fbpx
UK Financial Adviser
Categories
All Insights

Clever Ways To Make Your Money Work

Clever Ways To Make Your Money Work

The rising cost of living is challenging people to find additional sources of income to cover their everyday expenses, including food, fuel and energy costs.  Generating passive income is just one strategy to boost earnings without having to take on another job.

Passive income is money you make with minimal time and effort. It is when your money or your assets effectively work on your behalf to boost your income. If you have a lump sum that you aren’t sure what to do with, finding a way to turn it into a passive income can help your money work harder and improve your financial resilience.

Here are some ways to earn passive income:

Dividend Paying Stocks

Investing in dividend paying stocks you become a shareholder of a company and are entitled to dividend payments. Dividends aren’t guaranteed, but they can provide a good source of passive income if you have the right shares in your portfolio.

Some guidelines for investing in stocks for a dividend is investing in companies that have a proven track record of providing a good return. Check to see if dividends from the company have been growing over time.

Advantages of investing in stocks as a source of passive income include:

  • Potential for a steady income stream
  • Some protection from stock market fluctuations.
  • A long-term source of income.

However, there are also disadvantages that every investor should be aware of. These include:

  • Share prices may decline

  • Tax of dividends may increase

  • There is less appreciation than with growth stocks

Exchange Traded Funds (ETF’s)

Another option to consider is investing in exchange traded funds (ETFs). ETFs combine the advantages of stocks, bonds, and mutual funds while giving you access to a wider selection of investments at lower expense ratios. Additionally, they can be purchased or sold at any time.

Advantages

  • Able to diversify your portfolio to track a wider range of stocks, or even attempt to mimic the returns of a country or a group of countries.
  • Lower expense ratios
  • ETFs tend to realise fewer capital gains than actively managed funds

Disadvantages:

  • Over-diversification as ETFs are generally not actively managed, but are set up to track a specific index.
  • Lack of liquidity hinders transactions
  • Some knowledge is needed

Buy-To-Let Property

Investing in property is considered one of the best ways to secure a passive income stream. Even though it requires the biggest financial investment and commitment, investing in buy-to-let property can generate significant levels of passive income and, as an added bonus, you have an asset at the end.

Advantages of buying a property and renting it out include:

  • Provides a steady income stream
  • Potential house price growth
  • Rent price can fluctuate with inflation, meaning no diminishing returns

Disadvantages are:

  • Landlords are liable for income tax, stamp duty and capital gains tax
  • Responsibility for maintaining the property
  • Finding tenants

Savings Account

Allowing your money to earn interest in a high-interest savings account is one of the simplest methods to make it work for you. More incentives to maintain money in a bank are provided by these kinds of accounts. It’s a long-term investment that can take a year or two to start paying off, but over time it can be a very wise one, making it a very low-risk way to make residual income.

So What Is Next?

As with any investment, you should think about the product’s level of risk and your ability to withstand losses. Unless you hold investments in a tax-efficient vehicle like an ISA, income tax will often be due on passive income.

Passive income is still income and you will need to pay tax on anything you earn above the tax-free amount. Speak to your financial adviser to ensure you enjoy the benefits of earning passive income while ensuring your tax liability is covered.

Written by: Kariemah Boltman

23 September 2022

Categories
All Insights Old Events

CBAM – Q3 Portfolio Performance & Review

On the 12th of October, we are hosting a webinar with our Discretionary Fund Manager, Cape Berkshire Asset Management (CBAM).

The heads of the investment team, Mark and Sam, will be your hosts for the webinar and they will offer insights that we don’t normally share with clients or the public, so book your seat and bring along any questions you may have.

Join Mark and Sam on the 12th of October for 45 minutes to 1 hour.

What will be covered?

  • 2022 Q1 Macrothemes
  • Portfolio Performance
  • Portfolio Positioning
  • Remainder of 2022 Outlook and Strategy

Those who register to the event will be sent a link to the webinar a day prior to the event.

Days
Hours
Minutes
Seconds

Contact Us For More Info

Categories
All Insights Product Knowledge

How To Achieve Successful Budgeting

How To Achieve Successful Budgeting

To be successful in most things the first step is to create a plan – as the saying goes: failing to plan is just like planning to fail! This holds true for financial wellbeing and a huge factor in your financial security is to budget. We advise everyone starts with a simple and achievable plan and in the world of money management this is known as a budget. For some this comes naturally but for others it can be a very daunting task, however it does create the stepping stones to potential savings and is especially important in the ever changing world we live in. 

