How Wealthy Are You? What its the Average UK Wage?

Cheque

The media is constantly reporting on stories of other peoples incomes, whether its bankers bonuses or benefits claimants there’s scarcely a day when there isn't a story about someone else’s income.  However, apart from these high profile stories, income tends to be a shy topic of conversation in the UK and the reality is that most of us probably don’t have a clue what our neighbors earn or where we fit on the grand scale of income.

What is the UK National Average Wage?

Unfortunately it’s not that simple, the first question to ask is what do you mean by the term average salary?  Here we can use the mean or the median and not surprisingly this results in two separate answers:

Average Mean Income – This is the average income taken by adding up all the salaries of those in the sample and then dividing the answer by the number of the sample population.  The problem with mean income is that the figures are skewed by those at each end of the spectrum who earn exceptionally large or exceptionally small amounts.  At the end of 2010 HBAI data put the UK mean income at £519 per week or £26,988 pa.

Average Median Income – Most prefer to use the median as a way of measuring the average income.  The median income represents the figures at which exactly half of the population earns a figure either side of this level.  In 2010 HBAI data put the UK Median income at £414 per week or £21,528 pa.

So depending upon what you mean by average, if your monthly income is £2,249 (Mean) or £1,794 (Median), congratulations you’ve hit the national average.

What do Other People Earn?

OK so now you know the national average, here are some other average earnings just for fun:

Annual Salaries

·         Office Administrator - £16,296

·         Retail Store Manager - £21,392

·         PA - £24,250

·         General Manager - £35,325

Hourly Wages

·         Retail Assistant - £6.06

·         Admin Staff - £7.64

·         Dental Nurse - £7.96

·         Electrician - £10.99

So there you have it, for better or for worse if your income is in the £21k-£27k band, you’re probably doing just about average. 

Reasons to Refinance Your Mortgage

Sold Sign

OK so the home mortgage market and home ownership path has been anything but fun over the past few years, those looking to get on the property ladder have seen reductions in the availability of mortgages in the first place and need for larger deposits.    On the other hand, those of us already on the ladder have seen stagnating prices at best and a lot have suffered a loss.  However, not all is doom and gloom, now may be the time to save some cash and refinance your mortgage.

Why You May Benefit From Refinancing Your Mortgage

Interest Rates – If you financed your mortgage in the days before the crash, you probably also financed at rates of interest which were far higher than they are now.  If this is the case moving to a mortgage financed at today’s rates is likely to be much more attractive.

Equity – Many people when financing their first home would have saved only the bare minimum deposit, around 10%.  If this was the case you probably got a mortgage at a rate which was higher than would have been available with a larger deposit.  However, if it’s been a few years since you financed and the equity has built up in your home, this could make you much more attractive as a borrower.  Even a small increase in the equity (say to 15%) can make a difference and make a change worthwhile.

Credit Ratings – Having repaid a mortgage over a number of years is a great way to improve your credit rating.  Even just the fact that you have had a mortgage for a number of years may now make you more attractive to banks and mortgage issuers thus making those monthly repayments lower.

Things to Watch Out For in Refinancing Your Mortgage

Type of Mortgage – Make sure you are comparing like with like.  Tracker rates are usually lower than fixed rates, although if you’re coming to the end of a fixed rate, to get a fair comparison you need to consider the rate on the same kind of mortgage even if you do end up opting for a tracker rate.

Fees – While refinancing may result in considerable cost savings, there are also some costs too look out for.  These include exit costs from your current mortgage provider and product fees charged by the prospective new provider.

Valuation – In moving to a new mortgage provider you may also need to get a valuation on the property, this can again add costs to the operation.

So while the current mortgage market isn’t great, if you’ve been in your existing property for a number of years or are coming to the end of a fixed rate period, now could be the time save on those monthly repayment by shopping around for a better deal.

Writing for Money – Is the Content Farm Dead?

