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4 saving habits of millionaires

Archive for January, 2017

4 saving habits of millionaires

Wednesday, January 25th, 2017

There are no shortcuts or guarantees when it comes to achieving self-made millionaire status. That said, it can’t hurt to look at the financial habits of those who have managed to do just that to try and boost your own coffers. Here are our top tips from looking at those who’ve become millionaires by age 30. Who knows, they might just lead to you being worth seven figures in the future.

  1. Don’t rely on your savings – The current economic environment makes it very difficult to become wealthy through saving, so increasing your income is an obvious but good way to boost your bank balance. Whilst increasing your main salary can also be a challenge, you might think about other ways to achieve this such as earning passive income through property rental, or taking on freelance or consultancy work on the side (just keep an eye on any tax repercussions).
  2. Invest, invest, invest – Instead of saving for a rainy day, put your savings into investments. If you choose investments and accounts with restricted access to your funds, not only will this ensure your investments pay off, but it will also help you to focus on increasing your income rather than relying on money you’ve put away.
  3. Change your mindset – Nobody has ever become a millionaire without believing that it’s something they themselves can both achieve and control. The best way to do this is to invest in yourself. Spending time educating yourself about both your business area and the financial world in general will help you to understand how to capitalise on opportunities and genuinely believe you can increase your net worth.
  4. Make plans and set goals – You’ll only boost your wealth if you actually plan out how you’re going to do it. Before you can make a plan, however, you need to decide what you’re aiming for. If you really do want to become a millionaire, then think big: if you have a certain figure you want to achieve, aiming higher will help ensure you reach it or even surpass it.

How much did we spend this Christmas?

Wednesday, January 25th, 2017

It seems that the pessimistic economic outlook for 2017 ultimately failed to impact on our festive grocery shopping, with supermarket sales rising faster than they have since June 2014 in the final quarter of last year. It looks like many of us left it pretty late to stock up on Christmas food and drink, however: in a survey of 30,000 households by Kantar Worldpanel, over half did their grocery shop on 23rd December, which emerged as 2016’s busiest shopping day.

The British Retail Consortium found that robust figures in the week before Christmas means that shop sales overall in the period leading up to the 25th December were up by 1% from 2015. The BRC suggested that this was helped by both Christmas Eve falling on a Saturday and 2015’s relatively weak festive period, and described last year’s festive period as a “strong finish to a roller-coaster year”.

Barclaycard also reported a 4% increase in spending in December, but warned that this was driven more by price increases than consumers’ growing confidence. The rising price of oil and the weakened state of sterling meant that petrol purchases went up by 10%, with spending on essentials growing whilst luxury purchases declined. “The shift in spend from discretionary items to essentials reflects a growing sense of caution”, states the report from Barclaycard, “as the arrival of 2017 brings a new wave of economic uncertainty following the Brexit vote”.

The shift away from luxury items is also reflected in clothing retailer Next’s announcement of disappointing sales and a subsequent cut in their profit forecast for the year to the end of January. After expecting growth after a poor performance in the fourth quarter of 2015, Next saw a slump in both full-price sales in the run-up to Christmas and end-of-season sales from Boxing Day onwards. Considered a bellwether of the UK high street, the figures from Next could suggest that 2017 will be a tough year for other big name retailers.

The new pensions minister’s savings tips!

Wednesday, January 25th, 2017

Richard Harrington, who was made pensions secretary by Theresa May soon after she assumed office as Prime Minister in July last year, recently wrote an article for This Is Money divulging his spending tips for 2017. It’s a piece littered with what could be called ‘financial advice’, so what does the new minister recommend we do with our wealth this year?

Harrington’s first piece of advice is to look at your pension, even if you’re not going to be retiring for many years to come. The government has set up a website called ‘Check Your State Pension’, which can be found at www.gov.uk/check-state-pension and allows you to see an estimate of your state pension’s worth and when you’ll currently be eligible to receive it. There’s also a Pension Tracing Service set up by the government at www.gov.uk/find-pension-contact-details to help you identify pension schemes you’ve paid into in the past of which you may have lost track.

