10 Reasons for making a Power of Attorney

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Creating a Lasting Power of Attorney (LPA) is a crucial step in planning for the future, providing peace of mind and ensuring your affairs are managed according to your wishes. Here are ten reasons why making an LPA is important:

  1. Empowers Decision Making: An LPA allows you to choose someone you trust to make important decisions on your behalf if you become unable to make them yourself due to mental or physical incapacity.
  2. Avoids Court Intervention: Without an LPA, if you lose mental capacity, your loved ones may need to apply to the court for deputyship, which can be costly, time-consuming, and emotionally draining.
  3. Maintains Control: By creating an LPA, you maintain control over who will make decisions for you, ensuring that your preferences and values are respected.
  4. Financial Management: With a Property and Financial Affairs LPA, your chosen attorney can manage your finances, pay bills, and make financial decisions on your behalf, ensuring your financial affairs are handled responsibly.
  5. Healthcare Decisions: With a Health and Welfare LPA, your attorney can make decisions about your medical treatment, care arrangements, and daily living requirements if you are unable to do so yourself, ensuring your healthcare needs are met according to your wishes.
  6. Reduces Family Conflict: Designating an attorney through an LPA can help prevent disputes among family members about who should make decisions on your behalf, reducing potential conflicts during already stressful times.
  7. Ensures Continuity: By appointing an attorney through an LPA, you ensure that there is someone authorized to manage your affairs immediately if you become incapacitated, avoiding delays in important decision-making.
  8. Protects Vulnerable Individuals: LPAs are particularly important for vulnerable individuals, such as the elderly or those with disabilities, as they provide a legal framework for their care and financial management.
  9. Flexible Arrangements: LPAs can be tailored to your specific needs and preferences, allowing you to specify instructions and limitations for your attorney, ensuring that your wishes are followed.
  10. Peace of Mind: Ultimately, creating an LPA provides peace of mind for both you and your loved ones, knowing that there is a plan in place for the management of your affairs if you are unable to do so yourself.

In summary, creating a Lasting Power of Attorney is an essential part of estate planning, ensuring that your affairs are managed according to your wishes and providing peace of mind for you and your loved ones.

Personal Finance Management (PFM) Tools in the UK

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I have just been reading an interesting article by Rob over at money-watch.co.uk about Personal Finance Management (PFM) tools available to us in the UK.

Personally I have been using Microsoft Money for over a decade to manage my personal finances, which, together with my personal spreadsheets which have developed over the years, seem to serve me pretty well!

Unfortunately it would appear that the MS Money software has been discontinued in the UK but the version I used is still available from Amazon.

It would however appear that these services are now moving online – which is a natural progression since most of our personal financial activity seems to occur online these days – online banking, managing our ISA/Unit Trust/Sipp portfolios as well as managing our credit cards and various other financial commitments.

Anyway – be sure to check out Rob’s article – the first in a series.

Increase your Wealth – Take a Pay Cut!

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It may sound like a crazy notion to increase your personal wealth by taking a pay cut – however can that work?

It’s simple really.

Most people have a limited income yet infinite needs and wants. They earn a fixed amount, or the household has a fixed monthly income, they spend, spend, spend first and save what is left over. I will be the first to admit that I used to “waste” money each and every month – bottled water (!), pre-packed sandwiches, not shopping around for more competitive insurance/utilities etc….

Result = there is rarely anything left over at the end of each month – “which runs out first, the month or the pay packet?”

It has been quoted many times (such as in The Richest Man in Babylon – a great book and worth the £3.46 price tag!) that those who build lasting wealth are those who SAVE first and then SPEND what is left.

By taking something off the top of each pay packet you can set this aside, firstly to build a “rainy day fund”, and then to consider medium and long-term investments.

It will be difficult at first as the decrease in monthly income can be noticeable, but over time, your spending patterns will be altered to match your new “lower” income level and quite quickly you will notice the increase in your personal wealth.

How Noticeable Will This Be?

If you set aside just £50 per month, and invest it to receive a net return of 5% per annum (which should be achievable) over a ten year period this will grow to £7,764.

If you could achieve 7% net per annum, this would amount to £8,654; which if continued for a further 10 years would £26,046.

The more you save, the quicker it will grow.

My Experience

I am fortunate in that I earn a decent income and am able to set aside £700 per month. If I continue this level of investment, I am currently on course to achieve full financial independence by the time I am 50.