Writer at Work

Since mid way through 2009 I’ve earned a considerable part of my income from writing in various forms including writing for the web.  In 2010 I dedicated a proportion of my time to writing for so called “content farms.”  For those not familiar with the concept, a content farm is simply a website which allows members to publish material in return for some form of financial gain usually linked to the clicks on adverts placed in close proximity to the article.  While the term content farm is usually used in a derogatory way, like all web content there exists the good the bad and the dam right ugly.

Content Farming in 2010

I quickly found my experiment in 2010 to be quite profitable, I registered with a number of sites including Suite 101 (my main site), Triond and Infobarrel.  Within a few months I’d built up an article based and was making what I would consider to be reasonable “bonus” money, nothing that was going to let me quit the day job but certainly enough to make a real difference to my monthly bottom line.

In short, from a personal perspective content farming was certainly worth the effort in 2010, every month I wrote new articles and every month my income grew.  The advantages of the content farm in 2010 were obvious, the average writer could gain a reasonable income by publishing articles on a pre-existing platform without a great deal of knowledge of search engine optimisation (SEO) or web marketing.  Content farms generally held a high ranking in the search engines and this lead to steady traffic and with it a steady stream of add clicks and income.

Content Farming in 2011 – Year of the Panda

Unfortunately starting in February 2011, Google implemented a major set of changes to its algorithms which affected the page rank of many sites.  The algorithm updates referred to as “Panda” while hitting many sites saw those sites classified as content farms hit the worst.  The results for content farmers like myself were devastating, articles which had previously been on the first page of Google search results now languished in the back waters and with the death of traffic also came the death of revenue.

While many content farms responded with changes to editorial policy, the large culling of poor quality content and various cosmetic changes in order try to gain favour again with Google and the search engines.  The fact remains that at the end of 2011, few if any of the content farms had made a significant impact in restoring traffic volumes to pre-Panda levels.

Content Farming in 2012 – Year of the Dragon

2012 and the Chinese year of the Dragon is now upon us, but what’s the future for content farmers?  Since the Panda algorithm changes I have seen little evidence that any of the major content farms has the ability rise again in the Google search ranks.  While there are always those eternal optimists, only a change in the bottom line will see me returning to the content farm model. 

As such, in 2012 it may be better to focus on writing for your own websites and blogs, personally the reason for writing for the content farms before was due to the high ranking such sites enjoyed in the search engines.  However, with that gone and no sign of it coming back, far better to maintain editorial freedom and 100% of the revenues generated from own branded websites and blogs.  

Look After the Pennies and the Pounds Will Look After Themselves?

George C Scott as Scrooge

I remember hearing this phrase as a kid and never really understood it, surely if you want to look after the big things in life then look after the big things right?  Ok so this is not the place to launch an attack on the penny pinching brigade, for some it’s necessary and yes a lot of small frivolous spending will add up to, well a lot. However, if there’s a choice between tackling the mortgage or the morning cappuccino, go for the mortgage.

Why Focusing on Big Ticket Items Pays Dividends

If you’re really looking to save money the best place to start is the big ticket items, consider what do you spend the bulk of your money on, home mortgage, car finance, utilities?  These are the items which you are most likely to be able to save the most money on and there probably the items in all reality that can be fixed relatively quickly.  A single switch of the mortgage could save you thousands or years off your payment schedule and changes in insurance and utility providers can often save hundreds in a few phone calls.

The other great thing about switching big ticket items is that you often won’t suffer from any downside other than the hassle of switching.  I promise your house will not bear a grudge if you switch mortgages and your lights will be as bright with NPower or Eon.

The other great thing about big ticket savings is they often come in lump sums, if you save £100 on your annual insurance premiums that's a £100 saving today, not spread over a year in a way that is neither here nor there.

The Problem With Saving the Pennies

On the other hand, you could focus on saving the pennies, cutting out all the small and unnecessary things in life over a year saving quite a bit of money.  The problem however is that small savings take a long time to add up, yes cutting out a coffee three times a week will save you £300 a year, but that’s taken you a whole year to achieve what you might of done in a few hours working on the big ticket items.  In addition, would you have really put that £2 a time in jar and then spent it at the end of the year or would you have just spent it on something else and not really have saved anything?