The article also advises those already in retirement to look into whether the State Pension Top Up Scheme will benefit them. The scheme allows those who reached state pension age before 6th April 2016 to make a one-off payment to increase their retirement income by up to £25 a week, but it’s only available until the end of the current tax year.

Other key pieces of advice from Harrington include urging younger earners to leave their pensions alone to ensure contributions made now have decades to build up interest, and looking into whether your employer will match any increases in pension contributions you decide to make.

The pensions secretary also warns against the many pensions scams still operating within the UK, advising strong caution against anyone offering attractive rewards for investing pension savings. If it seems too good to be true, it probably is, so do your research thoroughly and check with the Financial Conduct Authority to avoid losing your hard-earned money.

Harrington ends his article with a reminder that the UK has no set retirement age and that over 1.2 million over 65s are still employed, so if you enjoy your job there’s no compulsion for you to retire immediately. Delaying your state pension if you choose to carry on working can give your income a healthy boost when you do decide to retire.

The future of the pensions triple lock?

Wednesday, January 25th, 2017

The ‘triple lock’ on state pensions has protected the older generation’s income since 2010, guaranteeing that pensions will rise each year in line with the highest of either the average earnings, the consumer price index, or 2.5%. But the triple lock’s days look increasingly numbered, with an increasing number of financial and political figures calling for it to be scrapped.

Back in November 2016, the Work and Pensions Committee criticised the triple lock, describing it as both “unfair” on the younger generation and “unsustainable” in the long term and calling for the new state pension and basic state pension to be linked to average earnings alone. They also proposed the development of a formula to protect pensioners during periods where earnings are lower than price inflation.

More recently, former pensions minister Ros Altmann has denounced the triple lock on her blog as “a lazy way of claiming to offer pensioners brilliant protection” which is “increasingly unfair”. She goes on to explain: “If the new state pension (designed to always be above pension credit level) remains triple locked, while pension credit only increases with earnings, then the poorest and oldest pensioners will become relatively poorer”.

Responses to the review of the state pension by former chief of the Confederation of British Industry John Cridland have also seen calls for the triple lock to be dropped. A number of respondents called for the Cridland Review to make major changes to the state pension system, including a move away from the triple lock and towards indexation in line with earnings.

In his Autumn Statement last year, the chancellor Philip Hammond indicated that the triple lock would remain in place until at least 2020, when the next general election is expected to take place. If the pressure continues to mount against it, many feel the government may be forced to remove the triple lock much earlier, with some predicting its demise before the end of 2017. Labour have recently come out in support of the triple lock, however, pledging to keep it in place until at least 2025, making the future of the mechanism even more difficult to predict.

Should the Bank of Mum and Dad start charging interest?

Wednesday, January 4th, 2017

If you’ve lent money to your children to help them with university fees, a deposit on their first home or even just to support them with the rising cost of living, then you’re not alone. Statistics suggest that around a quarter of all mortgages are now partially funded by the ‘Bank of Mum and Dad’.

But have you ever thought about whether you should charge your offspring interest when they pay the loan back? It’s a consideration that’s likely to make many parents feel like Dickens’ famous festive miser, Ebeneezer Scrooge. However, there are arguments to be made for adding on interest which might help to prevent you from donning a Victorian style top hat and uttering ‘Bah, humbug!’

If you’re concerned that any money provided to help out your children might end up becoming a ‘permanent loan’ that you might never see again, interest can be a good way to ensure this doesn’t happen. Whether you put an interest rate in place from the start, or make it clear that interest will start to be charged if the money isn’t paid back by a certain point, the idea of having to repay more than the initial amount can help the borrower take the loan seriously and ensure regular payments are made.

It’s also worth considering what adding interest could help teach your children about ‘real world’ loans, especially if they are still relatively young. Another way of achieving this is to refuse multiple loans – a bank wouldn’t agree to an endless stream of applications for further credit, so if you do want to see your money again you should ensure that your offspring don’t see you as an unlimited supply of funds.