It’s hard at first, but after a while your lifestyle adapts to the “pay cut” you choose – I find I now plan purchases ahead – I got rid of my credit cards – it’s addictive (although I do still enjoy life to the maximum – I just don’t waste money any longer!).

Where Should You Start?

Simple really – just keep a track of what/where your money goes on a regular basis for the next month or so – then analyse and be strict with yourself –

  • Do I really need to spend money on this item?
  • Is there a more cost-effective alternative?
  • What changes can I make in my lifestyle now to build the future I want rather than the future I currently have in-store?

Let me know you’re successes in “taking a pay cut” below.

Some end of tax year planning ideas – 5th April 2010

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The end of another tax year is steaming towards us with the 2009/2010 tax year ending on 5th April 2010.

Here’s a quick rundown of the main areas for consideration – hopefully this list may jog your memory or form the basis for you to have a meaningful conversation with your financial adviser, solicitor or accountant!

ISA’s

Under current rules, over 50’s can invest up to £10,200 in a Stocks and Shares ISA before 5th April 2010. Of this £10,200, up to £5,100 can be invested in a Cash ISA.

Under 50’s are currently limited to £7,200 in a Stocks and Shares ISA, of which up to £3,600 can be placed in a Cash ISA.

More articles on ISA’s

Pensions – Retiring Early

The minimum age for taking benefits from a personal pension plan (PPP) increases to 55 from 6th April 2010. Until then it is possible to take your personal pension plan from age 50. So if you’re in that window of people who are aged over 50 but under 54 before the end of the tax year and you wish to take your pension benefits early you need to talk to your financial adviser or pension provider pretty smartish!!

I wrote a more in depth article on this topic here – change in retirement age from 50 to 55 for pensions.

Pension Contributions

Generally everyone can contribute up to 100% of salary/income to a personal pension plan, or up to £3,600 gross if your a non-earner (housewife/husband, children etc…).

Pension plans are available for anyone under the age of 75. Pensions have a number of tax benefits. You generally receive tax relief on the money you invest – and this is provided at basic rate up front e.g. invest £80 and you actually have £100 credited to your pension plan. Non-taxpayers also get this tax relief – money for nothing from the Inland Revenue – surely this can’t be true!!

Pension funds grow in a tax-efficient manner and, under current rules, you can take 25% of the fund as a tax-free lump sum at retirement (ages 55 to 75 from 6th April 2010) with the remainder of the fund used to provide an income, in one form or other, for the remainder of your retirement. This income from your pension is generally taxed as income.

A pension plan is a long-term commitment so seek independent financial advice before investing.

Pension Contributions, Investment Bonds and Higher Rate Taxpayers

Also, if you’ve made a chargeable gain on disposal of an investment bond and you are a higher rate taxpayer it may be able to offset the additional 20% tax liability by making a contribution to a personal pension plan – the contribution has the effect of extending the basic rate tax bracket and therefore, through careful planning, if may be possible to avoid paying this additional tax on surrender after carrying out a “top slicing” calculation.

See a technically-competent financial adviser!

Capital Gains Tax (CGT)

Each person has a capital gains tax allowance (£10,100 for the current tax year) which means you can make gains on the sale or disposal of certain taxable assets of up to £10,100 before 5th April and pay no tax. Any gain over and above this are currently taxed at 18% – although this could change.

I normally think of the CGT allowance as the “unused allowance” as many people are not aware it is there but it can be a useful tool for planning your tax affairs if you have such investments as shares held directly in a limited company, etc.

 Naturally you should consult a tax expert before making any disposals to ensure that the allowance can be used properly – phone your accountant as soon as possible!

Bed and ISA – using your CGT allowance wisely

This CGT allowance lends itself ideally for anyone holding unit trusts as it generally allows a person to surrender unit trust and reinvest in an ISA tax wrapper before the end of the year without any tax to pay now, or on any future gains under the ISA wrapper.

Make Tax-Free Gifts to Reduce Inheritance Tax

This subject is generally beyond the scope of this article (I am trying to get this article published as soon as possible as I have been away on holiday!). HMRC (The Inland Revenue) have detailed information on allowances, reliefs and gifts to reduce your IHT liability here.

Transfer of Income Producing Assets

Both husband and wife have their own personal allowances for income tax and often it is the case that one or other partner has all the income-producing assets in their own name. The HMRC website gives details of personal income tax allowances for the 2009/2010 tax year – moving funds between husband and wife can sometimes reduce your tax burden.

