Tax Advice To Save Your Magical Pennies | Introducing Tax On Tax Off

by Adam on December 30, 2011

I’ve found reading personal finance blogs a brilliant way to learn about the best ways to save and invest. But, apart from saving tax-efficiently in ISAs I didn’t really know much about tax strategies until recently.

After talking with a new friend we decided to team up to launch a new website for 2012 on the subject of tax:

Introducing: Tax On Tax Off.

The site will help you understand tax issues, particularly if you’re based in the United States. Filing taxes might not be the most fun thing you can do, but there are lots of opportunities to save money and ensure you are not paying too much tax (or too little).

We launch in the new year and we’d love for you to follow along, ask us your tax questions and we look forward to helping you rock your finances when it comes to tax.

And, oh yes, it will be FUN too.

Put in your name and email and start learning about how to save your money from the Tax Man:

 

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Should You Get A Junior ISA? | Junior ISA Explained

by Adam on December 20, 2011

A Junior Individual Savings Account (ISA for short) is a new financial product available in the UK (I can tell you’re excited already!)

Launching at the start of last month (November 2011) the product allows parents to save money for their children in a tax-efficient way, without needing to use their  own ISA and therefore saving their tax allowance for themselves.

What the UK Government has to say about Junior ISAs:

“Junior ISAs are a great example of a simple, clear and jargon-free financial product that allows families to save and invest for their child’s future,”

Mark Hoban, financial secretary to the Treasury

I wouldn’t exactly say they are jargon free but hopefully by the end of this article you’ll have a better idea about them and know why they are so worthwhile.

Firstly, some context: They were brought in to replace the Child Trust Fund that was introduced by the Labour government and scrapped by the coalition.

If you already have a child trust fund (CTF):

If you already have a CTF then you will not be able to apply for a Junior ISA, but you on’t miss out on the tax savings because the CTF investment limits have been increased from £1200 to £3,600 a year  -the same as the Junior ISA.

If you haven’t got a child trust fund for your child: 

If your child doesn’t already have a trust fund then a Junior ISA is something you should consider (even for older children who did not have the option of CTFs because they were born before 2002. And if your child is 16 years old they can open one themselves, and then convert it to a normal ISA at 18 (assuming they are sensible and don’t spend it on alcohol and parties!)

 

So what actually is a Junior ISA?

A Junior ISA for children  is, in many ways just like a standard ISA for adults – a savings account that allows you to save in cash or through stocks and shares, and not pay tax on your gains (you pay tax on interest from normal savings accounts but you might not realise it because it is automatically taken out of the interest you receive).

There are lots of advantages to investing in a Junior ISA:

  •  It is tax efficient:  The Junior ISA allows your child to avoid paying tax on the gains from savings, meaning the money grows faster than it would in any other account with the same interest rate.
  • It takes full advantage of the power of time: All money put in a Junior ISA is eventually rolled over into standard ISA at once your child turns 18 – keeping the tax free status…this is particularly brilliant as it means you’ve had more years to put money into the tax-free system for your child. If you had simply saved in a normal account and then wanted to transfer it into an ISA later on, you would be limited by how much you can put in an ISA in any given year. Saving in a Junior ISA consistently every year will allow you to save a substantial amount for your child.
  • It teaches the lessons of saving: Opening a savings account that is not accessible but is transparent (you can see the balance) is an incredibly powerful tool for teaching children the lessons of saving. They will be able to watch the balance grow over time and if you have invested it in the markets you will also be able to teach and show them the power of compounding returns as well as demonstrating the concept of risk and return.
  • It’s easy to pay into:  It’s really straight forward for donors to give. Adults paying into a junior ISA are not subject to full money laundering procedures usually associated to paying into other people’s savings accounts. This is important because it’s likely that the child themselves will not be paying into the ISA because they don’t have an income. But it’s easy for anyone, including grandparents and parents to pay into. What a great Christmas present!
  • It’s possible to switch from Cash to Stock AND BACK AGAIN. Children can hold one cash and one shares Junior ISAat a time, with the maximum £3,600 a year split between them.With a standard adult ISA you can transfer funds from a cash ISA a stocks and shares ISA…but you can’t transfer back into the cash ISA without taking the money out of the tax shelter. However, with a Junior ISA it is possible to transfer between cash and stocks and back again as many times as you want. This is great if you are uncomfortable with the level of risk at any time as you can correct your asset allocation whilst allowing the money to remain the tax-free status of the money in the  Junior ISA.
  • It’s perfect for parents to gift money to their child. In an ordinary savings account, interest exceeding £100 on any amount deposited by the parents will attract tax at the parent’s tax rate. Not so in a Junior ISA -it’s all tax-free.
Despite the advantages, it’s worth knowing the disadvantages too:


