Sorry - Moving Site

Many apologies. I'm switching domains.

Come and join me at www.plonkee.com.

And if anyone can help me with my redirection of this webpage and they can let me know I'll be very grateful because its going very wrong :(

what shall we do with the drunken plonkee?

Aah, the cost of forgetfulness and trying to pack up on the morning after the night before.

I went to a black tie do last night in another city and stayed overnight in a hotel. There was an open bar and so I took full advantage. I was functioning well and didn't embarrass myself. All seemed good this morning, even though I was hungover and probably still slightly drunk.

I packed up my stuff, put my money back in my purse from my evening bag and left for the station. I was about to get to on the train when I realised that I couldn't find my ticket. There were two possibilities. Either it was in my hidden in the recesses of my overnight bag, or I had left it at my hotel. Wherever it was, it was in the company of my library card, my supermarket loyalty card and some first class stamps.

In my tired and emotional state, I decided that the best thing to do was to buy another ticket. So thats another £23 wasted this month.

What we should do with the drunken plonkee is not entrust her with important tasks.

five steps: step 5 invest in the future

This is the final post in an irregular series on the five steps to solid wealth. Step 1 was spending less than you earn, step 2 was paying off consumer debt, step 3 was to grow an emergency savings account, step 4 was to insure yourself adequately and no more. Step 5 is to invest in the future - this is the step that you don't so much complete as begin and continuously work on.

First of all, I should start by saying that investing in the future means sacrificing money and/or time now in order to have an improved life at a later date. The most important way in which you need to invest for the future is to ensure that you are not reliant on the state to provide you with a comfortable old age. It is true that the state is likely to keep you off the streets by way, but there is unlikely to be enough money around to keep you out of poverty by the rest of society's definition. There are tax-advantaged vehicles that can help you out with this aspect.

Other ways of investing in the future could mean investing in your children's future by putting away some money for university fees or helping them with their first house or car. It could also mean investing money and time in your career by studying for additional qualification or moving to a location that will enable you to have a better salary or quality of life.

In any case, investment considered here is predominantly for the medium to long term. Over this time frame your biggest enemy is inflation and your best defence is a high average rate of return. Both of these are factors due to the magic of compounding, which by the rule of 72, means that an inflation rate of 3% will halve the spending power of your money within 24 years, whereas an average rate of return of 3% will double your money within 24 years. Some simple maths should tell you that a rate of return over inflation is needed to make your money grow and a return under inflation will make your money shring in real terms.

One of the worst ways to invest is therefore is by stuffing money under the mattress, the best ways are those investments that typically beat inflation - generally stocks and property. I favour stocks over property because the start up money required is lower and the rate of return has historically been at least as good as property. Whatever you invest in, the key thing is to be consistent and sensible. Keep an eye on your money, learn about ways of investing and eventually you will achieve solid wealth.

single and aiming for a financially stable partner

Its probably (hopefully) not too obvious in this blog that I’m single (and as it happens female). I’m not looking for a boyfriend at the moment, although if one turns up that would be ok. But I wouln’t want my fiscal stability upset by mingling my finances with someone irresponsible. Is it ok to weed out potential partners based on the state of their finances?

On reflection, I think that its unlikely that I’d be attracted to someone who was truly reckless – in money or other matters – I’m just not that adventurous. On the other hand, asking someone about their credit card bills on a first date is probably a significant enough social faux pas that there wouldn’t be a second date.

They say that you can’t change a man (or woman for that matter) so I’m stuck with hoping that any future contenders are financially stable – or at least not going to drag me down with them.

100th carnival of personal finance

The carnival of personal finance is 100 today and to celebrate madame x @ my open wallet has gathered together 100 of the best personal finance posts of the last week and categorised them neatly in the carnival.

My personal favourites are golbguru's Husband, Does Your Wife Know How To Invest? Wife, Does Your Husband Know How To Pay The Bills? from the tao of making money and s sugars' Am I the only one that realises that having groceries delivered makes financial sense? from personal finance advice.

I am also proud to say that my very own submission starting a business will not make you rich has made the Editor's Choice for the first time. Either standards are slipping at the carnival or I'm starting to write some interesting posts - I know which I prefer to believe.

starting a business will not make you rich

I've often read comments on other personal finance blogs that essentially state that the best way to generate wealth is to start your own business. Undoubtedly there are people who have successfully made a lot of money in this way - look at Microsoft, Apple, Yahoo and Google for very modern examples. The Millionaire Next Door (which I haven't yet read) is cited as evidence for the success of this method towards wealth as one of the facts which is commonly pulled from the site is that many of the millionaires interviewed for the book own their own businesses.

As you can probably guess from the title of this post, I think that this argument is flawed. I actually think that its quite hard to become wealthy through working for yourself. When you start off, you are likely to have a negative cashflow for a while as you try to get your business off the ground. You'll probably need to work long hours for a long time paying yourself at wages that are effectively much less than the minimum wage. Your business is likely to fail within ten years, with luck this might not leave you out of pocket, but not everyone can have all the luck all the time. In any case, you need a lot of time and start-up capital to build a business that will truly give a good rate of return - not that many people have both on their side.

You could argue that if you are working for yourself you are more likely to be motivated and so will generate more money. That might be true, but there is also the possiblity that you will be more risk-averse than you need to be because its your own money at stake. Its certainly the case that when you are working for yourself, any money that is made through your efforts goes into your pocket. Making an effort, however, doesn't necessarily lead to making money.

My final point, is that getting rich isn't really about the money you make, its about the money you keep. The foundation of true monetary wealth is likely to be a well diversified portfolio. If all your money is invested in your business, then that the very definition of poor diversification. The simple way to wealth is to spend less than you make and invest the difference. This is probably easier to do with a regular salary than with your own business.

By all means, start your own business if you think it will make you happier, but don't think that it is a path to wealth.

let us celebrate and pfblogsround

Let us all celebrate because the contracts for my new house came in the post yesterday. I'm sure you're all pleased to hear that there don't seem to be any problems with it, and there is only one query outstanding.

Moving on, this week in pfblogsround, my round up of the best of other personal finance blogs:

• what is the next step? @ blueprint for financial prosperity a guest blogger asks what he should be doing now that he's got a well diversified portfolio
• money question: how do you handle financial disagreements @ the tao of making money golbguru hosts the money question this week, don't forget to pile in with your comments
• the big battle: money versus job satisfaction @ the simple dollar trent's take on the quarter life crisis, with some good advice

taxing plonkee

Those of you who have been reading my blog for a little while may have noticed that I've added some adverts to the site. They're adsense ads from Google, and I don't think that they detract too much.

