and 2020. This was then altered further when the Conservatives and Liberal Democrats formed the coalition government in 2011, speeding up the process so that the age for women would increase to 65 between April 2016 and November 2018, with a further increase to 66 for all working adults from April 2020.

Under these plans, the state pension age would be 68 for those born after 6th April 1978. But the changes announced in July this year mean that window will increase to include those born between 6th April 1970 and 5th April 1978. The pension age for anyone currently under 39 is yet to be confirmed. The changes are likely to affect the younger generations who have lost out through the closure of ‘final salary’, or ‘defined benefit’ pension schemes.

Those in their late 30s and 40s are being described as the ‘sandwich generation’, being as they’ve missed out on the final salary pension schemes enjoyed by older generations, but are now too far through their working lives to feel the full benefit of automatic enrolment which younger generations will experience.

However, there are further concerns that things could change yet again, as the government has stated that law on the proposed pension changes won’t be passed until 2023, essentially preparing to pass the legislative aspects on to a future government. Thanks to Theresa May’s weakened position and Labour’s opposition to the proposed increases to state pension age, the changes may not happen at all.

As such, there have been calls from those in the financial world for an independent body to oversee any future changes, as well as the establishment of a national savings strategy to help people with their savings and investments to provide for their future

Sources
http://www.telegraph.co.uk/pensions-retirement/financial-planning/state-pension-shake-everyone-50-needs-know/

Whether you’re nearing the start of your retirement or you’ve still got a few years of work ahead of you, it’s likely that you’ve already started planning this next significant phase in your life. But no matter how much you read, how many numbers you crunch and how many pounds you put away, you might still find yourself constantly adopting a pessimistic view on what should be the period of your life set aside purely for you to enjoy yourself. Psychologists describe this as “awfulizing” – focusing on everything that could go wrong, to the point of forgetting about all the positives that are likely to await you.

It’s a feeling that many retirees describe having in the countdown to finishing their working life. It’s often not a rational response: even those who have saved plenty for their retirement, mapping out the likely eventualities and ensuring they have a financial safety net, can find themselves overwhelmed – panicked even – by the realisation of the huge amount of free time and opportunities which will soon become available to them. A little bit of worry about the unknown is natural, but it’s when this worry blocks your path to achieving your retirement dreams that it develops into full-on awfulizing.

So, if you feel yourself slipping into awfulizing, how can you overcome it? It’s personal to everyone, but there are two steps. The first is to take ownership of those things within your control. Sound financial planning and taking some professional advice should be at the top of this list, as without enough money to see you through your retirement, your imagined fears may well end up as a reality. Being open and honest about this with family is a good idea to ensure that your plans and commitments once you retire are known and understood by everyone who might be affected.

Having taken care of what you can control, the second step is to address those things that you can’t. Accepting that some eventualities simply can’t be planned for is essential to reduce your awfulizing tendencies, but in order to banish them completely you need to become comfortable with uncertainty. View your retirement as a story that hasn’t yet been written rather than a plan from which you can’t deviate. As long as you balance management of the elements you can control with acceptance of those you can’t, you should find yourself free from the awfulizing mindset that can threaten your enjoyment of the best time of your life.

Sources
https://www.forbes.com/sites/nextavenue/2017/06/23/how-i-stopped-awfulizing-retirement/#3da564571baf

Once upon a time, commercial air travel was one of the ultimate luxuries reserved for the rich, famous and powerful, primarily because of the expense involved in doing so. The world where that was true now feels like one from a very long time ago, with ever-advancing technology making flying cheaper and easier and the rise of budget airlines making catching a plane something that everyone can enjoy – or not, as the case may be. With flight delays and cancellations a common occurrence, heightened security measures leading to longer waiting times to board, and incidents such as the violent removal of a passenger from a United Airlines flight in April this year, commercial air travel has not only lost its glamour, but is now something many passengers are coming to dread.

It’s perhaps not surprising, then, that a number of companies are working to put the prestige back into plane travel. These start-ups are looking to strip out the booking and scheduling time passengers experience when using the bigger airlines through utilising private jets. One such company is JetSmarter, which seeks to sell empty seats on private jets through an online booking process. The company plans to use smartphone technology to make it as easy to reserve a place on a flight as it is to book a cab through Uber. JetSmarter doesn’t own or operate the planes themselves, but instead works with various private plane operators throughout the US.

The approach could potentially open up private jet travel to new customers whilst making it far more affordable. However, don’t mistake JetSmarter for a budget service: customers are required to pay an annual fee of $15,000 US (around £11,500), with those wanting to be able to arrange flights themselves rather than accessing seats on existing flights needing to pay additional costs. Not cheap, but for those who fly regularly and who are looking for a travel experience away from the trials and tribulations of using commercial airlines in 2017, it may prove to be a price worth paying.

Sources
http://www.bbc.co.uk/news/business-40443119

A recent study by HSBC has revealed the main financial worries of the ‘millennial’ generation, recognised as those born between 1980 and 1997. As its title suggests, the ‘Future of Retirement’ survey focuses primarily on how millennials feel about how they are preparing for life after work, but also delves into the wider issues around money and modern life which are inherently linked to the subject.