Disadvantages:

  • The money is locked into the Junior ISa and cannot be withdrawn until the child reaches 18. And it is always the child’s money once it enters the account. If you wanted more control you would have to skip the ISA, save in your own accounts and then give money to the child once they reach 18.
  • The Junior ISA replaces the child trust fund, which the government made contributions to. But the Government does NOT make contributions to a Junior ISA. All together now: “BOOOOO!”
  • There are ways to get around the tax situation without a Junior ISA. If a normal children’s savings account is funded by a grandparent or other generous relative who is not the parent, interest up to the child’s personal tax allowance – this year a huge £7,475 – can be socked away tax-free….without the restrictions of a Junior ISA.
If you are not using your own ISA allowance completely then you should consider saving for your child that way for the most flexibility, but if you are ARE using all your allowance for your own needs (you should be trying to) then a Junior ISA is a great solution for saving for your children’s future needs.

 It’s a great product for helping you save for a child in your life.

Why not consider setting up a Junior ISA as an amazing Christmas present?

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Work, Risk and Death

by Adam on December 19, 2011

Dont work yourself to death Source: www.ConstructaQuote.com

 

Stay safe out there and keep money in perspective. And, if you have people who are dependant on you, life insurance doesn’t hurt, either!

Also on Magical Penny

Do you need health insurance?

Some financial preparation for after you’ve gone

Do I Need Life Insurance?

 

 

 

 

 

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7 Things to Look For in a Balance Transfer Deal

by Adam on December 4, 2011

Using credit cards

A guest post from Andy about credit cards….useful things if used responsibly.

A balance transfer can be a good idea because it can help you to decrease your debt. You can transfer the amount of money that you owe on a credit card, for instance, to another lender.

With a ‘super’ balance transfer, you can even transfer the amount that you owe on a personal loan or your overdraft from your credit card. This is one of the easiest ways to save money because these cards will not charge you anywhere near as much in interest, in fact, in the UK most of the top cards don’t charge any interest at all for over a year.

If you are having trouble making your payments or reducing the amount that you owe because the interest rates are too high, this is certainly an option that you should explore. Below are a number of things that you need to look into when you are going over the various options that are on the current market.

1. The Promotional Interest Rate

First, you must look at the interest rate that you will get when you first open an account. If this is not lower than what you are currently getting, the transfer will not be helpful at all. You need to try to find the lowest interest rates that you can – thankfully most balance transfers are 0%. Sounds too good to be true? It’s not. You’d be silly not to take advantage of it.

2. How Long This Promotional Rate Lasts

The next step is to see how long this rate will apply to any balance being transferred. If the low rate only lasts for a month, it won’t be very helpful at all. In the UK, the market is so competitive that nearly all balance transfer offers are interest free for at least a year, but some (like those offered by the Barclaycard Platinum and Halifax Balance Transfer Card) offer nearly two years interest free on balance transfers. Therefore, it is important that you look at this in connection with the interest rate and not just at the rate itself.

3. What the Rate Reverts to When a Balance Still Exists

After that, you need to work out what the rate will change to after the promotional period ends. It may be possible for you to find a deal that will never change, where you will be locked into the low interest levels until everything is paid off. This is not common, however. The vast majority of balance transfer deals will revert to a higher interest rate after their promotional offer expires. If you do not think that you can get everything paid off before this happens, you need to know how much the rates will jump so that you can see if the deal is really as good as it sounds.

4. Additional Fees and Charges

Do not take out any balance transfer offers until you know exactly what additional costs will be involved. In the UK it is standard practice to be charged a balance transfer administrative fee, typically in the region of 3% of your balance. You need to know how much all of this will cost because this can help you to see if transferring your debt is even worth it. If you have to pay out more than you will save, you should not make the transfer.