When you sign up for adsense you have to make a declaration regarding tax. As Google is a US company, this is declaration concerns US Federal Tax. As a non-resident of the US without any business interests in the States, the declaration that I made basically means that any earnings from adsense will not be reported to the IRS. Of course, for me, this is a good and logical thing as I can see no reason why I should pay income tax to a country with which I have no connection other than the location of my debtor and hosting server. I'm glad that the IRS agree with my position as in general tax authorities can be a law unto themselves.

However, I think that this means that I will need to file a tax return to HMRCS for this financial year. Some web advice on Ebay sellers suggested that if the amount earned is not much then its probably ok to put it down as casual earnings. On the other hand if it gets to be a more substantial amount (unlikely but plausible) then I'd need to register as self-employed. I think I might need to contact the tax men (or women) themselves to find out for sure. In any case, I plan to save at least half the earnings in a high interest account and keep proper records to ensure that I don't get in any trouble.

Aah the joys of generating additional income.

setting goals

I posted earlier that maybe getting out of debt was easier than just trying to get rich and the primarily this was because when you're getting out of debt you have a particular target. brad @ analyzing wealth commented on the post and kevin @ kmull stated in his roundup of the carnival of personal finance that I should set some goals. In particular brad said that I should create some arbitrary goals and kevin said that I should create some SMART ones. Also, recently trent @ the simple dollar has been running a series of posts on setting goals.

So, I've decided to set some arbitrary, SMART (specific, measureable, attainable, realistic and timely) goals.

1. I am going to invest £2700 in retirement savings in 2007.
2. I am going to invest £1200 in my stocks and shares ISA in 2007.
3. I am going to donate £250 to charity in 2007.

I was going to write a fourth goal which was not exactly personal finance related to do with decorating my new house, but I thought that it might be a little pre-emptive since I haven't finished the purchase yet.

So there we go, there are my personal finance goals, I hope you all think that they are good, they are certainly arbitrary, specific, measurable, and timely. Now we just have to see if they make me think that becoming rich is do-able.

carnival of personal finance no. 99

The 99th carnival of personal finance is up at the tao of making money, a great blog written by golbguru. If you get the chance, check out the carnival and his whole blog.

I've had a submission accepted, getting out of debt would be easier, other great posts are why you should become a personal finance blogger by money smart life, the beatitudes of money by active duty military money and matters, and the four terrible money mistakes we make with our kids by mymint.

Enjoy.

lending money to family

A friend of mine was telling me how her younger sister had opened a credit
card without telling her boyfriend (who she lives with) and had the bills
sent to their parents house. When my friend found out, she lent her sister
enough money to pay off the credit card and insisted on confiscating and
destroying the said credit card.

Apparently, it isn't the first time this has happened, and the sister thinks
that if the boyfriend finds out then he'll leave. I think that this is a bad
situation that the sister has got herself into, but that my friend's action
probably hasn't helped. Frankly, if the boyfriend will leave if he finds
out, then maybe thats the best outcome for their relationship. I don't for
one minute think that my friend's sister will stop doing things like this.
The worst thing is that it also alters my friends relationship with her
sister. She now feels even more aggrieved when her sister does unrelated
things she doesn't like.

I told my friend some of what I think, because I'm that

pfblogsround 5th May 2007

Apologies for being late with the pfblogsround, my excuse is that I was attending a free classical music concert last night - not a great excuse, but not a bad one either.

Anyway, my favourite posts from other personal finance blogs have included:

• paying off your mortgage and saving/investing @ free money finance it is possible to multitask your finances folks
• investing without goals @ money and such shadox's brother is doing something about his future, but it would be better if he had some goals
• sharing money works for our marriage @ cleverdude good for you mate, but just because it works for you, doesn't mean it'll work for everyone
• adjustable rate mortgages are awesome @ blueprint for financial prosperity another of jim's devils advocate posts, this time written by a guest blogger - read the excellent comment by livingalmostlarge (whose own blog is here)
• tips and trick to ensure you track your money @ get rich slowly one of jd's friends is having difficulty recording all his transactions

five steps: step 4 insure yourself adequately and no more

This is the fourth in an irregular series on the five steps to solid wealth. Step 1 was spending less than you earn, step 2 was paying off consumer debt, step 3 was to grow an emergency savings account. Step 4 is to insure yourself adequately and no more. I'll discuss the areas in which you need to consider insurance below.

The key principle in deciding whether insurance is adequate is to think about the things that you need that you don’t have the resources to replace or fix.

Most people in the beginning or middle of their plan to get rich and end life as a lad/lady of leisure are reliant on income from working (either for themselves or someone else) to not only keep on the plan, but also pay the bills. If you fall into this category, then you probably need to insure yourself against an accident or illness that means that you are unable to work. For this you need income protection and permanent health insurance (also known as short and long term disability insurance)

Anybody with dependents who rely on them for provision of housing, food etc also need to consider having a serious amount life assurance (or life insurance if you’re a Yank). The key word here is rely. If your husband / wife / partner currently earns their own income and you have no children, you probably don’t need major life insurance. On the other hand if you have a non-working spouse / partner you probably need some and if you have children, you probably need a lot.

website review: money saving expert

I'm trying to get round to reviewing all the websites I have listed as links to give you an idea of why I'm recommending them. The first review was of www.organizedhome.com and this second one is of the UK based www.moneysavingexpert.com.

The "money saving expert" is a consumer finance journalist called Martin Lewis, he has his own radio show and a book. The money saving expert website is devoted to a comprehensive set of articles and forums. Its relatively easy to navigate, there is a no advertisements policy and it makes its money through referral links.

The articles cover all the main ways to save money by choosing the best financial product, utility company, getting the best deals on flights etc. If I want to know what the best credit card is for my particular circumstances I check out this site. There is a full time staff of 13 who I'm assuming research all the best deals. Without doing all this leg work myself of course its impossible to be sure that they really are the best deals and methods, but they are certainly good enough for me.

The articles are the strongest point of the site, and I don't visit the chat forums as much. They have more UK-specific information than most money forums on the web, which is to be expected and there are forums for debt-free wannabes, budgeting, saving money at the shops, in fact most topics where there is the possibility of saving money. The forums are well-frequented in general and as with most, there are regulars that seem to hang out there all the time.