In general, millennials see themselves as less fortunate than the generations which have come before them. Over half (52%) felt that they had seen weaker economic growth than previous generations, whilst 60% said they saw themselves as experiencing the consequences of decisions made by those older than them, including rising national debt and the global financial crisis. In relation to retirement, 65% of respondents are worried that they will run out of money when they retire, whilst 46% were concerned that employer pension schemes would collapse without any payout for their generation.

The average age that millennials begin saving for their retirement is 27, with just 13% admitting to not having begun putting money away for their pension yet. 76% said that curbing their current spending was difficult but necessary to save for later in life, whilst 68% are willing to do so. When it comes to investment, nearly half of those surveyed (48%) said they would go for a risky opportunity which had the potential for greater returns further down the line.

Expanding out to look at the concerns of all those currently working, which includes both Baby Boomers (those born between 1945 and 1965) and Generation X (born between 1966 and 1979), the survey found that only 17% were worried they wouldn’t be financially comfortable in retirement based on their current savings, with a worrying 14% admitting to having not been able to save anything. However, over half (52%) said they felt that due to the constantly changing financial climate, their current retirement plans would not be relevant.

When asked about back-up plans, around two thirds (67%) of working people said they would continue working in some way after they reached their retirement, whilst more than four fifths of people (82%) said they were intending to retire two years later than originally planned in order to give themselves greater financial stability. 41% also said they wouldn’t mind taking on a second job or working for longer to supplement their pension pot.

The key guidance from HSBC’s research is that starting to save early is the best way to ensure you have sufficient savings to support yourself after you’ve retired. Another key message is the importance of seeking advice, with many people now using technology to plan their retirement: almost half of those surveyed (49%) have used the Internet to research their options, 35% have used online retirement calculators and 27% have contacted advisers online. Online savings accounts are also popular, with 41% saying that they are using one to put money away.

Sources
http://economictimes.indiatimes.com/wealth/plan/hsbc-survey-finds-out-why-retirement-is-worrying-millennials-and-what-they-are-doing-about-it/articleshow/58869087.cms

Whilst the country takes in the latest developments in the ongoing saga that is contemporary British politics, one question that many will be looking for answers to, is how the result of the general election is likely to affect them financially. It’s inevitable that savings and shares will be impacted upon in some way by Theresa May’s failure to convert her confidence in April into a larger majority in June and the resultant Conservative/DUP deal, as well as the wider ramifications the election outcome might have for the upcoming Brexit negotiations.

Following the election and the slight fall in the value of the pound, shares in many of the largest British companies went up. As companies dealing in dollars and other currencies benefit from a weakened pound, the FTSE 100 initially rose. However, ‘local’ companies dealing in sterling, such as Lloyds Banking Group, housebuilders Crest Nicholson and retailer Next all came out worse off, as did smaller companies linked to the UK economy.

As such, those with diversified pensions and ISA funds are likely to be no worse off than before the election, and doing significantly better than this time twelve months ago. However, it’s worth remembering that the uncertainty and volatility that are likely to be seen in UK politics in the coming days, weeks and months could result in shares and investments shifting further.

Whilst interest rates on both savings and mortgages were at historic lows before the election, capital markets pushed these still further down the day after polling day in order to absorb some of the shock of a result most had not predicted. This is just the latest setback for savers in a period which has seen rates declining consistently since the Bank of England lowered the Bank Rate from 0.5% to 0.25% in August 2016. With little competition between lenders, it’s more likely that rates will fall further than begin to climb any time soon.

The housing market too has been slowing since well before the election, making it a good time for those looking for a great deal on a mortgage to find one – but only if they meet the increasingly fastidious lending methods being used by lenders. The economic instability the country could potentially see in the coming months mean that criteria may tighten further, so those hoping to benefit from a low mortgage rate should do so sooner rather than later in order to avoid missing out.

Sources
http://www.telegraph.co.uk/investing/funds/hung-parliament-nine-key-questions-personal-finances/
http://www.bbc.co.uk/news/business-40215152

 

The market reaction to Theresa May’s decision to call a snap general election to take place on 8th June was, thankfully, relatively minor. After reaching a record high in March 2017, the FTSE 100 dropped by 3% following the Prime Minister’s surprise announcement last month. Compared to the negative reactions experienced following both the 2012 eurozone crisis and the Chinese economy concerns at the start of 2016, this was reasonably slight.

Whilst the election period brings uncertainty, almost every general election in the last two decades has not caused the FTSE 100 to become more volatile in the weeks either side of election day. It’s therefore more than likely that the markets will continue without any major disruption, even if a new government comes into power. It’s usually only genuinely unexpected results which cause markets to rise or fall considerably, with the most recent example being the referendum vote for Brexit last year.

There are, however, still things you can do to minimise any impact of the election on your pension pot or savings accounts.

A well-diversified investment portfolio – a mixture of bonds, shares, property and cash across different sectors and countries – means you’ll be spreading risk and making it more likely that a rise in one sector will soften the blow of a fall in another. It’s likely that you’ll have a particular outcome in mind for your investments, whether that’s securing your retirement in the future or reaching a particular financial goal by a certain time, so sticking to this is the right thing to do rather than becoming distracted by any short-term ups and downs in the markets.