5. Limitations Regarding Transfer Totals

Furthermore, you need to see if there is a maximum limit regarding how much debt you can even transfer over in the first place as some banks will only allow you to transfer so much. If you have £10,000 of debt, you need to make sure that you do not apply for a balance transfer that only allows a maximum of £3,000.

6. Your Status as a Customer

Some banks will require you to be a customer before you can actually open an account and apply for a balance transfer. However, these tend to be in the minority of offers – most offers are open for application by anyone. Regardless, check first if the balance transfer offer you want is available only to existing accountholders.

7. Your Personal Credit Score

It also does not hurt to find out how your credit score impacts your rates. If you have a high score, you can sometimes get a much better deal given that most of the banks have variable rates on both balance transfers and purchases. If your credit history has been tarnished in the past, then do not apply for the most competitive deals on the market as they are reserved for those with excellent credit. Instead, people with impaired credit records should look for a credit builder credit card with a balance transfer rate. Of course, if your credit score is in the excellent range, then you can apply for a much broader range of offers.

Andy is the co-founder of Finance Choices, a comparison website offering UK consumers an easy and impartial way to compare a range of credit cards for people with poor credit.

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Only 72 Is here | Ignite a fire with your entrepreneurial spark

by Adam on November 28, 2011

If you’ve ever considered some kindling to help that entrepreneurial spark of yours become a raging fire, then I can’t recommend this sale more highly. It’s made up of products from many ridiculously awesome people doing great things online.

And you can learn how they do it!

I’ve met many of these authors personally and know they are doing some world-changing stuff.

Check it out.

It’s only around for 72 hours.

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Is Giving Better Than Receiving?

by Adam on November 25, 2011

Spending and saving money is mostly about mastering the voices in your head rather than what you ‘know’ about managing money. It therefore makes a lot of sense to take note of how your mind works when you spend money. With this in mind,  the article below is a really interesting guest post I wanted to share with Magical Penny readers!

 

It’s an adage which was probably trotted out every Christmas by an elderly relative as they proudly presented you with yet another pair of reindeer socks. But psychologists have found out it’s actually true: spending money on other people gives us a greater satisfaction than if we’d just bought something for ourselves.

In a study carried out by the University of British Columbia in 2008, participants were split into two groups and given $5 or $20. One group was told to spend the money on themselves, the other group told to spend it on another person. The latter group reported greater feelings of happiness than the former.

The one where…

As I write this, I’m reminded of the Friends episode where Joey challenges Phoebe to find a selfless good deed, arguing that there is no such thing. In the episode, Phoebe tries having a bee sting her so “it will look tough in front of its bee friends” – until
Joey points out that the bee would have died after stinging her.

She then pledges $200 to PBS, a channel she hates, thinking that she’s finally found something with no good comeback for her. Yet her donation puts Joey, who takes her call on the PBS telethon, in the spotlight as the $200 takes the channel over their
pledge target for the year. Naturally this makes him happy, which makes Phoebe happy…until she realises that it’s made the deed selfish after all.

Why am I talking about this? Because that was the conclusion behind the study of why we’re happier spending money on other people. It seems that we give to others partly to promote ourselves as generous and kind, and when we feel this way about ourselves we feel happy. Another reason is that generosity helps to promote and strengthen social relationships, and as humans are social beings by nature, having these strong friendships makes us happier.

Experiences or things?

In a separate but related study in 2010, it was found that buying or receiving experiences, such as a day out or concert tickets, were more likely to make us happy in the long term than getting or buying material things.

Why? Well, think back to a happy time when you were growing up; perhaps a day at the seaside or your first holiday abroad. The chances are your brain has filtered out any of the less fun aspects that might have happened (being kicked by a donkey, getting ‘Spanish Tummy’ from the water) and exaggerated the good parts, leaving you with an inflated happy memory which will remain so over time.

Now think of a possession, an item which you really wanted at the time but that you never use now. Perhaps it’s a pair of shoes which you don’t wear, or a longed-for appliance or gadget which is now gathering dust. How many times since buying it have you thought, however fleetingly, “I wish I’d gotten the other pair” or “The new version of it’s much better than the one I’ve got”?

Why?

