Read between the lines: Counting the cost of Christmas

We regularly bring you a column from Simon Read, a personal finance expert with extensive experience in helping people make the most of their money. In his last piece, Simon looked at the potential impact of rising interest rates on your personal finances.

Isn’t it great that Christmas is upon us? Season’s greetings to you all – but a warning too.

Yuletide is an expensive time: and if you don’t plan your spending, you could wake up in the New Year with a costly hangover.

Don’t get me wrong, I enjoy the time of goodwill and excess. But when you’re spending more than usual, you should take a more than usual interest in your spending. Frankly it comes right back to budgeting basics. If you plan your spending, then there’ll be no ghastly financial surprises. Experts at Deloitte reckon the average UK shopper will blow £542 this Christmas. That’ll be £283 on presents, £140 on food and drink, £63 on socialising and £56 on travel.

How does that compare to your plans? I know travel could be a lot more expensive, for instance, for those who have to visit family on the other side of the country! But, if you want to splash out at Christmas and can afford to then my advice is go for it. One of the basic tenets of good money management is ensuring you give yourself some fun money.

Without it life can turn into a series of fairly dull financial challenges where you’re always looking to maximize returns on your cash or ensure it’s working hard for your future happiness. But your happiness now is equally important so enjoy the chance to spend a little of your hard-earned and spread a little joy!

However here’s a serious warning: if you’re leaning on a credit card to cover the cost of Christmas, keep a close eye on it to ensure you can clear the debt in January. Nearly two in five families will pay for Christmas on plastic this year, reckons the charity National Debtline.

That’s fine if you’re doing so for convenience and will pay it off next month. But it’s dangerous if anyone puts stuff on a card because they can’t afford to pay it now. That creates worry and potential debt problems.

If you ever find yourself in that position take a step back and ask yourself if you really need to borrow to pay for whatever it is or if you can do without it. The bottom line is that Christmas is the season of goodwill, and people won’t complain if you don’t deliver an outrageously-expensive gift because you may have had to tighten the belt a little more this year.

With that in mind the New Year is a great time to make some positive resolutions. If you haven’t formulated some spending and saving plans for 2018 then make a list, check it twice, and plan to introduce some sensible money habits in January. You can start by running the rule over all your savings. If you have a nest-egg languishing in a building society or bank account then have a look at how much interest it’s paying. I can guarantee it will be relatively paltry.

Make one of your New Year’s resolutions to get more from your savings. You already know you can getter better returns with peer-to-peer lending. Now with the new Funding Circle ISA in the process of being rolled out to current investors, these returns can now be earned tax-free. For a balanced portfolio and looking over the longer term you could also look at opportunities in stock markets. Although with more potential Brexit turmoil ahead, that’s something to consider very carefully.

The key is to start the year on the right foot with a positive approach to your savings. Do so and you’ll end the year better off, and with more money to help pay for the Christmas excess of 2018!

The views expressed here belong to the author and do not represent those of Funding Circle. Funding Circle is not authorised to, and does not, provide investment, tax, legal or regulatory advice.

The information and views contained here are provided solely for informational purposes and should not be construed as legal, tax, regulatory, accounting or investment advice, or as a recommendation or an offer or invitation by Funding Circle.

To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, such information contained here.

If you have any questions, please speak to your professional adviser or seek independent specialist advice.

Read between the lines: How can rising interest rates affect your finances?

We regularly bring you a column from Simon Read, a personal finance expert with extensive experience in helping people make the most of their money. In his last piece, Simon provided some pointers on planning for retirement.

The much-anticipated interest rate rise finally hit at the beginning of November. It was interesting for two main reasons.

First is the fact that it was the first rise in the Base Rate for 10 years. Do you recall what it climbed to then, back in July 2007? The base rate actually went up 0.25% to 5.75%. That seems incredible now, when we’ve experienced almost a decade of record low interest rates.

In fact it’s only been for 18 months that the rate has been at its all-time record low of 0.25%. This month’s rate increase saw it climbing back to 0.5%, where most savers and borrowers have experienced it since the Bank of England lowered it to that level to March 2009.

But the second interesting thing about the rate rise is what it tells you about your money. If you haven’t already got the message that it should be a wake-up call for you to check your finances, then now is the time to get your house in order.

