Falling income; budget and savings planner

Falling income
Here in the UK though we have enjoyed strong economic growth and low unemployment figures, earnings are still low. In fact inflation-adjusted average earnings are 4% lower than they were before the financial crisis in 2008.

This is despite the introduction of a national minimum wage in 1999. Currently the National Living Wage (NLW) for 25 year olds and above is £7.50 per hour. The government plans to raise the NLW to £9.00 per hour by 2020. This is a measure to help the lowest paid. Recent finance news has highlighted the growing gap between rich and poor; and how globalisation has exacerbated this situation. By 2020 it is projected that around 3m people will be paid at a higher rate because of the NLW. It is also expected that the NLW will make up 60% of median earnings by then. When the minimum wage was introduced in 1999 it made up 45% of median earnings. But, though the NLW is generally thought to increase productivity, it does not necessarily close the wealth gap.

And a net result of increasing wages bills for business owners; particularly small and medium size businesses, is that they make less hires. This also pushes companies towards automisation, and outsourcing to save UK labour costs.

The rising cost of living
Throw into our stretched income melting pot the rising cost of living: fuel and groceries growing prices pushed inflation to 2.3% in April of this year; the highest rate for more than three years. And it’s not just icebergs that have got pricier (67.2% more costly from Jan-Feb) it’s also business equipment such as laptops. Computers increased in price by 2.3%, from Jan-Feb, having been 5.1% cheaper throughout 2016. It is fair to say that both households and businesses are feeling the pinch.

How to reduce costs
There are economies to be made with some living costs such as: mobile phones, computers, internet, streaming media, landline phones and also utilities. Some reputable providers of ‘better deal’ information and services include: Which? YouSwitch and (part of the Curry’s retail chain) KnowHow. All of this can help to save domestic and company overhead costs.

Why a savings pot is handy
In March of this year the Office for National Statistics (ONS) warned that the household savings ratio had fallen to a record low since records began in 1963; at below 4%.
Perhaps, this is not surprising given falling wages and the rising cost of living but; having money put by in case of essential repairs (your boiler, your car) is a good idea. The recommended amount to have in your savings pot is enough to cover three months’ living costs, which would include a mortgage (if you have one) and any other regular financial out goings. So, the start for calculating how much you need in a savings pot is a finance plan.

How to do a finance plan
Simply put, a finance plan is a table where in the first column (A) you list income, and in the second column (B) you list costs or out goings. It is hoped that when you take B from A there is money leftover. This ‘spare’ income can be saved and invested. When drawing up a finance plan do not forget finance and insurance costs, if you do have loans including a mortgage or mortgages it is useful to detail:

• When the loan ends
• What the monthly payments are
• What the interest rate is
• Whether there are any penalties for early redemption
• And – if you are planning around a mortgage – what the approximate value of the property is.

If you are unsure of a property value a check of (the post code + similar property type) on a property sales site such as Right Move or Zoopla; should give you a well-educated guesstimate of the value.
All of this information is very useful to have prior to meeting with your IFA, or if you are considering seeing an IFA for the first time.

Where to invest savings
When you are ready we would advise you to talk to a local independent financial advisor (IFA). Finance advisors have expertise in savings schemes including;

• Stocks and shares ISAs
• Cash ISAs
• Lifetime ISAs

Also if you own your own home, or have more than one property your IFA can advise you on mortgages, re-mortgages and lifetime mortgages which can free up house wealth. If you draw a pension and this is your income; IFAs can advise you on retirement income, and living inheritance planning also.

In our fast-changing economy it helps to talk to an expert.

Contact Marchwood IFA to arrange a consultation with a financial services expert: 01243 532 635.