Of course, the Bank of Mum and Dad isn’t really a bank at all, which is what makes it attractive for all involved. Young people will likely feel more secure borrowing from their family than risking being turned down by a bank and damaging their financial status; whilst parents who can afford to loan their children money know it might offer some protection from the difficulties of struggling to pay off credit. Charging interest might be something you’re completely comfortable with, or it might be an idea you would never entertain; ultimately, however, the choice is entirely yours.

The Government-backed savings bond

Wednesday, January 4th, 2017

Amongst a generally gloomy Autumn Statement, chancellor Philip Hammond offered a potential ray of hope for those looking to achieve better returns on their nest egg, thanks to the announcement of a new government-backed savings bond. Set to become available from spring 2017 through National Savings & Investments (NS&I) for those prepared to put their money away for three years, the bond will have an interest rate of 2.2%, making it a considerably better option than the current top rate three-year bond which offers just 1.63%.

Whilst the higher interest rate has been welcomed by many, the new bond has also been criticised for its low investment limit of just £3,000. Were you to invest the full amount in 2017, by 2020 you would have earned only a little over £200 in interest. When put alongside its predecessor, the pensioner bond, which allowed up to £10,000 to be invested at 4% interest for the same amount of time, the new bond pales in comparison somewhat.

However, there are reasons to consider the bond when it becomes available at the beginning of next year. As with any NS&I product, all money saved is entirely backed by the treasury ensuring your money is completely secure. Whilst pensioner bonds were more generous, they were limited to those aged 65 and over. In contrast, the new bonds have no age limit, meaning that many more people can take advantage of them.

It’s also worth considering the potential for financial uncertainty in the next few years, particularly as the formal Brexit process is set to be triggered in 2017. The government-backed bond could well be the best investment product available for the foreseeable future, so if you have cash you want to invest and you’re happy to leave it untouched for three years, it makes sense to generate as much interest from it as possible whilst you keep an eye on future investment opportunities for your money.

January market commentary

Wednesday, January 4th, 2017

Introduction

At the start of 2016, Brexit was seen as unlikely and President Trump was seen as impossible. David Cameron was busy negotiating a deal with his European counterparts which would surely secure a comfortable majority for the ‘Remain’ camp – and while Donald Trump might manage a few wins in the primaries, he’d eventually give way to one of the mainstream Republican candidates, who would in turn be beaten by Hillary Clinton.

We all know what happened and with elections due next year in Holland, France and Germany 2017 could be equally dramatic. But let’s first look back at December, and also cast an eye over the whole of 2016. It was a year when the pound fell by 15% against the dollar, when the FTSE ended at a record high and the Dow Jones index closed within touching distance of 20,000 – and when the price of crude oil nearly doubled from the low it reached in January.

All but three of the major stock markets we cover in this commentary were up in December, whilst for the year as a whole, eight were up, two virtually unchanged and only one (China) was down in the year. We also keep a watchful eye on Greece, where the market advanced 2% in 2016 as the country continued to battle with its creditors and the far-left government of Alexis Tsipras became increasingly unpopular.

UK

December started on a downbeat note in the UK, with the pace of manufacturing growth slowing slightly and Bank of England Governor, Mark Carney, warning that increasingly sophisticated robots posed a threat to 15m jobs in the UK. (But not, fortunately, to the Governor of the Bank of England…)

Presumably some of the jobs under threat will be those concerned with burgers and fries, but McDonalds gave the UK a big vote of confidence when it announced that it would move its non-US tax base from Luxembourg to the UK. This means that UK tax will be paid on royalties the firm receives outside the US.

There was mixed news for the UK housing market in December. Nationwide reported average house price growth across the UK at 4.5% in 2016, with London for once below the average at 3.7%. The average price of a house in the UK is now £205,937 – but home ownership among the young has fallen significantly over the past 20 years. In 1996 46% of those aged 25 owned their own homes: that figure has now fallen to just 20%.