It’s extremely likely that the rate increase is just the first of many over the next 12 months or so. The Bank of England will need to act again to protect Sterling ahead of Brexit and to counter rising inflation. So you should be acting to protect your interests, with interest being at the forefront of your mind.

Think about your savings. While a rise should mean better interest offered at banks and building societies, rates are still likely to remain paltry on deposit accounts. That means thinking carefully about where to stash your nest egg and making the most of alternative options such as peer-to-peer lending or, if you’re prepared for greater risk, stock market-linked investments.

What about your mortgage? If you’ve got a fixed rate loan then you won’t notice the effect of any interest rate rise until the end of your deal. But with further increases ahead, by the time you arrange a new deal, charges may be much higher.

For that reason it’s worth looking at switching sooner.

However you need to check if there are any early repayment penalties on your existing deal and do your sums carefully to ensure that switching will actually be worthwhile in the long-term, especially after taking into account any new charges you may incur.

If you have a variable rate mortgage or tracker then you will be hit by the rate rise much sooner.

By how much? The Nationwide building society reckons a 0.25% rate rise would increase monthly payments by £15 to £665 for the average variable mortgage, or an extra £180 a year. Depending on the size of your mortgage, the rate increase could cost you much more.

However much it is, it’s worth checking out fixed mortgage deals to work out if it’s worth changing. If you have a low variable rate, then you should probably stick with that for the moment. If you’re paying 3% or more, however, then you would be better off finding a lower fixed rate.

And in the months ahead keep an eye on rates.

Some lenders priced in the rate rise to their mortgage rates some weeks ahead. If you see a trend for fixed rates to start to rise, that may be the time to act, before the best low deals disappear altogether.

The views expressed here belong to the author and do not represent those of Funding Circle. Funding Circle is not authorised to, and does not, provide investment, tax, legal or regulatory advice.

The information and views contained here are provided solely for informational purposes and should not be construed as legal, tax, regulatory, accounting or investment advice, or as a recommendation or an offer or invitation by Funding Circle.

To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, such information contained here.

If you have any questions, please speak to your professional adviser or seek independent specialist advice

Read between the lines: look after the pennies…

Each month we will be bringing you a regular column from Simon Read, a personal finance expert with extensive experience in helping people make the most of their money. In his last piece, Simon looked at the effect rising inflation can have on your funds.

I filmed up and down the country for the latest series of Right On The Money for BBC1 and it proved a sharp reminder that there are lots of us that are a little careless with our cash.

By that I don’t mean to suggest that we drop notes all over the place (although my research in the streets of central London shows that many DO drop coins). But I have learned that many people spend without thinking. And by doing that, they waste money by overspending or paying too much for stuff.

I know that thinking about what you spend can be a bit tedious, but look at it this way; spend more wisely and you’ll end up better off by hundreds, if not thousands of pounds.

Then the only problem you’ll have is how to spend the money. Invest it? Take a good trip? It’ll be up to you. And that’s the point I’m trying clumsily to make. If you can be a savvy spender, it will give you choices. The more money you have, the more choices you have.

The key to all this is planning. Plan your spending. If you do that, you won’t overspend and you won’t waste money. I’ve been surprised when we’ve filmed with different families how many people don’t make a shopping list. Without it, as I know from experience, you wander around a supermarket snapping up what you think may be bargains. But that simply means you overbuy and overspend.

Here’s a truth: if you find what you think is a bargain at a supermarket, the happiest person is likely to be the supermarket manager. That’s because they know you’ve fallen for one of their marketing tricks, such as buy-one-get-one-free. All retailers are in the business of flogging you stuff you didn’t want to buy. If you leave a shop with a bargain, the shop is likely to have got the best part of the deal. If you plan your shopping then you should only buy what you know you need. If something on your list is on special offer, then give a little cheer as you actually have found a bargain. But buying a special offer because it’s a “bargain” means spending money you didn’t need to. In other words, wasting money.

If you think this sounds like saving a few pennies here and there, think again. Some of the people we filmed shopping without a meal plan and a shopping list wasted huge amounts. We helped them halve their monthly grocery bill and in one instance that cut a profligate family’s food bill from around £300 a week to just £150. That freed up an extra £7,200 a year – enough for a luxury holiday, a big step towards a deposit on a home, or a decent nest egg to invest for the future.