The other problem with small savings is that they often have a noticeable impact on one’s lifestyle, you won’t notice the difference between one company’s gas and another but switch from a decent set of coffee beans to the cheapest instant stuff, sure you’ll save a little money but you’ll also have bad tasting coffee.

As such, there’s nothing wrong with saving money and trying not to waste your resources.  However, to reap the maximum benefits, focus on big ticket items and items were there is truly no difference between alternatives.  If you want to save big, think big.

Self Employment and Small Business: Saving for Tax in the First Year

Gibraltar £5 Note

Whether making the transition to self employment full time or just running a small business as a sideline, it’s essential to put aside enough money to cover the tax bill at the end of the year.  However, due to the system of making “payments on account” it may mean that you need to save more in the first year than you actually think.

Tax in the First Year of Operation

Although you will need to register with HMRC for taxation reasons as soon as possible after commencing operations, the great news is that with the exception of class 2 NICs you won’t be sent any further bills until after filling your first tax return at the end of the financial year (April).  However, most engaging in self employment will set aside a percentage of their income to cover the tax bill when it arrives.  In essence this should be quite simple, just put aside the relevant percentages for tax, national insurance and any extras such as student loans right?

Unfortunately in the first year of operations it’s not quite this simple due to the fact that your first tax bill will include a balancing payment and two payments on account which will mean that you effectively need twice as much as you might have thought.

Your First Tax Bill

In this case let’s assume the business filed its first tax return and the owner correctly estimated based upon the relevant tax bands a tax liability of £5k.  When the tax bill comes there will be three payments to be made as follow:

Balancing Payment £5k – In the first year this considers that you have no credit with HMRC and therefore pay the entire sum due for the previous year.  This is due by the January 31^st deadline.

Payments on Account £5K – In addition to the balancing payment, HMRC also requires you to make a provision for taxation for the coming year, these are split down into two payments on account (£2.5k each in this case) due in January and July and are based upon the total amount of tax due in the previous year according to actual profits.

As such, due to the fact that at the end of year one you have to pay both your outstanding tax and make a provision for the coming year, the effect is that your tax bill may be twice what you were expecting.

So, while it may be great that you don’t have to part with your money straight away as with the PAYE system, the first tax bill may come as a shock and the moral of the story is to save as much as possible in the first year.  However, when the bill does finally come, don’t panic and remember that you have until the January and July deadlines respectively to get the money over the HMRC.

Useful Links:

HMRC Deadlines

HMRC Rates

How Much Do I Need For a Mortgage Deposit?

Federal Home Loan Bank Board Building

While the home mortgage market isn't as buoyant as it used to be a few years back and the days of the 100% or even 125% mortgage are well and truly over.  For those who can get a decent deposit together, low rates of interest mean that now is an ideal time to finance a mortgage.  The key question however for many is how much do I need to save in order to get a mortgage?

In general terms, most banks and financial institutions offer mortgage products for borrowers with access to a 10% deposit.  This stated, larger deposits are often preferred and this is often reflected in the considerably lower rates of interest charged.  In addition, those looking for a specialist kind of mortgage such as a buy to let mortgage may require significantly more, usually 25% as a bare minimum.

When calculating the amount needed, use the concept of loan to value (LTV), this means the deposit is calculated as a percentage of the value of the property, not the value of the mortgage.  For instance if the property is valued at £100,000 and a bank is willing to offer you 90% LTV, this means you need £10,000 or 10% of the value of the property.

Should I Get a Mortgage With a 10% Deposit?

While most people can get a residential mortgage with a 10% deposit, this may not be the best option if it is at all possible to go the extra mile and save up that 20% or 25% deposit.  For instance, at the time of writing HSBC offered a tracker rate mortgage at 4.7% for those with a 10% mortgage.  However, this declines to 3.0% for those with a 20% deposit and drops further to 2.6% for those who can manage a 30% deposit.

Considering that on a mortgage loan of £100,000 a 1% difference in the rate of interest levied represents £1,000 in charges, it’s not hard to see how saving up that extra deposit will make a large difference to your monthly repayments.