The forums that I most frequently visit are the Savings and Investments and Pensions, Retirements and Annuities. And here is where the problem lies for me. I disobeyed the cardinal rule of not reading posts extensively before I started a thread on SIPPS and index funds (I've posted what I found out here). Mentioning using index funds on these boards is like a red rag to a bull to some of the regulars, at least one of whom is an Independent Financial Advisor and strongly prefers actively managed funds. The weight of discussion that is in favour of actively managed funds only just falls within the realm of ethical non-advice IMHO, and as a fan of index funds, I would be loathe to recommend these forums on that basis alone.

Overall, this site is an excellent resource but some of the forum discussions are best taken with a large pinch of salt and your own extensive research.

getting out of debt would be easier

Unlike many people, I'm in the fortunate position of not having any consumer debt. I often use my credit card, but it gets paid off in full every month. I have student loans, but at the interest rate they are on, it makes more financial sense to pay them off as slowly as possible. I've never had a problem with overspending so a subscribing to a completely debt free lifestyle doesn't have major psychological benefits.

With that said, I often feel that its easier to get out of debt than it is to start with a little over zero and just try to grow it. When you're in debt, you have that initial target that you can motivate yourself for, getting to the stage where you have no debt. This means that you have an end in sight and when you're struggling you can convince yourself that this is just temporary. By the time you get to being debt free, you are in the more frugal mindset.

In contrast, I don't have any immediate goals for my money. I only want to be rich eventually so that I don't have to stack shelves in my old age. Its hard to motivate myself when my net worth is so small. I'm trying to maintain a balance between saving and spending, but I don't make a huge salary and what I can contribute seems pitiful, yet I feel slightly poor.

In short, it feels like I'm getting nowhere fast and I'm hideously tempted to put myself into debt buying stuff that I would love to have and then work my way out of it. I don't do this, because doing this deliberately would rank as one of the stupidest and most ridiculous financial mistakes of all time. Still, at least I'd have a goal to aim for.

money and security

In another doomed attempt to win a competition for which I am not eligible, I'm going to give a response to a post on five cent nickel's blog. Here is the mandatory link to his welcome page - sorry couldn't work that into the intro.

Apparently, Dave Ramsey is a well known personal finance guru in the US. The Dave Ramsey plan is multi-step and simple. The second step is the most ubiquitous. Pay off all your consumer debt using "The Debt Snowball".

In the debt snowball, you pay off your debts in the order of smallest balance to highest balance, the principle being that with early accomplishments you are more likely to stick to the program.

Five cent nickel's most commented upon post is Dave Ramsey is bad at math, later he responded to the comments with another Dave Ramsey is good at psychology. Its undoubtably true that the debt snowball will not necessarily save the most money when it comes to paying down debt. As explained in the bad at math post, the cheapest way to pay off all your debt is to order the debts from highest interest to lowest interest. The key point that most of his commentators wanted to say was that it wasn't about the math, which nickel summarised in the good at psychology post.

Its true that debt - especially debt caused by overspending - isn't about the math, or the money. Its in the mind. In my favourite money programme, Spendaholics, the individuals cannot stop overspending until they address the underlying cause(s). But what if your money issues don't revolve around overspending? In my case, I have no consumer debt, just some exceedingly low interest student loans and I'm soon to take on my first mortgage. I'm not a good candidate for Dave Ramsey's plan because I don't have issues with too much debt. My money issues resolve around security.

I often work out worse case scenarios, like I lose my job, or I become permanently disabled, or I unexpectedly have a child. Not in the case of how this would affect my life, but whether or not I would be able to cope financially. Is this healthy? Is there a plan that will enable me to feel truly free, without sitting on a massive pile of cash in a savings account? Should I mentally rely on the safety net of my parents, even though I'm extremely loathe to ask them for help?

I feel like, maybe this is an age thing. I'm in my late twenties, and I've been living more or less independently since I started university. Perhaps I'll just get used to this feeling and learn to cope. What do other wiser (older?) people do? The feeling of being permanently on the precipice of disaster needs to be mitigated. Perhaps as in Spendaholics, therapy is the best answer - but if I have to pay for that, thats more money spent and less money saved. And how can an independent individual with a traditional British stiff upper lip, truly contemplate therapy anyway. Isn't it all a bit, well American?

Suggestions on a postcard please (or if you don't know my address, just add to the comments).

april 2007 plonkeesround

Here are the best* posts from April 2007

• tourist in london town save money whilst travelling in London
• pensions are actually invested in equities pretty much self-explanatory
• I need a strategy and I still don't have one
• pension allsorts a summary all the different sorts of pensions you can invest in
• atheists should tithe or the less catchy "humanists should donate a reasonable proportion of their income to charities"

*as always, best is defined as my favourite posts in plonkee money.

Let me know what you think of my selections by commenting on them.

my friend has bought a house

My friend has just completed on her new house, and I haven't got mine yet. Boo.

I was in her house on the weekend and we were discussing some of the changes that she want to make to it and I was being asked all sorts of questions like, do I think it will look better with carpets or laminate flooring? how much do new windows cost? how could someone have chosen such a hideous bathroom suite?

Of course, not being a homeowner myself yet (yes I am bitter btw) I don't know the answers to these questions. But I do know that making changes to a house cost a lot of money. And I know that some changes pay off in terms of adding value to the place. What I'm more interested in is a sort of cost benefit analysis of the value to me. Kind of like, how much use will I get out of an addition.

For me, colour and design are quite important, so the amount of time and effort spent on painting a place are probably worth it - even if it is already decorated in perfectly acceptable neutral colours. I like to cook, but I live on my own, so altering a functional kitchen probably isn't good value to me.

This kind of thinking extends to furniture. I have a sofa bed from Ikea that has no arms (deliberately, I might add) its also kind of uncomfortable. Since having it, I have discovered that the only way to sit on it and be happy, is to lie down. Ideally, it would then have arms for me to lean my head on. I've seen the sofa of my dreams in Habitat, but it costs several hundred pounds. How do I determine the cost benefit of this sort of thing? It certainly won't increase the value of my house, but it could increase my happiness.

98th carnival of personal finance is up

The 98th carnival of personal finance is being hosted by the King of Debt at we're in debt, so check it out.