Look, I don’t want to teach you to suck eggs, just be a bit more sensible about how you buy eggs. Plan all your spending and you’ll end up planning a decent load of extra money for yourself as well as avoiding throwing away huge quantities of food. Think again about all your daily expenses and you could discover a fistful of extra cash you could keep for yourself.

A couple of coffees every day at £2.50 a pop, for instance, may seem like a small and justifiable expense. But if you can cut them out you could save around £1,200 a year. I love coffee, but just buy a £2.50 bag of ground coffee and make it last a week by using the hot water in the office. That costs me around £120 a year, saving me more than a grand on café-bought coffees.

Food for thought? I hope so!

To recap, Simon’s top tips to save you money are:

  • Plan in advance to avoid overspending (there are plenty of apps out there that can help, for example Money Dashboard which helps keep track of all your accounts in one place)
  • Beware of special offers – only get them if they’re already on your list
  • Cutting even the small purchases can make a difference – look at your regular outgoings and see where you can make savings   

The views expressed here belong to the author and do not represent those of Funding Circle. Funding Circle is not authorised to, and does not, provide investment, tax, legal or regulatory advice.

The information and views contained here are provided solely for informational purposes and should not be construed as legal, tax, regulatory, accounting or investment advice, or as a recommendation or an offer or invitation by Funding Circle.

To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, such information contained here.

If you have any questions, please speak to your professional adviser or seek independent specialist advice

Read between the lines: What does rising inflation mean for your money?

Each month we will be bringing you a regular column from Simon Read, a personal finance expert with extensive experience in helping people make the most of their money. In his last piece, Simon looked at the changes introduced last month with the new tax year.

Inflation is rising – and is set to climb even higher by the end of the year. Official figures revealed a surprise jump in the headline rate of inflation to 2.3% in March, its highest rate for four years. And it is estimated to climb to 2.8% by the end of the year.

Why is it rising and why should you be worried about it? Inflation is measured by comparing the price of a basket of goods. They represent typical purchases by British people and the way the basket itself changes is interesting. For instance, this year has seen the introduction of gin and cycle helmets to the basket to reflect changing spending habits. Meanwhile menthol cigarettes and fees for stopped cheques have been dropped. As an aside, VHS video tapes were only scrapped from the inflation basket 10 years ago, although it seems like a lifetime since anyone bought them!

The inflation figure tries to reflect the real-life spending patterns and rising – or falling – costs. And rising inflation means it’s getting more expensive to live. It’s been ever thus. However higher inflation is hopefully offset by higher wages, meaning your money should go as far as ever.

But there’s one area where inflation is hitting hard right now – our savings. If you can’t get a savings return higher than inflation, you’re losing money. The cash in your nest egg will be worth less and less as inflation outstrips the returns you get. And right now, no-one can get an inflation-beating rate from traditional banks and building societies with even the much-heralded new Government-backed savings bond paying less than inflation at 2.2%.

So if you don’t want your savings to shrink, you need to do something about it. That means finding better returns. But you can only get better returns by exposing your hard-earned cash to greater risks/Does rising inflation strengthen the argument for investing in peer-to-peer platforms? Of course it does. But it also strengthens the argument for investing in stock markets, where you may be able to get even better returns. For instance, the FTSE-100 climbed from a level of 6200 a year ago to around 7200 now. That’s a rise of 16%. If you’d invested in the right funds 12 months ago, you’d be sitting on returns that far outstrip inflation.

But the key to stock market investing is timing. Get it wrong, and you could face huge losses. For instance if you’d whacked your savings into the market on 20 March, you would have got in when the FTSE stood at 7430. That was the day that the current Prime Minister sent markets spinning by revealing she would be triggering Article 50 just over a week later. If you’d have hung on until 20 April and then sold in panic you would have got out when the FTSE stood at 7118. That would have meant a loss of more than 4% in just a month – not so attractive, is it!

The point is this: while inflation is a worry to savers, the fear of losing your nest egg is greater. It’s not sensible to switch all your savings out of low-paying bank and building society accounts into high-risk shares. The key is to find a balance. Keep your rainy day savings, your emergency money, to hand in a deposit account. Consider peer to peer platforms for your nest egg, cash you may not need for a while. And if you have money you can afford to risk, that you won’t need for at least five years, look at stock market-linked options, such as equity income funds.

The views expressed here belong to the author and do not represent those of Funding Circle. Funding Circle is not authorised to, and does not, provide investment, tax, legal or regulatory advice.