Look out for any investment perks that are brought in soon after the election result as in order to raise revenue, most new governments will introduce policies to help you grow your finances. Don’t forget about the benefits already available to you either, such as ISA and pension allowances, as these can also be a good way to protect your savings from any market volatility. Lastly, drip feeding your investments month by month can be a good way to combat uncertain markets – you might not capitalise fully on a market high, but you’ll avoid losing out during any sudden lows.

Sources:
http://www.which.co.uk/news/2017/04/how-will-the-general-election-affect-my-pensions-and-isa/

An asset class is a broad group of investments that have similar financial characteristics.  Traditionally, there are four main asset classes:
Cash
Shares
Property
Fixed-interest securities (also called bonds)

At its simplest, an asset class can be defined as a broad type of investment. The video below should help to explain it in visual terms.

Sources:
ClientsFirst
https://www.moneyadviceservice.org.uk/en/articles/asset-classes-explained

ISAs have long been regarded as a simple and effective way of protecting your savings from the taxman, with the increased limit now allowing you to shelter up to £20,000 of your savings a year from being taxed. Whilst this can be a great help in protecting your nest egg during your own life, you’ll also want to know that your hard-earned savings will be safe after the event of your death so that as much of the money you’ve accumulated as possible can go to those you leave behind.

Thankfully, in the case of a spouse, this need not be a worry. The government introduced legislation in 2015 which means that surviving husbands, wives or civil partners can inherit an ISA from their other half with the tax-free wrapper remaining intact. The ISA will also not be subject to inheritance tax (IHT) if it’s being passed on to your spouse.

However, if you’re leaving an ISA to another family member, such as a child, the amount held in the account is still considered to be part of your estate. It could therefore be a contributing factor in pushing your assets over the amount that can be left to someone else without incurring tax, known as the ‘nil rate band’. As IHT is payable at a rate of 40%, this could put a serious dent in the amount your loved ones will actually receive after you’re gone.

If your savings are likely to push your estate above the nil rate band, there are options available to reduce the amount taken by the taxman. It’s now easier to safeguard your pension from IHT, no matter who you’re planning to leave it to. Those hoping to leave their money to someone other than a spouse or partner might consider keeping their money in a pension and live off their ISA income as far as possible, thereby being able to pass on their pension pot to a loved one without incurring tax upon it. It’s important to remember that not all pensions are set up to allow this, so it’s normally a good idea to seek professional advice about the best way to protect your estate from being taxed before making any plans for your savings.

Sources
http://www.telegraph.co.uk/money/special-reports/can-i-transfer-an-isa-on-death-without-penalty/
http://www.telegraph.co.uk/financial-services/investments/inheritance-tax/isa-tax-rules/
http://www.which.co.uk/money/savings-and-isas/isas/guides/cash-isas/can-you-inherit-an-isa

It wasn’t all that long ago that investment in buy-to-let property was seen as a straightforward way to generate an income for yourself. However, recent changes made by the government mean that turning a profit through buy-to-let in today’s property market is set to become much more difficult. Each case is individual, and the profitability of a property isn’t as simple as looking at the price of the property and the amount of rent it generates each month, but for many, buy-to-let will soon no longer be the attractive investment opportunity it once was. So what has changed?

From the start of April 2017, the amount of tax relief that can be claimed by a landlord on the interest on their buy-to-let mortgage has fallen. Higher rate taxpayers used to be able to offset all of their mortgage interest against their rental income before they calculated how much tax they owed, but this year they will only be able to offset 75% of the interest. This percentage is then set to reduce again to 50% in 2018 and 25% in 2019. No interest at all will be eligible to be offset in 2020, with a 20% tax credit being introduced instead.

Not only does this mean that investors are set to face growing tax bills over the next few years, even if their income has not increased, but it also means that some taxpayers currently on the basic rate will be pushed into the higher rate tax bracket when their rental income is taken into account. It will also have an impact on means-tested benefits, with some set to lose out on these through the new system.

For existing landlords, there are options to soften the blow of the new tax arrangements. Some buy-to-let owners, particularly those in the priciest areas of the country, such as London, are selling their properties in order to reinvest in multiple properties elsewhere. As companies are not subject to the new tax laws, purchasing these properties through a company will prove to be a better choice financially even taking into account potential capital gains tax.

As residential mortgages are usually at a lower rate than buy-to-let mortgages, another option for landlords is to remortgage their main residence and use the money raised to reduce their buy-to-let mortgage. A buy-to-let offset mortgage is also possible, although this option will only be open to those who meet the eligibility criteria. However, the option that around two thirds of landlords have said they plan to go for is raising rent, with the average increase expected to be between 20% and 30%.

Sources
http://www.thisismoney.co.uk/money/buytolet/article-4313456/Where-invest-buy-let-yield-beat-tax-hike.html
http://www.telegraph.co.uk/investing/buy-to-let/new-buy-to-let-tax-works-andhow-beat/