No matter what the item, it will always just be that item. As trends and tastes change, it will become less valuable or coveted, and eventually it will be just another thing cluttering up your cupboard. And socially, talking about a favourite possession could get you thought of as shallow and materialistic. Yet providing amusing anecdotes about something you’ve experienced is much more socially acceptable.

Negative experiences

Conversely, when purchases go bad, it’s easier to forget about material purchases than experiences. A 2009 study by the University of Texas surmised that if you bought a jacket years ago which bust a seam after wearing it once, you’d probably just exchange it and forget the experience after a while. Yet if you had a meal at a posh restaurant which resulted in food poisoning, you’d likely avoid that particular place for years afterwards.

Conclusion

If you want to be happy, spend most of your money on other people; and when you spend on yourself go for meals out, days out and holidays instead of buying the latest gadget!

Should make Christmas quite easy…

 

Louise is a writer for MoneySupermarket, a price comparison site in the UK. She writes mainly about personal finance, advising readers on getting the best out of their credit cards, mortgages and savings accounts.

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The Cheapest Room in the Best Hotel – Conscious Spending in Paradise

by Adam on November 23, 2011

I recently returned from Maui, Hawaii, where I got to experience the hospitality and awesome facilities of a 5 star hotel.

I know, not exactly the most frugal choices for someone who blogs about personal finances!

But it actually turned out to be a great personal finance decision.

5 Star Living

Having never stayed in a 5 star hotel before I didn’t really know what to expect but I had high expectations. And I wasn’t disappointed. The service never stopped: from having my bags unloaded upon arrival and a flower necklace placed around my neck by the greeter (It is Hawaii after-all); all the way down to the constant delivery of inspirational quotes placed on my pillow every day…I could certainly get used to living in paradise.

Whilst the facilities were not cheap, I did, however, make the decision to stay in the cheapest room available in the hotel.

Spending on what matters

Mastering personal finances is not all about trying to reduce your spending as much as possible. It’s more about becoming an expert conscious spender. 

Staying in a 5 star hotel was a conscious choice I made to experience living in an amazing venue for a week. I knew the hotel would be amazing but reasoned that the room itself would be less important to me – all I needed it for was to sleep and recover from having a ridiculous amount of fun learning to surf and having the time of my life with new-found friends. By opting to stay in the cheapest room I maximised what I had available to spend on other things.

Certainly, the room was not cheap -it was in a 5 star hotel after-all – but it provided excellent value compared to those who opted to stay in suites that ran 5 or even 10 times the cost of my room. Was their room really that much better?  I didn’t think so. I’m sure I’m not the first to take advantage of this kind of tactic.

Conscious spending on the things that matter can be applied to a lot of things:

  • Buying the cheapest house in a nicer neighbourhood is a great way to afford to live in a desirable location if that is your priority
  • Enjoying a single course in a fancy restaurant can make fine dining fit into more modest budgets.
  • In business, treating your clients to quality hospitality services on occasion rather than trying to woo them with expensive gifts when you incentivise, network or close business could be a much more effective strategy.
Spending with purpose and developing your understanding on what is important to *you* (or your clients) is a great way to ensure your pennies have their maximum impact…and it might even mean you can afford to relax on a tropical island so day.
How’s that for inspiration to grow your pennies?

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What Motivates Us to Spend and Save Money?

by Adam on October 18, 2011

The psychology of saving is a fascinating subject. Understand why you spend and why you save and financial goals become a LOT easier to reach. That’s why I’m really pleased to be able to share this guest post today to help you you grow your pennies!

Why do you spend money?

Why do you save money?

There are many things that motivate people to do one or the other, and often we are predisposed one or the other. You probably have a stingy friend or relative that everyone makes fun of for holding on to their money, just as you know someone else equally motivated to spend whatever money they can get their hands on. But as you know, finding a happy medium between spending and saving is essential to your overall well being as well as your long term financial and personal success.

Once you know what motivates you to spend and save, it is easier to organise your finances and make the best possible decisions. So let’s take a look at what makes us tick!

Motivations to Spend

While there is nothing wrong with spending money, going overboard can quickly lead to a multitude of money related issues. Here are three of the key motivating factors behind spending money:

Wanting to have a good time:

Most people are motivated by having fun, either alone or with others. Even though there are many ways to have fun for free, a lot of people feel that the more they spend the better time they will have. All those crazy weekends where the budget gets tossed out the window pays testament to that.