1) Use real figures

A place to start when creating a budget is to use real income figures and real expenditure, allowing for deductions (like taxes) and actual spends throughout the month. This might not be quite what you were expecting when you group the spends together in categories, for example you may currently have £65 a week for food in mind when in reality this is more like £70 a week – which would actually increase your real monthly spending by £20! Also, that coffee you occasionally treat yourself to ‘once a week’ might actually amount to another £50 per month that you haven’t considered.

2) Separate ‘wants’ from ‘needs’

This is a really crucial part of your budget, and these categories range for different people. A ‘want’ is something that could make your life better but fundamentally you could live without it; however, a ‘need’ is essential for you to be able to live and work.

For example, my needs would currently include a winter coat to prepare me for the winter and forms an essential, however for others they may have one already in their wardrobe and an update for this season would fall within their ‘wants’ category.

A ‘need’ is usually a recurring expense, and we find that, in most cases needs would account for the majority of your budget.

3) Set yourself goals

Work out your short-term goals and separate those from your long-term aspirations, this can be hard to distinguish but can help in creating various savings and investment pots. It is much easier to reach your goals by identifying them in advance.

4) Allow for surprises

Who knows what unexpected events may occur, having a safety blanket of funds beneath you can really help in relieving financial anxiety. This is called an emergency fund and should only be allocated to expenses that can’t be avoided and would take pray yourself first, create a regular transaction into your savings as soon as possible after you receive your income.

5) Put your plan into action

Now you’ve got to this step, you’ve done most of the hard work and preparation to firstly understand your financial position and make improvements. You can start to implement a further savings plan to reach those goals you’ve set for yourself. If one of your goals was to spend less on food, consider preparing your lunches in advance so you won’t be tempted to spend during the week when you’re out and about. 

5) Put your plan into action

We’re all humans and make impulsive decisions from time to time, however, don’t let this put you off managing your budget. If that one night out you had has consumed the entirety of your entertainment budget for the month then making a plan to cut back on other things may alleviate future strain. The main point in maintaining a budget is to do this over and over again and it’ll eventually become a habit – you may even learn to love it. Time is your friend, and the more consciously you treat your money, the better you’ll get at managing it.

Written by: Claire Calder

16 September 2022

Categories
All Insights Market Updates Product Knowledge

Inflation Numbers, What Does It All Mean?

Inflation Numbers, What Does It All Mean?

The leaves are gradually turning orange and falling off. The last days of summer may well be behind us as we gear up for what could be a very cold winter. As we head into this winter, the word on everybody’s lips is inflation. We are hearing it everywhere. I previously wrote about it in an earlier blog where we looked at when last did, we experience this level of inflation and what it could mean for you. We are a few months from that article, and it looks like inflation has not stepped off the gas pedal. The Bank of England is reporting the current inflation rate to be over 10%. This is well above the target inflation rate of 2%. So where does that leave us and what is the forecast over the next few months as we head into winter?

Headline Inflation Rate

Firstly, we need to understand the inflation number that we hear almost daily. This number is the Headline Inflation Rate. This refers to the change in the value of all goods in the basket. It is this “basket” that forms a central part of the calculation of the inflation rate as it is the measurement of the change in price for different household items and materials that are integral in the running of households. The current “basket” has around 730 representative consumer goods and services. It is through monitoring the change in prices of this basket that we can get a sense of the true value of investment returns as inflation affects all aspects of the economy.

Headline Inflation Rate​ vs Core Inflation Rate

Now this headline inflation rate is different to the core inflation rate as it is the core inflation rate that excludes food and fuel. It is the food and fuel that tend to fluctuate more than the rest of the basket of goods and services which lends this measure of inflation less volatile than the headline inflation rate.

Typically, in developed economies, food and fuel will account for 10-15% of the household consumption basket as opposed to economies in the developing world where it forms close to 30-40%.

Why Are The Rates High?

So why is the inflation rate at levels that we haven’t seen since the early 90s? It basically boils down to higher energy prices at this stage. Russia’s invasion of Ukraine has led to the gas price to more than double. This has increased the pressure on the value of the basket of household goods as you will be paying more for fuel and energy as a result of the need to import the energy from the producing countries like Russia.

The Bank of England has forecasted the inflation rate to push even higher over the next few months, to around 13%. This means that you will need to plan accordingly for this squeeze over the upcoming months.

Will The Inflation Rate Decrease?

The action to combat this increase in the inflation rate is to raise interest rates. Interest rates are the biggest arrow in the quiver of the Bank of England in combating the inflation rate. They have raised the rate to 1.75% as of August 4th with more increases planned over the coming months. What this means for you is that borrowing will get more expensive but you will be rewarded more for saving. These actions will drive down people’s spending and will help push inflation down.

Outside of the Russians retreating and energy imports stabilizing, it will turn out to be a long winter for many as budgets are squeezed to breaking point.

Written by: Gregory Armstrong

02 September 2022