Finally…….Tax Year End falls on a Bank Holiday – act soon and avoid disappointment!

Don’t forget – 5th April 2010 this year falls on Easter Monday – so with Friday 2nd April being Good Friday (both days being Bank Holidays remember!) it would be prudent to ensure all planning, ISA’s etc are completed well in advance of say 1st April!!!! Don’t leave it too late!

Remember, this site doesn’t give financial adviser – make sure your consult a suitably qualified independent financial adviser or accountant before taking any end of tax year financial planning actions which you are not sure about.

Why a falling stock market isn’t always a bad thing!

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The one time when a falling stock market is NOT a good thing is when you want to take money out of the market in the near future – your portfolio can move horrendously against you within a matter of weeks if not days.

There is, however, a time when a falling stock market is a GOOD thing – that’s when you’re actually putting money into the market (as I have been doing over the last couple of years).

Now I’m not saying now is the right time for YOU to invest in the stock market – we all have our own reasons for investing (or not, as the case may be). My investment strategy, time horizons, attitude to investment risk etc will probably be different to almost everyone else’s so the actions I take may not be the actions which you should take!

The stock market performed a fantastic turnaround in 2009, with the FTSE100 rising from 4,434.20 at close of trading on 31st December 2008 to 5,412.9 at close of trading on 31st December 2009 – an increase in the FTSE100 of 22.1% during 2009.

Who knows where it will go next?!

Well, anyway, as part of my broader portfolio, I bought some shares in December in Tullow Oil (TLW.L) which is an oil drilling and exploration  company with interests in the African continent as well as other geographical areas. At the time I bought them, their shares stood at £12.99 per share. I had £1,000.00 to invest and therefore was able to purchase 76 shares back in December.

There has been a certain amount of volatility in the stock market recently and today I noticed that their share price had in fact dropped to £11.62 per share – a fall of £1.37 per share or 10.55% compared to what I paid for my shares back in December.

Now many people would be unhappy about this – not me! I saw it as a buying opportunity. I therefore decided to purchase another £1,000 worth this morning.

I am in this for the long run and will possibly hold these shares for in excess of 5-10 years so I took advantage of the recent fall in price to add more shares to my portfolio and benefit from pound cost averaging.

So what does all this mean? Well, I was able today to buy these shares at £1.37 per share less than I paid for them in December. I have drawn up a spreadsheet to demonstrate the benefit to me of this course of action.

 

 

I have included the dealing costs and stamp duty (0.5% on purchases) to take full account of the trading situation. You can see from row 1 that the total cost of my purchase of 76 shares in December was £1,007.28 giving a total acquisition cost per share of £13.25. Today I bought 86 shares at £11.63 and row 2 shows the total acquisition cost of £1,019.12 or £11.85 per share. So my purchase today cost me £1.40 per share less than in December.

Now here’s the interesting bit!!!

The second half of the spreadsheet answers the question “at what price per share do I have to sell to get my money back and break-even?”

Row 1 shows that had I not bought those shares today then to recoup the £1,007.28 outlaid in December, together with the £14.95 dealing charge to sell, I would need the Tullow Oil share price to hit £13.45 (last column) – this is the break-even price for my holding as it stood prior to today’s purchase.

Now consider the next row down – because I was able to reduce the average buying cost of my two lots of shares in Tullow down to £12.51 i have “pound cost averaged” down the cost of this holding in my portfolio.

The second row shows that to recover £2,026.40 (total cost of both the purchases in December and today) together with dealing charges of £19.95 (next tier of dealing charges) I would need to sell the shares for a minimum of £12.63 per share.

So in summary, had I only bought the December shares I would need Tullow Oil share price to hit £13.45 to break even.

Now with today’s “cheaper” shares I have reduced this break-even share price down to £12.63 per share – 82 pence per share lower. In effect, each and every penny that the Tullow Oil price rises over and above £12.63 is profit to me!

This therefore gives me scope for larger gains at a later date when I ultimately sell this holding.

If the price drops even further I will consider whether to invest further funds to reduce my break-even price even further.

Warning!

This is not a recommendation to buy shares in Tullow Oil or indeed that share ownership is suitable for YOU! The value of shares and the income from them can fall as well as rise and if the company went bust I could lose all my money. Do not act on this article without first taking suitable advice from a qualified stockbroker or financial adviser. You have been warned!!

Pre-Budget Report – 9th December 2009

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The Chancellor, Alistair Darling, will deliver his pre-Budget Report on Wednesday December 9th 2009.