Beware of the post on financial independence, as the scheme suggested sounds a bit too much like multi-level marketing to me.

money scripts: voting (part 2)

To me, a money script is something that I believe I should do in connection to money, based primarily on something I absorbed as a child. I wrote earlier, that I was taught that it is important to vote, and this can actually provide financial benefits. As there are local elections coming up soon, I thought I'd discuss my second money script in connection with voting. This concerns who you should be voting for.

The script that I have, is that you shouldn't vote for the person that will make you best off, but for the person that would be best for society as a whole. This is generally how I try to vote. If I think about it rationally, do I think that this is a good idea?

I try to be a good person as I live my life (as I'm sure most other people do). As part of this, I realise that I am very priviledged in comparison with people in the rest of the world. In fact, I'm priviledged in comparison with a lot of people living in my own country. A good person would try and do something about this and improve other people's position. I'm trying to be a good person, so I should try and improve other people's position and one of the opportunities I have, is through my vote. So, overall, I think that I should vote for the benefit of everyone, not just myself.

How does this impact on my personal finances? Well, it means that I sometimes vote for people and policies that will make me worse off financially. But it wouldn't be better for society if I was a net beneficiary, so once policies are decided, I seek to minimise their negative effects on me. For example, I accept that raising the state pension age is beneficial to society and vote in favour of it, but to compensate, I plan to save and invest more so that this won't harm me.

What do you think? Should a person interested in improving their personal finances vote for policies that will benefit them, or not?

pfblogsround 27th april 2007

Welcome to another edition of pfblogsround where I round up the best posts this week from other pfblogs. On with the show:

• top 13 money saving ideas of all time @ everyone loves you money when the opening idea is to stop using illegal drugs, you know you're onto a winner
• the game of life @ an english major's money its easy to forget that access to banking and other assorted finance is a privilege that many people don't share
• how to make your finances automagical @ zen habits if you're bills pay themselves, your forgetting them doesn't make the slightest bit of difference
• vacation, need or want @ living almost large to me, a vacation is a need - life isn't all about money, and not having travelled would be one of my biggest deathbed regrets

If you see any great posts, that you think I might have missed, or you reckon I should add your blog to my blogroll, drop me a line and I'll check it out.

wealth and IQ

I was reading in the free paper the Metro the other day that some scientists had found that people with a higher than average IQ were no more or less likely to be in wealthy than people with average or below average IQs in the same circumstances.

What does that tell us about personal finance? Its not about the numbers, its about the psychology. It certainly doesn't take a genius to work out that if you spend less than you earn and invest the difference, you will become wealthy. I bet that most people know that but encounter difficulties in putting it into practice. Qualities like will power, discipline and determination aren't measured in an IQ test, but those are the ones that you need if you want to take the tortoise route to success.

mere christianity and the library

I'm posting this in a futile attempt to win to trent's book giveaway @ the simple dollar. He wants fifty words in response to one of his previous posts. In fact, trent's probably already read some of the beginning this response as I emailed him about the post I've selected. Since I can't win the book anyway (read the rules), I figure thats not too much of a problem! Anyway, here goes:

I finally got round to reading Mere Christianity after trent recommended it on his blog and a couple of other people mentioned it to me. It has made me think a little more about what I believe.

I feel that Lewis' argument using Moral Law as a basis for assuming the existence of God and the subsequent argument in favour of Christianity requires a leap of faith and is not an irrefutable argument in favour of Christianity, although it is a good one as these things go. Throughout the opening section of the book, I struggled to maintain an open mind.

However, having more than a passing interest in Christianity and religious belief I found the later sections an excellent statement of Christian belief and what it should mean to be a Christian. Even though I think that Lewis is incorrect - that is I personally do not think the world is correctly viewed through the Christian paradigm as he described it - I found many of the actual concrete ideas illuminating, especially the ones on judging (or as is preferable, not judging) individuals based on their actions.

The most important impact that trent's post and Mere Christianity have had on me and my personal finances though, is that I have joined my local library. I was motivated to read this book, but didn't want to spend money on a book that I wasn't sure that I would like so I looked on the web catalogue of the library to see if they had it in stock. They did, and so I joined the library just to borrow this book.

As a voracious and speedy reader, this is saving me money on the purchase of books and making me happier. In addition, I am spending time in the library and reading my library books instead of heading to the shops and purchasing more clothes, magazines and cds. Joining the library has also motivated me to do more free things, such as visiting the local art gallery and attending free concerts. So thank you to trent, cs lewis and the library, you guys are saving me a fortune.

fair trade ethics?

When I buy coffee and tea to use at home, I make a point of always buying fairly traded brands. When I make teas and coffees at work, I always use the fair trade option rather than the Nescafe. I pride myself on these choices.

Yet when I go to a coffee house in town, I never ask for fair trade coffee. I never really bother to buy fair trade chocolate as I prefer cheaper Cadburys that I used to eat as a kid. I don't buy fair trade bananas, or flowers, or in fact anything else.

Should I be hanging my head in shame instead of being proud of my fair trade coffee round at work?Probably.

I don't know about you, but its hard to be consistently ethical, even when I've decided that something is important. Its so easy to just buy the cheapest brand, or forget to ask for the better option. From now on, I'm going to try harder. I will be attempting to trade as fairly as possible. But when no fair trade product is available in the shop should I avoid the un-fair trade products or should I buy them anyway as surely some of the money goes to the third world producers?

Being an ethical shopper is certainly never easy for me.

97th carnival of personal finance hosted by endless gibberish

The 97th carnival of personal finance is up at endless gibberish. Check out my personal favourite, the lazy man's guide to budgeting.

an imaginary strategy

I wrote previously that I think that the best way to choose a pension is to decide on a strategy and work out the cheapest way to buy it. I'm going to have a go with my imaginary friend Clive. Clive has decided that his asset allocation strategy for his pension portfolio is as follows:

• 60% in a UK Index Tracker fund
• 10% in a US Index Tracker fund
• 10% in a European Index Tracker fund
• 5% in an emerging markets fund
• 15% in UK gilt fund

Since Clive is imaginary, please do not think that this is a good strategy for any real person. This post is about how to get a strategy cheaply, not what strategy you should pursue.

Clive can contribute £80 per month (before tax) to this pension. Lets look at three different providers, Hargreaves Landsdown and their SIPP, Standard Life and their Personal Pension and Friends Provident and their Stakeholder Pension. In each case, I couldn't find any set up or administration charges associated with the pension, so the only charges appear to be the fund management charges. Each of the pensions has a minimum payment with the highest being £50 per month after tax.