In addition, while many banks and financial institutions may have mortgages available to those with a 10% deposit, whether a mortgage will be issued depends on a range of other factors including your financial history, credit rating and household income.  In general, a larger deposit is usually preferred and you will have a greater chance of success with a 20% deposit or more than with a 10% deposit.  

As such, the short answer is that most prospective homebuyers looking for a residential mortgage will be able to get a loan with a 10% deposit.  However, the cost of borrowing and general lack of liquidity in the sector means that it may be much better to aim for that 20% or 25% deposit before setting your heart on that dream home.

Cash Rich, Time Poor or Are You? Find a Job Closer to Home

First Capital Connect Bedford by Stephen Craven

I’m lucky these days, the daily commute takes all of about ten seconds and crosses a few feet between bedroom and backroom office, it’s one of the greatest benefits of working from home.  However, this hasn’t always been a reality for me, I’ve tried every model of the work life arrangement from renting a room and travelling home at weekends to a 100 mile a day round trip between home and office.  At the time I thought this left me cash rich, time poor but on reflection it made me just plain poor.

Why do People Commute?

Despite falling out of love with the commuter model, it’s hardly a rare lifestyle choice especially in metropolitan and other high cost of living areas such as London and the Southeast in the UK or NYC in the US.  The fact is, many people living in such areas spend a significant amount of time and effort getting from home to work and back again.  The obvious reason of course being that people can often earn more money working in a place other than where they live.  The question is, is it worth it?

This is something I’d spent four years doing in one form or another and true to form I earned more than most of the people I graduated with who lived and worked locally.  However, the reality is I probably spent much more on the travelling and living away from my home than the extra I was making.

How Much Extra Do I Need to Commute or Live Away From Home?

Aside from the fact that travelling to work for any more than a short distance is an expensive operation, the extra amount needed to break even may be more than you think.  Consider the scenarios below:

·         Option A – Salary £20k annual travel cost £0

·         Option B – Salary £23k annual travel cost £3k

Ignoring travel time and the impact this has on a person’s lifestyle, it would appear at first that both options lead to the same result, £20k leftover after the cost of getting to work is taken into account.  However, this doesn’t take into account the effects of tax and other deductions, for simplicity apply a 20% tax rate and one can see the effects below:

·         Option A – Salary £20k, Tax £4k, Travel £0 Net £16k

·         Option B – Salary £23k, Tax £4.6K, Travel £3k, Net £15.4k

In other words, in order to breakeven, a gross salary must increase not only to cover the increased cost of travel but also to cover the additional deductions associated with the salary rise.  Such deductions can be considerable when considering all the elements including, the basic rate of tax, national insurance the possibility of student loans and higher rate tax deductions and this doesn’t even factor in any personal value added for the time loss.

In short, while commuting or working away from home can lead to opportunities and a higher salary, when considering whether or not such an option is worth the effort, a much higher premium may be required to justify the decision than just recouping the costs of travel.  On the other hand, even a small reduction in costs resulting from a job closer to home can result in a considerable increase in lifestyle as every pound saved goes straight onto the bottom line assuming you manage to maintain the same salary.

How to Get a Free Credit Report Using Experian

Visa and Mastercard Credit Cards

Whether you’re looking to get a loan for a car, take out a mortgage or just curious about your credit rating, it’s always handy to get a look at a credit report provided by one of the major credit reference agencies.  However, if you’re anything like me, you also won’t want to pay monthly subscription fees or spend hours on the phone trying to cancel an account.  So from personal experience, here is how I got a free credit report and dumped the subscription without so much as a phone call.

Credit Expert Free 30 Day Trial

I signed up for the 30 day free trial of Credit Expert by Experian, one of the largest credit reference agencies. In order to register, you will need a credit card and your address history for the past six years as well as the usual email details.  While you will have to provide your credit card details, no subscription will be charged to your card so long as you cancel within the 30 day free trial.