One of the key questions facing the Chancellor, and indeed the Government, will be how to balance the books – ensuring there is enough money coming in to match the amount of money going out.

The country and business community wait with bated breath to hear what the Chancellor has in store.

There are concerns in the pensions industry that he could make further changes to personal pension taxation and in particular with reference to higher rate income tax relief.

If you are fortunate enough to fall in this category it might be a shrewd move to consider discussing any pension contribution planning with your financial adviser and, possibly, taking action to make any pension contribution ahead of the announcements on December 9th.

For a list of local Independent Financial Advisers visit IFA Promotion

Personal Finance Questions – September 2009

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In our regular feature we will cover some of the topics which readers have been emailing us about. Naturally we can’t give direct financial advice but maybe some of these questions and their answers will be of interest to you.

I hear that ISA rules are changing in October, how does this affect me?

ISA contribution limits are changing on 6th October – here are some of our more popular articles on this subject –

Confused about the new ISA allowances and limits?

Reminder – cash ISA allowance is increasing

Change in ISA allowances – Budget 2009

What is an ISA?

My life insurance company wants to apply a Market Value Reduction if I surrender my Bond, why?

A Market Value Reduction can be applied on the surrender of a with-profits bond (or any with-profits fund for the matter) in times when stock markets and other asset classes may have fallen in value – we have seen this recently with the fall in world stock markets in 2007 and 2008.

The MVR is designed to provide you with a fair surrender value for your plan based on the performance of the underlying investments and also to protect those who remain behind  by basically ensuring you don’t take a “bigger slice of the cake” than you’re entitled to!

This article goes into more detail – Avoiding a Market Value Reduction (MVR/MVA)

I find it difficult to budget – how can I make this easier?

We all have income and expenditure to meet – some of it is the same each month, and some of it is variable.

I wrote an article a few months ago – cashflow forecasting – income and expenditure – there is a great spreadsheet you can download to help you plan and track your monthly income and expenditure.

I have a personal pension – what is the minimum age I can retire?

It is currently age 50, but this is about to change – see this article for more details and urgent actions you might need to take if you’re aged between 50 and 53 now.

My mother is a non-taxpayer. How can she reclaim tax paid on her building society interest?

To reclaim the tax she needs to complete an R40 – she can also register to receive the interest gross from now on – read this article.

And finally……

Be sure to subscribe to our newsletter – it’s free and you can cancel it at any time.

Also – did you know you can receive our blog posts via RSS.

Top 10 Personal Finance Articles – September 2009

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Here is our usual monthly list of the top 10 read articles on shrewdcookie.com in September – there are some surprising entries!

1. Change in ISA allowances in Budget 2009

The changes announced in the Budget in respect of increases in the ISA allowances come into effect on 6th October for those over age 50 before the end of the current tax year – can invest up to £10,200 into a Stocks and Shares ISA. Woo hoo!!!

2. New Tax Year – New ISA Allowance

More detail on the changing ISA allowances.

3. Download a Free 2010 Yearplanner

I have put together a great little yearplanner for 2010 – it can be downloaded in A4 (landscape) or larger A3 (printed on 2 sheets of A4 for those without an A3 sized printer!). Feel free to send copies to friends, family and colleagues at work.

4. 19 Essential Money Tips for Students

With the start of the University/College/School term upon us here is a great article which might help a few students who are struggling through on their limited finances.

5.  Pay Yourself First

One of the first principles spoken of in the great book “The Richest Man in Babylon” is the need to pay yourself first – the principle here is to take a fixed percentage off your take-home pay and keep that money for yourself forever – then your lifestyle will change itself to allow you to live on the remainder. Get a copy of this book – a truly great read. It could be the most valuable £4.99 you ever invest!

6. Cashflow Forecasting – Planning Income and Expenditure

Here is a really helpful little spreadsheet which will allow you to plan your income and expenditure on a monthly basis – you will be able to see exactly where your money goes to each month – allowing you to make changes in your expenditure – a great tool for “what if” scenarios – what if I stopped eating out, what if I increased income by £200 per month etc.

7. Personal Pension Minimum retirement age increasing to 55 from 6th April 2010

Those people who will be over 50 before 5th April 2010 and were planning to retire in the next 5 years may have to take some urgent action between now and then – in the worst case scenario you may have to continue working for another 5 years!

8. Wear a uniform to work – here’s some free money!

If you have to wash your own work uniform you could be entitled to some money from the taxman – read the article for more information.