The table above gives the weighted charges, assuming that all funds grow equally. You can see that for this strategy, the Hargreaves Landsdown pension is the cheapest.

other people like me

Some more nice bloggers have linked to me. So hello and thank you to frugal zeitgeist and jd @ get rich slowly, who liked tourist in london town and flexo @ consumerism commentary who liked I need a strategy. Check out the rest of their blogs too.

student loans and salaries

A colleague of mine was asking me the other day about the joys of student loans. In fact, they were asking me what the payments are on my loan.

I'm in the fortunate position (as are most people my age and younger) of having a student loan whose interest rate is fixed at the rate of inflation with an income contingent repayment schedule. This means that there is no incentive to pay off the student loan any more quickly than I have to and so, as I explained to my questioner, I pay it off as slowly as possible and put any extra money into savings and investments. The rate at which I pay it off is set by the government at 9% of everything I earn over £15,000 per year and it comes out of my pay like a tax.

Now, the guy that was asking me these questions is approximately my age, and has a similar student loan himself. So he should know these rules - and indeed I mentioned them. I wondered if he was actually trying to find out how much I earned, so I didn't tell him the exact figure that I pay (£90 per month, if you're interested).

Should I be so quick to hide how much I earn? I am relatively fairly paid. If I was looking for a new job, I'd want more money, but not that much more. If he wanted to know how much I made, would it have been more honest if he'd just asked me? Should we all be more honest about our renumeration within the company? Would that lead to more or less satisfaction with salaries? What do you think?

pfblogsround 20th April 2007

This week on some other excellent personal finance blogs:

• what is personal tax earmarking @ wisegeek this is a legendary idea, now all we need are some tame politicians
• to grub or not to grub @ customers revenge the importance of focussing on the bigger picture with our finances
• 17 critical questions @ money and such shadox gives us a great list of questions and will be posting some answers in the future
• not this girl's best friend @ frugal babe much kudos to someone who can sell their engagement ring whilst remaining happily married

pensions are actually invested in equities

I've just been reading a Wealth Check in the Independent. Its one of those things where they take someone's current financial position and three or four experts offer their advice.

I'm so annoyed at the final piece of advice that they've given the woman, on her retirement and pensions. All the experts quite rightly say that this 23 year old should start saving for her retirement immediately. They correctly say that she should see if her employer offers a scheme and if not, to consider a stakeholder scheme. All well and good. However the final piece of advice given by Danny Cox of Hargreaves Landsdown is:

To boost her retirement fund and increase her chances of earning more money than expected, she should consider investing in equity-based funds. Although there is risk entailed, Cox advises that Katherine will benefit in the long run if there is a downturn in the market, if she has her money in equity rather than stakeholder savings.

This is a completely misleading statement.

It implies that in general payments into a stakeholder will be into a sort of savings account. This is pretty much never the case. The value of a stakeholder pension may go down as well as up, but over the 40 years this woman has, it is pretty sure to be up. Basically, the money in a stakeholder pension is normally held in equities (at least in part) and in particular, it often held in an equity-based fund.

I think what the expert was actually trying to suggest was that she hold some of her money in actively managed equity funds that hedge against a stockmarket fall. I have issues with whether or not that is good advice, but in this article, that isn't what is stated anyway.

The reader is left with the impression that money in a stakeholder pension is not in equities and that it is in "savings" (with the guarantee that implies). This is so not true of stakeholder pensions in general, its ridiculous and the suggestion that there is a reasonable likelihood that over the next 40 years the stockmarket will be lower than it is now is not even being given the short shrift it deserves :(

unpaid overtime sucks

Last night I saw an excellent comedian. He was the headline act at my local comedy club, and he was so funny, the compere insisted that he come on to do an encore, and the first thing he said when he came back on stage was "I love unpaid overtime". As I write, I am just finishing up some unpaid overtime at work myself.

The concept that time is money is often bandied about and can be used to justify spending money to save a little time. I like the idea, though, that if I invest a little time, I may gain a more money. Not so much in connection with my job, but the unpaid overtime that my finances seem to demand.

The time that I spend in reading about investments, and monitoring my spending, and opening and closing new accounts, feels a lot like overtime, when all my finances really demand is that I pay all the bills. And it certainly doesn't pay at a nice hourly rate and I don't see an obvious return for my time.

As at work though, the hours that I am spending in unpaid overtime should reap their rewards as long as I don't over do it. Spending time at work to get the thing right within the deadline, makes everyone happy and enhances my skills. Spending time ensuring that my finances are running in top condition, should ensure that I have the best possible chance of having a successful and secure future.

credit card ads

Last night, I was watching some rubbish on tv. It was on one of the commercial channels so I was plagued by ad breaks every quarter of an hour or so. One of the ads was for a Capital One credit card. It was advertising that Capital One has a lower interest rate than some other banks, and maybe you should switch to them to stop the interest from dragging you down.

This advert got me to thinking. If adverts reflect society then that means that its ok as far as society is concerned to be permanently in debt. But if you are forever in debt, then how can you get ahead. I find it really difficult to conceive of amassing any great sum of money, and think that it woud be a lot easier to try to get out of debt as at least you would have a goal to aim at. But then, how much harder must it be to contemplate having any money. And how much money must you spend on finance.

I guess people don't think about it too much. What should I be doing to change this? How can we make saving and investing more attractive?

festival of frugality 17th April post

I've been included in the festival of frugality at no credit needed.

You should check out no credit needed for information and advice on all your getting out of debt and cutting back on spending needs as it is truly a great blog resource.

The festival is great, and all neatly categorised, I'm in the coupons and deals section, but my favourite posts are in the frugal philosopy section: selling an engagement ring and critical questions you should be asking yourself.

Read around and if you see anything else you think I should be highlighting, let me know.

tourist in london town

London is an absolutely fantastic city, but it sure ain't cheap. Here are my best ideas for getting more for your money.

Travel

get a train from the airport

All the airports in London are miles and miles from the City Centre, so taxis are prohibitively expensive and car hire in London is a nightmare. They are all served by reasonable train links though, so let the train take the strain. If you are feeling particularly frugal, you could get the tube from Heathrow, although it takes forever and is not recommended if you have a lot of luggage.

get a map and walk

Many areas of the city are eminently walkable. Especially the West End and the City. For example, it takes less than five minutes to walk from Leicester Square to Covent Garden. It probably takes longer to get to the tube platform if you go on the underground. Also, if you walk around, you get a better sense of the place and the architecture.

get an oyster card and travel on public transport.