When signing up for the trial, ensure that you get the version with identity protection insurance.  The reason for this is that when coming to cancel your account this gives you the right to cancel via an email, if you don’t get this extra, you will still be able to cancel but unfortunately it will involve the dreaded phone call and hours of on hold music.

Most of the major credit reference agencies offer similar deals and trials although I can only comment on the Experian offering from a personal perspective.  However, the other agencies to check out are Equifax and Callcredit, together these three agencies are the major point of reference for consumer credit in the UK.

Accessing Your Credit Report

Once you have signed up for the trial, if all has gone well you will be able to access your report instantly which gives you access to a scary array of detail listing everything from your estimated credit score to where you are registered on the electoral roll.

In using your report it’s important to act fast and get all the relevant details if you intend to undertake any credit repairing exercises.  Remember, if you don’t cancel within the trial period you will be changed for a subscription and prices can be relatively high at around £14.99 per month.

So, if you need to know what your financial health looks like or are just curious to see how much data these agencies hold this is a great way to find out.  However, unless you’re really keen, don’t just create an account and forget about it as this will set you back another £180 a year. 

Should I Pay Off My Student Loan Early?

Cambridge University by Christian Richardt

Paying off debt in any form is usually a good idea as it will reduce the amount of dead money being spent on interest over a life time leaving you more money to spend on the important things in life.  However, if you took out a loan in the UK with the Student Loans Company (SLC) there may be some good reasons not to pay off your student loan early.

Consider the Cost of an SLC Student Loan

The main reason not to payback a student loan is the fact that it will probably be your lowest costing form of debt and therefore should be the last priority in comparison to other forms of debt.  The rate of interest paid will depend which scheme you borrowed under but rates on the whole tend to be lower than other commercially available sources of finance.  As such, if you have any outstanding debts including a mortgage which have a higher rate of interest, pay these off first.

In some years and on some schemes this can mean that you may even be able to make more money in interest in a high interest savings account than you would by paying off the equivalent amount off your student loan.  If this is the case, keep your money to hand.  Here are some examples of the cost of debt at the start of 2012:

·         SLC Student Loan (Issued 1998-2011) – 1.5% APR

·         RBS Platinum Card – 17.9% APR

·         RBS Unsecured Personal Loan – 8.9% APR

·         HSBC Tracker Mortgage – 4.7% APR

·         Lloyds TSB Cash ISA – 2.35% AER

The Unique Features of an SLC Student Loan

There are also some other reasons why you may wish not to pay back a student loan early despite the cost savings in interest:

Expiration – A unique feature of the SLC student loan is that the debt expires after 25 years, this means that if you don’t payback all of the money after 25 years the remaining balance will be cancelled.  In short it may not be worth paying back more than the minimum if you believe that after 25 years you will still have a significant outstanding balance.

Unsecured Borrowing – Another key feature of the SLC student loans system is that the debt is not secured against any of your personal assets and mandatory collections only take place through the PAYE system and self assessment.  In short, unlike other forms of debt no one will come knocking on your door demanding payments, the repayment system is much like an additional tax band in effect.  As such it may be better to tackle secured forms of borrowing first.

Credit Rating – At present SLC student loans are not shown on the reports generate by major credit reference agencies such as Experian.  As such, having an outstanding student loan should not affect your credit rating which is important when trying to obtain credit for other ventures such as getting on the property ladder.

Final word, it’s always good to pay off debt and paying off an SLC student loan early is unlikely to do you any harm.  However, do your homework first, if you have other outstanding forms of debt, the cost of a student loan and unique terms and conditions are unlikely to make this the best option for early repayment.  Even if you have no other forms of debt, check carefully that there aren’t better alternative investments for your money before paying off your student loan.

Why Wealth Creation Seminars Are a Waste of Money

Mulloy O'Higgins Lecturing

There have been a bunch of TV shows on lately about the so called “wealth creationists” who sell the dream of being able to live a luxury lifestyle and all without having a regular 9-5 job.  The key question is, are these people con artists and more importantly should you part with your hard earned money to hear what they have to say?  My answer is no and no and here is why?