9. Get Money for your Old Mobile Phone

Did you know you can sell old mobile phones – I recently sold my old Sony Ericsson K800i and got £28 for it – worth checking out what yours might get you – see the article.

10. 10 Great Reasons for Writing a Will

Everyone needs and should have a Will – it saves so many problems in the event of your death – and let’s face it the only two certainties in life are death and taxes! Read the article now – you might be surprised.

And finally……

Be sure to subscribe to our newsletter – it’s free and you can cancel it at any time.

Also – did you know you can receive our blog posts via RSS.

7 Changes I’ve Made to Save the Planet and Me Some Money

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At the start of 2009 I made a pact with myself that this year I would make as much effort as possible to change my lifestyle for the benefit of the environment as well as putting more money in my pocket.

Here’s what I have managed to do so far:-

1. Walk to work instead of drive

Since relocating to Bristol about 4 years ago I had been in a position where I was commuting to work, in my car, for 2-3 hours each and every day. It wasn’t a long trip – about 8 miles each way – it was simply a case of the congestion in and around Bristol holding me up.

The benefits to me of moving away from this “daily commute” were several – saved petrol and wear and tear on my car, saving the environment and natural resources, saving me time (my favourite savings by the way!) not sitting in the car for such periods of time as well as the health benefits of moving away from the stress of the daily commute.

In order to make this change I decided to move to a new company closer to home – and am I glad I did – I know have a fantastic 10 minute walk to work through some of the most beautiful streets in Bristol. The car rarely moves off the drive in the week now and I have extra money in the bank each and every month!

2. Give up pre-packed sandwiches and bottled water

Not only are they expensive (how can bottled water, in some instances, be more expensive than petrol?!) I used to buy a sandwich on a daily basis, as well as a bottle of water for work. Not only were these expensive (when compared to the alternatives of drinking tap water and making my own lunch) but stopping buying them also did a little bit for the environment as there is no rubbish (plastic wrappers and bottles) thrown away each day.

3. Taking the Train to Visit Parents

I was surprised when I looked into it that I can get a train from Bristol to my folk’s house, and back, at the weekend for less than the cost of the petrol I would burn to drive there.

OK, it takes a little planning and I have to walk a couple of miles to the stations, but this is one less car on the road, I have three hours of my life back for doing more productive stuff – especially if I am lucky enough to get a seat with a table on the train – and the train is going there anyway so the environmental impact is considerably reduced.

The result is I arrive fresher and less stressed than I used to and I see some fantastic countryside on the way there!

4. Unplug – not standby

Like most people, my TV/DVD player, radio, microwave, etc had all been left on standby for years. I was aware that this was using electricity but not to the extent that in reality it is.

I now turn off at the wall all my electrical items when they are no longer in use.

5. Holiday in the UK this year

Having been abroad most years for the last decade I decided that this year I would not fly abroad and would holiday at home. My goal was to minimise the total cost of the holiday and to this end we went camping! This was a great adventure and bought back a lot of childhood memories.

I’ll admit it takes a bit to get used to having to get out in the middle of the night to go to the toilet in the middle of a field and waking up to a cold tent, with lots of condensation, even in the middle of summer.

But it was more than just a holiday – it was an adventure – money was saved – and a great time was had by all of us – it just proved to us that we don’t need to jet off abroad and spend lots of money in fine restaurants to have a great time. We will certainly be doing it again next year.

6. Use email instead of posting stuff

Another concern I had to address was the amount of paper being wasted in running my investments, bank accounts, pensions, bills etc and the almost daily fall of half a rain forest through my letter box.

I registered with the Mailing Preference Service – which stopped most of the junk mail coming through the letter box in a couple of weeks. I moved all bank accounts to paperless statements – I don’t need paper ones – they have historically been filed away and never looked at again until destroyed after 7 years as I am self-employed.

7. Stopped buying newspapers and magazines.

Whilst having a clear out a few months back I was shocked at the amount of newspapers and magazines I had accumulated. I noticed that these were not cheap with the average magazine costing £3 – £4. The majority of the pages are adverts which I am not interested in anyway.

So I have not bought a newspaper or magazine at all this year – a great savings – I get my news and current affairs fix from the internet and TV now.

And the next 7………….?

I am sure there are many more changes I can make to put more money in my pocket as well as doing my bit for the environment – please let me know by leaving a comment below what hints and tips you would like to share with us.