Public transport in London is pretty comprehensive, almost everywhere of interest is located close to a tube station. The cheapest way to use public transport is by getting the integrated smartcard called Oyster.

If you buy in advance, you need a £3 deposit and to pre-load it with £10. If you wait till you get there you the minimum top up is 10p, although you still need pay the £3 deposit, and you should probably start out with putting £5 on it. With an Oyster card, single zone 1 fares on the tube are £1.50 and without they are £4. The maximum you can pay in a day on the tube is also 50p cheaper than the equivalent paper ticket. Assuming you make at least two zone 1 tube journeys a day in your trip, if you want to keep the card, you break even within three days and if you don't want to, within two.

A word of warning however, the tube gets incredibly hot in the summer, and unless you are used to underground / metro / subway systems in general I wouldn't recommend that you travel in rush hour. Make sure that you stand on the right, unless you want to walk up/down the escalator at high speed, or be physically moved out of the way.

if you're out on the town, get a night bus home.

The routes are here and its much cheaper than a taxi, although it is what is commonly described as an experience.

Food

Check out Time Out's suggestions for cheap eats. This is usually updated annually, and will save you eating in something like one of the legendary Aberdeen Angus Steak Houses.

Things to do

get almost half price west end theatre tickets.

The catch is that you need to get them on the day from the tkts booth in Leicester Square or Canary Wharf, there will be a queue, they charge a £2.50 booking fee and they can only sell the tickets available to them on the day.

whats on

In all the tube stations etc you will see free papers the most quintessential is The Metro. Its great for whats on.

museums

All the major museums, (like the British Museum, the Natural History Museum, the Science Museum, the V&A Museum, Tate Modern, Tate Britain etc) are free for normal entry (some exhibitions may charge). These aren't just ordinary museums, for example if you want to see the best of Egypt in one place, the British museum if the place to go, you could easily spend a day in any of these places and not see everything. Do note that food at the museums whilst usually good quality, is not cheap. But its pretty easy to leave the museum, walk up the street to a sandwich shop, eat and come back.

parks and other oddities

If you're in London in the summer, there are several Royal Parks that are completely free - including their guided walks - and if you're there at Christmas you can watch the Peter Pan Cup.

Also, see the street entertainers at Covent Garden or see a BBC show being filmed for free.

Leaving

If you're bored with London, you're bored with life. However, there are plenty of day trips from the capital, including the esteemed University at Oxford, the Royal Castle at Windsor and you can even go to Paris for the day. All of these are within your realm if you book train tickets well in advance. Try the trainline.

carnival of personal finance no.96 is up

jlp has hosted the carnival of personal finance number 96 at his uber-successful all financial matters blog. The carnival entries are categorised neatly and my submission is at number 1 in the investing strategy (I imagine they are in order from worst to best). Check it out.

i need a strategy

I wrote here that I think that the best way to decide on which type of pension would suit is to have an overall strategy and then find the provider with the cheapest cost. I also wrote earlier that I have set up my ISAs for this new financial year. So what is my investing strategy?

I basically don't have one. I have invested all my funds in FTSE All Share Trackers. Its not going to be pretty if the UK goes into a 40 year depression. Why have I done this? Well, I don't know anything about how to pick actively managed funds, but I am aware that the majority do not beat the FTSE index. And they are expensive. I can pick up a FTSE Tracker for 0.1% annual fee but many managed funds have fees more like at least 1%. Thats ten times as much. So it looks like to me, index funds are the way to go, certainly for now.

I'm lead to believe that I should diversify my portfolio with asset allocation. I have no idea about this. I have a very small pot in three separate locations, two pension funds and one ISA. I need to investigate whether I would meet the minimums for additional funds or investments. But first, I think I need to work out which funds I might want. But fund names are so unobvious. Take one of the top 150 picks from Mark Dampier's Wealth 150 at Hargreaves Landsdown the Standard Life Global Equity Unconstrained Accumulation Units fund. I'm sorry, how many big words do you need to have in your title?

What I think I need is a bit of money invested outside of the UK. But I'm not sure. I've caught financial paralysis. The easiest thing to do would be to do nothing. But that is bound to lose me money. So I'm doing what I think is the second easiest thing, despite my detractors. I'm investing in something that I understand. Hopefully sometime soon, I'll learn enough to make a more informed strategy.

financial decisions in the last fortnight

Since last weekend was the Easter Bank Holiday, I didn't post about my financial decisions. So I'll bring you up to date with this post.

On the plus side, I've planned my ISAs for 2007-08. I'm contributing to a mini cash ISA from Barclays which pays out at 6.5% (only for new money) and I'm also contributing to a mini stocks and shares ISA from Fidelity. In the stocks and shares ISA, I'll be contributing to the Fidelity Moneybuilder UK Index Fund as it is the FTSE All Share tracker with the lowest fees that I've found. The cash ISA is simply the highest "normal" rate that I could find. In addition, I have finally joined the library, which should save me a little in book purchases but also make me happier.

On the negative side, I've already spent a lot of my allowance for this month on stuff, especially going out. I went out at Easter with some friends and I went out with people at work this week. Beer is expensive.

morbidity is nothing to be scared of

Yesterday a most unusual event occurred. In conversation with a couple of people that I know, it transpired that one of them had just made their will, the other one hadn't. This is unusual because in my normal life, people don't discuss their personal financial affairs with me.

I'm a little concerned about the guy who didn't have a will. He's living with his partner in a house that they own, who his family may or may not wholly approve of. Under English law, without a will, his parents will inherit his estate including his share of the house. This may put his partner in considerable difficulty and the same would be true if his partner died. In this case, he was aware of the law and agreed that he should get around to making a will. However, it is relatively common for people to be unaware of inheritance law and how it may affect them.

Firstly, in English law there is no such thing as a common-law partner. If you are living with someone who is not your spouse or civil partner, they have very few rights if you die without a will. In particular they will not inherit your estate. If you own a property as tenants in common, then the share of the property that belonged to the partner who died will pass to their blood relatives which could be uncles, aunts or cousins. If there are no blood relatives, the estate passes to the Crown (aka the government). If they are financially dependent they may be able to apply for support through the courts but this is not guaranteed.