Is the Wealth Creation Dream a Con?

The short answer is no, the basic principles of what wealth creationists preach really is based upon very simple financial logic and economic theory with a bit of psychology thrown in.  Here are the principals of the dream so far as I can see:

Invest in Productive Assets – The most fundamental principal appears to be the concept that investing time and money in things that generate an income be it property, stocks and shares or anything else preserves existing wealth generated from a linear income and serves to create passive income in the future.

Passive Income – Wealth creationists advocate the creation of passive rather than linear income streams as firstly this unlocks the ability to earn potentially unlimited amounts of income and secondly results in the ultimate goal of being able to live without having to work.

Focus – Wealth creation seminars are characterised by all the weird happy clappy stuff, group hugs and funny exercises.  It’s not for me but we get the point, if you want to be successful at anything in life focus and positive thinking is a must. However, no hugs for me, I am British a handshake will suffice.

Why You Shouldn’t Part with Your Cash

If the wealth creation dream isn’t a con then why not spend your money on wealth creation seminars? Here are some good reasons:

Information is Free – There are no magic secrets to wealth creation, you probably already understand the basic principles, even if you don’t practise them.  If not, the internet is a wonderful place and free!

Contradiction – Spending money on wealth creation seminars may be seen as a contradiction of the basic principles of what is being taught.  Is spending £500 on a lecture an expense or an investment in an asset?  You could have invested the money you spent on the lecture in a real productive asset rather than learning something you could have probably learned for free.

The Economic Man – In theory, people should spend their working time doing which ever activity is most economically beneficial.  What does this tell us about the wealth creation lecturer?  Simple, they are making more money lecturing than they would have been by practising what they lecture.  This doesn’t mean that what they teach is nonsense but it does indicate that the sale of the concept is more profitable than the practise of the concept.

Final word, I like the wealth creation principals, they seem to be based on good old fashioned capitalist principals and sensible financial logic.  However, you won’t find me lining up to part with £500 a time to attend some lecture though, that’s a payment off a mortgage. 

Passive Income Vs Linear Income

Luxury Rental Apartments in Dallas by Andreas Praefcke

What is passive income and why is it superior to linear income?   There are many sources of income, most people earn a linear income throughout their life, you go to work and exchange your labour for an agreed amount of money.  However, linear income has a problem, when you stop working so does your income.  This means that even if you have a great job that pays plenty of money, your income will always be limited to the amount of time you are able to spend working.

Contrast this to passive income streams and you’ll see how income can become technically unlimited and more importantly linked to what you own rather than how much your work.  Passive income is income which is earned from past efforts and investment in productive assets requiring no further investment of time or effort.  For example, if you buy a rental property you will have to work to get the property but the rental income is passive, invest in a ten year bond at 3% and you have a 3% passive income for ten years.

So what’s so great about passive income?  Despite the fact that you may have to work hard to get passive income streams up and running, once you have a few it frees your time up to do other things, like generate more passive income streams.  This is just not an option with linear income, imagine trying to convince your boss to let you spend a couple of hours working on a personal money making venture?

Is it too good to be true? The answer is no but this doesn’t mean it’s easy or that you can give up work tomorrow.  Most people will at some stage live off passive income, usually by investing for an entire lifetime in a pension and then buying an annuity to live off for the rest of their life.  However, creating passive income streams earlier in life can be challenging.  One problem is that the initial work required to generate a passive income stream can be considerable, think how long it may take to save up for your first rental property or the length of time it takes to write a book that people actually want to buy, passive income is not a something for nothing deal.  In addition, while passive income may provide a return without any further effort, returns can be low and in some cases hardly worth the effort, think of the tiny returns on your savings account, that’s passive income but it’s hardly going to keep a Ferrari on the road any time soon.

Final word, if you want to get seriously wealthy in life passive income is the way to go.  However, be realistic, most of us aren’t going to be living off passive income in the next year no matter how hard we try but a small amount of time and money invested in passive income streams over a prolonged period of time will start to put a bonus in the bank each month and who knows, one day it might just put the Bentley on the drive.