To feel better about yourself:

Do you tend to spend when you are having a bad day or are looking to improve your self-confidence? If you just answered yes to one or both of these questions, there is a good chance that you are in the habit of spending money to make yourself feel better. While this may be motivation to spend, it often results in a short lived bliss. Soon enough, you will have buyer’s remorse as you realise that spending money did nothing to change your situation. And worse yet, you could end up with the burden of debt looming over your life, compounding any emotional or personality issues that made you spend in the first place.

Doing something nice for somebody else:

No matter if you are buying a gift for a special occasion (birthday, Christmas, anniversary, etc.) or just to show how much you care, you may be motivated to spend on the basis that the recipient will realise the importance. In situations like this it can be veryeasy to spend more than you can afford to spoil the recipient, show them how much you appreciate them, or simply to show them (in a rather selfish way) how good you are to them.

Motivations to Save

For many people, saving money is a way of life. For others, this is a struggle day after day. Here are three of the biggest motivations to save:

Fear:

Are you afraid that you will run out of money in the future? Are you afraid that you will lose your job and not be able to pay the bills? Fear, uncertainty and doubt, aka FUD, is perhaps the biggest motivation to save. It can be very difficult to get money related fears out of your mind, especially if you are the sort of person who likes to be in control. However, as you save more money this feeling may begin to subside and gradually be replaced by a growing sense of security.

Security for the future:

If you want to maintain your standard of living and have a good lifestyle in the future, particularly during retirement, you better begin to save today. The more money you save today, the more security you will have in the future. In many cases, security for the future and fear go together hand in hand. In other words, you may be afraid you are not saving enough now to feel secure later in life.

So that you can purchase something big in the future:

Are you motivated to save for a dream vacation to a tropical destination? How about that sports car you have had your eyes on for so many years? Saving for something in particular, especially something that you really want, may be all the motivation you need to count the pennies. Saving up to pay for something in cash is a sound principle to stick by, and one that can save you a lot of money and stress.

Contributed by Andy at Credit Card Compare, the free credit card comparison service for Australians. Andy also helped to curate their learning centre, which is a repository of useful personal finance guides and resources.

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Debt in the UK

by Adam on October 12, 2011

There’s a lot of talk about UK and world-wide debt levels.

As the UK economy is wavering in its recovery, research into the extent of the debt problem in the UK has been compiled into a video that’s worth a watch.

Source: Payplan – IVA and Free Debt Management Plan provider.

Never a better time to take control of your own financial situation (and lots of things in the works for Magical Penny at the moment -stay tuned!!)

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Business Liability Insurance

by Adam on October 7, 2011

The below is a guest post to help you learn about some important considerations if you’re thinking about starting a business -a good way to help you grow your pennies!

cautionThere can’t be many more thankless tasks at the moment than running a business. Whether you’re the owner or the manager you have staff to think about, suppliers to contend with, rules, regulations and red tape – and that’s all before you’ve seen a client or a customer. The last thing you’ve time to think about is your business liability insurance.

And yet being in business – especially in our increasingly litigious climate – is all about being liable. You have responsibilities to the staff you employ, the customers that visit you or buy from you; you need to protect your stock, your cash and the building you trade from. But on top of that your business liability insurance costs money – money which you’d happily not spend in the current climate!

The problem is, protecting your business against liabilities is one of your most important jobs – because without protection, you might find yourself calling the receivers instead of opening for business. Supposing your stock was destroyed in a fire? Your premises were affected by a flood? Supposing a customer fell over a poorly-placed cable, or a member of staff fell down some poorly-lit stairs?

In every case, the business faces a potentially devastating loss or a hefty bill for compensation. All scenarios which could see the business closing down can be protected against with properly arranged business liability insurance from a company like Staveley Head.

But in the current economic climate too many business owners either don’t want to keep their policy up to date, or they’re simply too busy.

Maybe the solution is to hand the problem over to an expert company who have a specialist department dealing with nothing but business liability. They’ll make sure that you have exactly the cover you need at the most competitive premium.

And you can rest assured that a specialist insurance department will have dealt with plenty of other businesses like yours – so they’ll know the areas where claims are likely to arise and they’ll be able to make sure that you are properly protected.

That way, if the worst happens, it will only be an interruption to your business – not the end of it.

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