Secondly, if you are married or in a civil partnership and you die without making a will, then your spouse or civil partner will not necessarily inherit your entire estate. How much they get will depend on whether the deceased had any children.

For more information on intestacy laws in England look here. Or, don't worry about them and make your will. I will be making mine as soon as I manage to buy my house. I promise.

pfblogsround 12th April 2007

Some excellent posts this week by other personal finance bloggers. My favourites have been:

• your total measure of wealth: job status @ punny money calculate a number that quantifies your job, this is part of a series of posts seeking to establish a complete picture of your wealth
• the complexities of anti-consumerism @ an english major's money this is a must read post about class, purchasing decisions and assumptions
• what should a billionaire give @ get rich slowly a long post that came out of a discussion on the new get rich slowly forum about giving money away and I don't just like it because I'm linked to it (twice)

a house is worth what someone will pay for it

I was watching Selling Houses Abroad last night whilst waiting for the Life on Mars finale (immense series by the way). The main focus of the show was a couple who had bought a 3 bed village house in south west France several years ago. After having their second child they decided that they wanted to upgrade and take on a renovation project so they put their house on the market and took out a bridging loan to buy a run down cottage and outbuildings in the surrounding countryside. Two years later they still haven’t sold their village house.

Part of this programme is usually a house doctor type section where the presenter comes in and tells them how poorly their house is presented. In this case the criticisms were well justified because the 18th century house had all of its rustic charm covered up in not very good quality modern materials. They agreed to spend £2000 to do up the place a bit. This was basically spent on repainting, putting in more kitchen units and changing the bathroom. The couple selling the house seemed perfectly reasonable during this part of the show and it is easy to live with “features” that are hard to sell.

The other reason that their house hadn’t sold was the price. It was being marketed at about €220,000. In nearby villages, there were larger houses in excellent decorative condition with sought after period features on the market at between €165,000 and €175,000. I appreciate that it can sometimes be difficult to gain comparables as the houses in this region are very individual, but still, not much research was required to find this out in the space of two years. In any case, the house was being marketed by 11 estate agents and each of them valued the property at between €165,000 and €175,000 despite listing it at €220,000.

When it was suggested that they drop the price, the couple were not happy. They had a reason for justifying their asking price. Another house a few doors away was also being marketed at a similar price. Funnily enough, it also hadn’t sold. It was rightly pointed out to them that if they actually wanted to sell, perhaps they should compare their house to other houses that had sold, not other houses that hadn’t.

In the end they agreed to drop the price. They worked out how much they needed to get for the house, and decided to list it at that price. Which was about €200,000. And herein lies the problem. Just because they need a certain sum of money doesn’t mean that anyone will pay that amount for the house. They need to forget what they originally hoped to get for the property and either take what someone will pay them for it, or sell their renovation project or they face losing both homes through bankruptcy.

pensions allsorts

In the UK, there are several different types of pensions, split into two groups:

occupational pensions

• defined benefit = final salary
• defined contribution = money purchase

private pensions

• personal pensions
• stakeholder pensions
• self-invested personal pensions

Occupational pensions are run on behalf of the employer, often by an insurance company such as Standard Life. You can generally contribute via salary sacrifice and often the employer contributes too. If your employer has more than a certain number of employees, they must either offer access to an occupational pension scheme, group personal pension scheme or to a stakeholder scheme, although they do not have to contribute. The two types of occupational pension available are defined benefit and defined contribution.

A defined benefit or final salary scheme is one in which the pension (benefit) is defined in advance as a percentage of the final salary. The percentage you can get will depend on how long you have been working at the company and is roughly positioned so that if you worked at the same company for your entire career you would receive a pension of approximately two-thirds of your final salary. This pension is paid for by investing your contributions sacrificed from your salary and generally the employer contributes also. With this type of scheme, the trustees of the scheme will choose how to invest the money they have so that there will be enough to pay out all the retirement benefits of the scheme to all members. The biggest risk that you face is that the scheme will be wound down or the company go bankrupt (potentially due to pension liabilities). Defined benefit schemes have become much rarer of late.

All other pension schemes work similarly. You contribute an amount of money every month which is then invested. In return for investing before income tax, you agree not to take the money out until retirement (due to rise to 55), there are further rules about how you may withdraw the money at that point. You are responsible for choosing the investments so that you will have a sufficiently large pot of money to live off once you are retired. These underlying investments are the important part of the pension and the bit that generates the money, everything else is just a set of rules.

Occupational defined contribution or money purchase schemes have the added benefits that often the employer will contribute to your pension pot in addition to your own contributions. Also as all the employees in the company are invested through the same scheme, discounts can often be negotiated on the investment fees. The main drawback is the limited number of different types of investment that the money can be placed into.

Personal pensions work in exactly the same way as money purchase pensions do in terms of risk. The main advantage of a personal pension is that it is not linked to any one employer and can be taken out by anyone. The disadvantages are that the charges can be high as an individual pension pot is not usually large enough for discounts to be negotiated, there are also often restrictions on the minimum amount of money that may be invested each month and the variety of investments available varies considerably depending upon the provider.

Stakeholder pensions are like personal pensions with the added benefits that the fees are capped at 1% per annum, the lowest payment that must be made monthly is £20. The drawbacks are that range of investments available is generally small and that the fees are usually set at the maximum 1% despite the underlying investments being available with much lower fees (often 0.1% to 0.5%).

Self-invested personal pensions or SIPPs are like personal pensions, but with the added benefit of having a very much wider range of investments available. In particular it is possible to invest in almost any unit trust, exchange traded fund, investment company, bonds, individual shares and cash*. They may have higher fees especially if they allow investment in the more esoteric options, but that is not always the case, many SIPPs are run by discount funds supermarkets have very reasonable fees similar to those found in stakeholders, although they usually have stricter rules on the amounts of money that may be transferred into the pension.

I think that the best way of investing through pensions is to determine what your overall investment strategy is, taking into account the amount of risk you are comfortable with and the length of time you have until retirement, and then working out the cheapest way of getting there, taking into account all your own circumstances.

*It is almost always a poor idea to invest a pension fund in cash.

carnivals in the second week of april

This week I am in a bunch of carnivals. Hooray!

First up, the carnival of credit report stories which is being hosted at how I save money.