Very firmly in the ‘good news’ column, eight months of uncertainty came to an end for the steelworkers at Tata’s Port Talbot plant when the company gave a commitment to secure jobs and production there and at other steelworks across the UK. The growth of the UK economy was revised upwards for the third quarter – from 0.5% to 0.6% – and in company news Sky agreed to an £18.5bn takeover from 21st Century Fox.

We won’t weary you with the progress – or lack of it – of Brexit. The Chancellor dared to voice the opinion that perhaps a four year period of withdrawal might be sensible, duly raising the blood pressure of some newspaper headline writers. Meanwhile, Europe turned its collective back on Theresa May, discussing Brexit without her.

Whatever the Prime Minister’s problems, they weren’t shared by the FT-SE 100 index of leading shares, which finished the year at a record high of 7,143. The market was up 5% in December and 14% for the whole of 2016.

Europe

As we mentioned in the introduction, 2017 will be a significant year in Europe with elections due in Holland, France and Germany. This time next year will we be reporting on the European equivalent of Brexit and President Trump? It wouldn’t be surprising, and there was an indication of the popular mood when the Italian government of Matteo Renzi was heavily defeated in a referendum on constitutional reform held in early December.

Commentators are now predicting a “period of uncertainty” in Italy. That’s also a phrase which can be applied to the Italian banks with suggestions that the Italian government will be asking for €15-20bn from the European Stability Mechanism to help the country’s banking system.

The chief casualty appears to be Monte dei Paschi, the world’s oldest bank, which failed to raise the €5bn it needed to re-capitalise from private investors. The Italian government was forced to step in, with the bank crippled by years of losses and loans that can never be repaid. Before Christmas the bank’s funding shortfall was put at €5bn – a rather less festive assessment after the holiday put the figure at €8.8bn.

No doubt Angela Merkel tut-tutted at this Southern European profligacy as she announced plans to run for a fourth term as Chancellor: and no doubt the right wing Alternative fur Deutschland will have plenty to say on that score by the time the elections are held in September…

As we all know Christmas is a time for traditions, and VW reaching another deal over its emissions crisis is fast becoming one. This time it was with the US authorities over 80,000 VW, Audi and Porsche cars. There was equally bad news for Deutsche Bank as it reached a $7.2bn ‘settlement’ with US authorities over its mis-selling of mortgage-backed securities.

Despite these seasonal gremlins December was a good month for the German stock market, with the DAX closing up 8% in the month at 11,481. This enabled the market to post a 7% rise for the whole of 2016, and it was a similar story in France where a strong performance in December – up 6% to 4,862 – allowed the market to finish up 4% for the year as a whole.

US

Donald Trump is due to become the 45th President of the United States on 20th  January. His cabinet is now complete, with new Treasury Secretary Steven Mnuchin vowing a tax overhaul ‘not seen in decades’ in a bid to boost the US economy.

Peter Navarro – the man Trump has picked to head US trade and industrial policy – also appears to have been making vows, specifically about China. Navarro has described the Chinese government as ‘despicable, parasitic, brutal, amoral, callous and ruthless’ – and that’s just a start. Clearly, the Trump presidency will see an entirely different style of negotiating and diplomacy to the Obama years: to say that 2017 will be worth watching is an understatement.

…But the President-Elect appears to have made a promising start economically, with the news that Japanese company SoftBank is to invest $50bn in the US, creating up to 50,000 jobs. Trump also claimed the credit for air-conditioning company Carrier Corp’s decision not to re-locate to Mexico, keeping another 1,000 jobs in the US.

Meanwhile, the US Federal Reserve raised its benchmark interest rate by 0.25%, only the second increase in a decade. The rate was moved to a range of 0.5% to 0.75% as the Fed cited stronger economic growth and rising employment. Some analysts are expecting further rises, with Kathleen Brooks of City Index saying “the US economy will be on fiscal steroids in the next few years.”

