MANY years ago, faced with the job of filling the bath with water to have a scrub, my late father talked about trailing up and down the hill with buckets of that water. Today we just turn on the tap.
I couldn’t help but liken those two situations to managing our personal finances.
With our leaky splashing buckets (spending and poor tax planning) we make our way through the week filling our (baths) bank accounts with cash trying to get to the point where we can soak and relax.
Through sheer need and panic to fill the bath and stay alive, austerity clouds the obvious: Realise there are leaks; stop and fix the leaks, starting from the lowest and biggest hole.
Austerity also doesn’t allow us to ensure the bath is hole free, and that the plug is fine fitting. Indeed, the plug is often pulled out.
It is only when we manage to fix a few leaks with a windfall, wage rise, or a break, that we have time to fix the next one and exponentially we manage to gain financial control and have that relaxing soak.
For many, there is no time to see the holes, no time to fix them and at best just enough to soak their feet.
In five areas of the UK more than half the ADULT population has savings below £100. Northern Ireland is one of them. In the U.S., nearly three quarters of the population has less than $1000 in their bank account. These are ‘developed’ nations.
So what are the leaks?
The biggest is the mindset to do something about it. To think of it as a leak, and the futile journey each trip with the bucket.
Last week I covered the issues with credit cards – the single most important leak for many.
Spending habits are another key. Space prohibits decent coverage on the subject but the old adage of credit cards defined as an instrument that buys things we don’t need with money we don’t have is very relevant.
Start with: Do I need it and why?
The cost of commodities is easily manipulated by governments and corporations using complex financial instruments so look at where your key bills are and bring them under your control rather than the institutions with their hand in your pocket or a cordless drill pointed at your bucket.
For example, borrowing on a fixed rate (to ensure the cost of the debt and to budget) on your mortgage for solar panels will provide you with an income on the feed in tariff and via cheap, or free electricity, that will have that loan paid off in less than eight years - and its self funding.
I have an electric vehicle, which is also charged by the solar panels. Free travel. We are already two leaks plugged.
We could spend some time on the cost savings by borrowing on the property to fund every leak in the house to self-fund the debt. Space prohibits but it’s a great piece of work.
Take advice on your tax and personal finances for example:
Check your life insurance costs. As rates have fallen, you could receive far more for you expenditure than when you took the policy out. Better in your hands than the profit of the insurance company.
Consider employee share schemes as a method of saving which reduce your taxable income. Whilst they are liable to capital gains tax at the end, we all have allowances, which can be used to ensure no capital gains tax is paid.
Make pension contributions, for example, on behalf of your children – It’s a great way to reduce your estate and pass money to them and receive tax relief – a contribution of £2,880, attracts immediate relief and is topped up to £3,600.
Personal contributions also attract tax relief at your highest rate subject to a cap so be sure to maximise them.
A visit to a financial adviser will highlight the many, many leaks and most cost nothing but time to fix, and have you relaxing in a soaking bath.
:: Peter McGahan is the owner of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. For a complimentary initial chat on the above call Darren McKeever on 028 6863 2692, email dmckeever@wwfp.net or visit www.wwfp.net.