Second, the festival of under 30 finances which is being hosted at one big mortar board.

Last but by no means least, the carnival of personal finance which is being hosted at accumulating money.

links to plonkee

I just want to say hi and thanks to the excellent golbguru at the tao of making money, who liked one of my posts and also to the wonderful free money finance, who also liked (and helped me with) another one.

pfblogsround 5th april 2007

This week on other personal finance blogs I've enjoyed:

• my 401(k) is better than yours @ blueprint for financial prosperity its always interesting to see what other people get for their labour at work, for people in the UK, a 401(k) is like a money purchase pension
• do personal finance bloggers have a bias against real estate @ free money finance I think that they do but that its justified as most non-pf blog readers are biased for real estate
• getting rich the easy way @ the digerati life silicon valley blogger has highlighted a very interesting ethical issue
• right turns and helping the environment @ the tao of making money note that (as stated by golbguru) if you are with me in the UK, you want to be making left turns
• how to get financial peace of mind @ zen habits making my bills automatic with direct debit has made my life immeasurably easier

website review: organized home

I thought I'd explain the reasons why each of the links listed on the right hand side of this blog are useful. I'm starting with my favourite:

www.organizedhome.com is a website devoted to decluttering, organising and simplifying your domestic life. There are a number of articles on the site split into various categories and also reader tips. Where it really comes into its own is in the message boards which are populated by a warm and supportive (predominantly female) community. No question relating to home life is too big or too small for these folks.

Specific information and advice is available on the boards, including managing finances, budgets and paperwork, saving money on groceries and utility bills, making money selling stuff on ebay or car boot sales and other money related topics.

Being decluttered and organised helps massively with finances. Bills don’t get lost and get paid on time, unnecessary stuff doesn’t get bought, less time is spent maintaining clutter, duplicate items aren’t required because the original is not lost in the safe place that you put it in that you can’t remember any more. Also, being decluttered and organised is less stressful and gives you more time to concentrate on the more important things in life.

I discovered organized home whilst searching for tips on moving house a couple of years ago and quickly became hooked. The great community of organized home continues to be invaluable to me in my quest to become more organised and I encourage anyone who thinks they might benefit to look it up.

five steps: step 3 grow an emergency savings account

This is the third in an irregular series on the five steps to solid wealth. Step 1 was spending less than you earn, step 2 was paying off consumer debt. Step 3 is to grow an emergency savings account. Its possible (and often recommended) to pay off consumer debt and grow a little emergency savings account simultaneously.

Firstly, the purpose of the emergency savings account is to prevent you from needing to pay to access money in an emergency. By paying to access money, I mean by using an overdraft, a credit card or a personal loan. Having an emergency savings account is likely to stop you sliding into more consumer debt if you have any. It will also generate some income for you in the form of interest if you store it in the right place.

The best location that I can think of for an emergency savings account is in a mini cash ISA. These grow tax free and make more money than regular savings accounts. Whatever sort of account you use, you want it to be earning interest over the rate of inflation (above 4% if you can get it) and you want it to be easy to access but not so easy you spend the money. I've found that internet accounts are the best in terms of access, but I have also used postal accounts, which means that it takes me a couple of days to get the money out. I would suggest avoiding accounts with a debit or cash card, as its all too easy to withdraw the money.

The amount of money you need to have in savings depends on the sort of emergency you are likely to encounter. If you lost your job unexpectedly, how long would it take you to find another one? If there was a sudden death in the family, how much would it cost to travel to a funeral and/or take care of their affairs? If the boiler broke in the middle of winter, how much would it cost to buy a new one?

At the moment, my emergency savings are at three months living expenses. This would cover me if one emergency happened, but I'm trying to improve it so that I would be ok if a couple of things happened at the same time. If you are just starting out, it might be easier to set a relatively low goal, say something like £500. In the event of an emergency, this would give you some breathing space before you had to find any more money.

thank you to fmf

As a by the way, thanks to Free Money Finance, with whom I checked some information for the following post on atheists and tithing and who has many excellent posts on the bible and money.

atheists should tithe

Actually I don’t mean that atheists should tithe at all, I mean that humanists should donate a reasonable proportion of their income to charities, but it wasn’t as catchy.

An atheist, is strictly speaking, a person who doesn’t have a belief in God. This statement implies that atheism says nothing about morality or how one should live one’s life. However, many atheists would also consider themselves humanists. Humanists basically believe that humans are on our own in the world and that we need to make the best of it. This means that humanists specifically rule out appeals to deities of any kind. This is why I really mean that humanists should be doing something.

Tithing is the practice of giving 10% of your income and/or wealth to the church - it is implicit that this is the church that you belong to. Its therefore unlikely that atheists or humanists are going to think that this is a good idea at all; because they’re not, as a group, big believers in churches (or other places of religion). However, the practice of tithing was partially used to support the good works of the church to the poor and 10% is a reasonably large quantity, one that should certainly make a difference. So that’s why I used the word tithe.

There is a general reason why everyone should give some of their wealth or income away, regardless of their position on God(s). That is that quite simply, it’s a nice thing to do.

For those people in the world who have consider themselves members of a religion with a scripture inspired by God (or Gods), there is a second reason. God said so. If you look in your scripture I’ll put money on you finding it there – although perhaps not in those exact words. The rest of this post isn’t aimed at you, - although you are more than welcome to read and comment on it - so if you don’t agree, please consider that first.

But what if you are an atheist (humanist), do you have any compelling reasons to give money away?

Well, if you are a humanist, this existence is all of the life and experience you are going to get. It also means that:

• Nothing is going to improve the lives of the poor and suffering, if nobody, anywhere does anything about it.
• Nobody is going to save the environment if some humans don’t do it.
• People are going to die early from disease and accidents unless some people do something. And when they die, that’s it.

Christian Aid has the slogan “We believe in life before death”, humanists would add “and that’s all the life we get”. So it should be more important to humanists than to anyone else, to extend everyone’s life and quality of life.

There is a general rule in life that if nothing is going to get done unless somebody does something about it, you’d better start doing it yourself or nobody will. So, humanists should be donating serious amounts of money. Starting today (yesterday if you have a time machine). Just as the religious are exhorted to act on their beliefs, so should the humanists. And part of that means putting your money where your mouth is.

If you truly believe that there is no one but us to turn to, then act as if no one else can help us with our problems and start contributing to the solutions by giving money (and lots of it).