Wall Street certainly seems to have taken steroids since Trump’s victory, with the market constantly reaching new highs in December and threatening to go through the 20,000 barrier. In the event the Dow Jones index closed the month at 19,763 – up 3% for the month, 8% for the last quarter of the year and 13% for the year as a whole.

Far East

Gambling seemed to be the key theme in the Far East in December, as Japan legalised casinos and those investors who’d taken a punt on the Chinese ‘selfie firm’, Meitu, hit the jackpot after it was valued at $4.6bn. Meitu’s key selling point is that it lets you ‘beautify’ your own selfies – a service a few of us might need  after Christmas and New Year…

More seriously, concerns were expressed that the Chinese property market is overheating, with many first time buyers in the major cities being priced out of the market: according to the National Bureau of Statistics the average property price rose by 11% in China’s seventy biggest cities for the year to September 2016.

Tackling this problem will be a job for the next leader of China’s central bank, as Zhou Xiaochaun steps down in 2017 after steering the Chinese economy for fifteen years: commentators have suggested that this will allow President Xi to further consolidate his hold on power.

Across the China Sea, Japanese Prime Minister Shinzo Abe signed off a record defence budget, reflecting a year of continued tensions with China, and North Korea’s nuclear and missile threats to the region. Presumably, the outlook is therefore good for Japanese defence contractors – but it is much less rosy for Toshiba, whose shares fell 20% in one day last week and are now down by 40% since  26th December. Most people think of Toshiba as an electrical firm: in fact, it’s now a diverse conglomerate, with the shares falling due to worries that its US nuclear business – responsible for a third of the company’s revenue – may be worth less than previously thought.

On the region’s stock markets the best performer in December was Japan, with a rise of 4% to 19,114. The market there is more or less unchanged for the year, but it is worth noting that it is up 16% in the final quarter of the year. China’s Shanghai Composite index fell by 4% in December to end the year at 3,104: it is down by 12% for the year as a whole, but all the damage was inflicted early in the year, with a slight recovery taking place in the second half of 2016. Hong Kong was down 3% in December to 22,001 and is another market to be virtually unchanged for the year as a whole. Finally, South Korea ended the year at 2,026 – up 2% in December and 3% for the whole year.

Emerging Markets

It’s the Emerging Markets section of the commentary with takes the New Year’s Honours, with Brazil the best performing stock market of the twelve we cover, closely followed by Russia. Despite falling 3% in December to end the year at 60,227 the Brazilian stock market rose by 39% in 2016, having ended last year at 43,350. The Russian index was up 6% in December to finish at 2,233 where it is up 27% for the year as a whole and 13% in the final quarter of 2016.

There was an interesting development in Russia as commodities trader Glencore and Qatar’s sovereign wealth fund together bought a 19.5% stake in Rosneft, Russia’s largest oil company. They paid $11.3bn for the stake (which equals that already held by BP) as Russia sought to sell some state assets in a bid to balance its budget and end a two year long recession.

The other major emerging market we cover, India, saw its stock market virtually unchanged in December at 26,626: it finished up just 2% for the year as a whole. The Indian central bank surprised most observers by holding interest rates at a six year low of 6.25% and the deadline for depositing discontinued 500 and 1,000 rupee notes came and went. The notes – worth approximately £6 and £12 – will no longer be legal tender as Prime Minister Narendra Modi bids to combat widespread corruption.

And finally…

We cover the thorny subject of debt in the first ‘and finally’ of 2017 – specifically, Cuba’s debt to the Czech Republic. Cuba owes the Czech Republic $276m, a debt dating back to the time when Cuba and the then Czechoslovakia were part of the Communist bloc.

On the very sensible grounds that they don’t have much money but do have a lot of rum, Cuba has suggested repaying the debt with bottles of rum – an offer which would give the Czechs enough Cuban rum to last a century. Sadly, the curmudgeonly, unimaginative Czech officials have said they’d like to be paid in cash. Perhaps the Cubans should throw in a few million cigars to clinch the deal…

Happy New Year…