The information and views contained here are provided solely for informational purposes and should not be construed as legal, tax, regulatory, accounting or investment advice, or as a recommendation or an offer or invitation by Funding Circle.

To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, such information contained here.

If you have any questions, please speak to your professional advisor or seek independent specialist advice

Read between the lines: New tax year, new tax planning

Over the next few months we will be bringing you a regular column from Simon Read, a personal finance expert with extensive experience in helping people make the most of their money. Last time we caught up with Simon to get his reaction to the recent Spring Budget. In this column, Simon looks at what changes the upcoming tax year may bring for you.

The new tax year begins on 6 April. There’s usually a lot of noise before that date for people to make the most of their existing year’s tax allowances, or lose them forever. That’s sound advice but making any financial decision in haste can lead to expensive mistakes. That’s why I encourage everyone to do their tax planning at the beginning of the financial year, so there’s plenty of time to take account of what may be a changing situation.

What’s different about the 2017/18 tax year? It’s mainly a question of changing limits – the deadline to act will be exactly the same as it has been in previous years, 5 April. For savers the most notable change is the increase in the tax-free ISA allowance to £20,000, up from £15,240. That’s a massive jump but, to my mind, the biggest advantage is that the new figure is a nice round number and easier to remember!

The 6th April also sees the introduction of the new Lifetime ISA, aimed at first-time homebuyers and people saving for their pension. You need to be under 40 to open one and the big attraction is that the government has promised to top up your savings by 25%. However there are several restrictions and a limit of £4,000 each year. So, while it’s worthwhile for hopeful homebuyers to take advantage or even switch an existing Help to Buy ISA to a Lifetime ISA, anyone looking to save for their retirement is likely to be better off sticking to a company pension scheme, if they have one.

There’s also the Innovative Finance ISA which allows you to shelter your investments through peer-to-peer platforms in a tax-free account. The established platforms are yet to launch their ISA products, so this is something to look out for.

Meanwhile the Personal Savings Allowance introduced in April 2016 continues and means you can earn £1,000 of interest and pay no tax on it if you’re a basic-rate taxpayer, and £500 of interest if you’re a higher-rate taxpayer.

The amount of tax the authorities will demand from you is likely to fall in 2017/18 as the personal allowance is climbing from £11,000 to £11,500. That means an extra £100 for basic rate taxpayers.

The higher rate threshold, the point at which you start paying tax at 40%, is effectively climbing from £43,000 to £45,000, giving anyone earning about that level a £300 boost. That’s unless you live in Scotland where the threshold has been frozen at £43,000.

I haven’t yet mentioned pensions, salary sacrifice, company car tax, capital gains tax, inheritance tax, or several other areas where the tax situation has changed or may require your action. The point is this: you now have 12 months to get your head around your tax situation and act to make the most of it.


The views expressed here belong to the author and do not represent those of Funding Circle. Funding Circle is not authorised to, and does not, provide investment, tax, legal or regulatory advice.

The information and views contained here are provided solely for informational purposes and should not be construed as legal, tax, regulatory, accounting or investment advice, or as a recommendation or an offer or invitation by Funding Circle.

To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, such information contained here.

If you have any questions, please speak to your professional advisor or seek independent specialist advice.

Read between the lines: What does the Budget mean for you?

Over the next few months we will be bringing you a regular column from Simon Read, a personal finance expert with extensive experience in helping people make the most of their money. Simon has written extensively on personal finance issues for a number of national UK newspapers. Previously he was personal finance editor at The Independent, and is currently an expert on BBC1’s Right on the Money show.

Each month Simon will cut through the jargon to help you understand what is happening in the wider financial world. This month, we caught up with him to get his reaction to last week’s Spring Budget and what it means for you.

 

We’ll be hearing regularly from Simon over the next few months, so watch this space!

Enjoy lending,

The Funding Circle team

The views expressed here belong to the author and do not represent those of Funding Circle. Funding Circle is not authorised to, and does not, provide investment, tax, legal or regulatory advice.

The information and views contained here are provided solely for informational purposes and should not be construed as legal, tax, regulatory, accounting or investment advice, or as a recommendation or an offer or invitation by Funding Circle.

To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, such information contained here.

If you have any questions, please speak to your professional advisor or seek independent specialist advice