The sunny weather in the UK recently might have made you forget about heating bills for a while, but it’s something you need to always be conscious about as minimising your energy usage and finding the best deal can have a big impact on the amount of money you can save more exciting and meaningful things!
Source: Find Energy Savings
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It’s Carnival Time!
Personal finance blogs have been such an inspiration for me over the years. They make the topic of finance less taboo and less mysterious.
This can also be inspiring and inspirational. Reading personal finance carnivals allows you to browse a selection of the best blogs and articles, curated by the host of the carnival: more quality articles in one place.
Magical Penny is honoured to have been included in a number of carnivals in recent weeks. Click through and enjoy:
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This post is sponsored but the views expressed are those of Magical Penny
When you hear the word ‘pension’ what do you think?
For most people it’s a pretty confusing concept. One of the biggest confusions about pensions is what investments actually go into a pension, and how much does one need to have a retirement that does not mean being being cold and hungry.
Understandably with low understanding comes low levels of trust. I’ve heard countless friends and collegues tell me variations of:
“I don’t trust pensions”
OR
“I haven’t got a clue about my pension
It’s a sad state of affairs because a pension can be a great way to save for retirement – mostly because it allows you to invest money you haven’t paid taxes on and the pension pot grows tax-free year after year. You only pay tax when you start taking out an income (generated by the pension pot when you buy what’s called an annuity).
The confusion and mistrust around pensions have not gone unnoticed:
Ultimately though, there are really two types of pension – defined benefit and defined contributions. The difference is a defined benefit pension promises you a certain amount of money when you retire, whereas a defined contribution pension gives you you a certain amount of money today to use when you retire.
Defined benefit pensions are also known as final salary pensions and have become increasingly less popular as the risk to deliver an income is placed on the employer rather than the employee. This ‘risk’ has been problamatic for companies in recent years as the economic uncertainty have led some schemes into trouble running out of money in the fund to pay existing pensions.
A more empowered way to save in a pension is through a defined contribution pension:
Most private companies these days offer a defined contribution pension and it’s something you should be doing, especially if they offer what’s called a ‘match’ –where the company ‘matches’ what you put into the scheme up to a certain percentage of 3%.
Let’s give an example:
Say that you earn £20,000 a year and your company offers a 3% ‘match’.
This means that whatever you put into the pension account, the company will put in the same up to 3% of your salary. Therefore to get the most money from your company you need to put in at least what the maximum match is. In this example its 3% of £20,000 = 20k*0.03 = £600.
Put £600 of your own money into the scheme and you’ve just given yourself a £600 raise and you now have £1200 in the scheme! Result! You can actually put in as much as you want, up to 100% of your salary but your company won’t put in any more money into your account than the ‘match’ amount.
As you can see it’s worthwhile but its not the whole story –you need to consider how this money is going to grow and keep up with inflation. You do this by having your pension contributions invested automatically in various investment funds.
Even if you don’t have an employer match it’s worth looking into if a personal pension of your own is good for you.
Ultimately, pensions have a bit of a bad reputation given the ever changing rules about them and the failure of some pension schemes to be transparent in what you can expect to receive when it comes to retire. However, with a defined contribution pension you can receive free money today to help fund your future and be in more control than ever.
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I’m not an expert in US Tax Law, but thankfully my blogging partner at TOTO, Connor is. If you file in the US, for more information about how you can rock your taxes be sure to visit Tax On Tax Off
It’s Tax Season in the US!
Form 1040, which is the most comprehensive income tax return that can be used for 2011, has a number of changes from the prior year.
Rather than listing capital gain and loss transactions on Schedule D, with additional entries on Schedule D-1, there is a new form-Form 8949-for listing short-term and long-term capital gain and loss transactions. The totals are then transferred to Schedule D, which now acts as merely a summary.
U.S. citizens and residents with certain foreign assets must now complete this new form, attached to Form 1040. Filling this in may be required in addition to the annual reporting of foreign accounts on TD 90-22.1 (which is filed with the Treasury each June).
Due to the payroll tax cut, self-employed individuals have a 2-percentage-point reduction in the employee portion of Social Security taxes. This reduction is reflected in Schedule SE of Form 1040. However, self-employed individuals continue to deduct the full employer portion of self-employment tax as an adjustment to gross income on page 1 of Form 1040.
The alternative minimum tax (AMT) exemption amount has increased in 2011 to $48,450 for single filers, $74,450 for married filing jointly or a qualifying widow(er), and $37,225 for married filing separately.
Schedules you may have used last year are no longer needed on the Form 1040 for 2011. Schedule L, which was used for additional standard deduction amounts, and Schedule M, for the making work pay credit, are now obsolete because the tax breaks they applied to have expired.
Have additional questions about your US taxes? Visit Tax On Tax Off today
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Big news below towards the end of this article -keep reading to find out!
It’s early March, spring is in the air, and everything seems to be going great.
Well, apart from having a nice girl by my side, but let’s not go there!
Hopefully you have experienced good times in your life too. It’s great when everything is just ticking over nicely.
Life can change, for better or worse, in a heart-beat, and it always helps to be prepared.
This isn’t new advice, of course.
Spend enough time on the ‘net, and you’ll overdose on the number of times you’ll hear:
An emergency fund, funnily enough, is money you have set aside in case of an emergency.
Are you putting money away?
It makes a lot of sense but do you actually have one?
For many, building an emergency fund is something that’s on the To-Do list but the act of actually putting money away and LEAVING IT, is a real skill.
It can be very easy to let life get in the way. Perhaps you have begun putting money away for one reason but you find yourself needing to spend it on something more immediate like a car repair or a new boiler for your house.
Even if you are saving for something more specific rather than a general emergency, like a dream holiday to Paradise Falls in South America for example, it can be a real challenge to stop yourself from dipping into your savings.
Are you always dipping into your savings?
Whilst a strong mindset is the most important thing, here are some things that helped me grow my Emergency Fund.
I don’t really like the negative emotion attached to the name. For me I respond much better to positivity than negativity so I named my ‘Emergency Fund’ an ‘Opportunity Fund’.
Subtle difference, perhaps, but the name made me more excited to contribute to it every month. Every pay-day I would move more money into my Opportunity Fund and it felt great -after all, I was helping grow the size and number of opportunities that were becoming available to me. I enjoyed the feeling knowing that if my income disappeared I could jump on a plane and pursue new adventures. If things went wrong, I knew that money would not have to be the driving factor in how I would respond.
I used to move money into my savings account and then take it out again if needed something, figuring at least I was gaining interest on the money before I took it out again. However, this is a slippery slope to losing your savings. I only really started gaining traction when I made a commitment to myself that savings were savings for a reason and they should stay locked away.
If you need to discipline yourself further, consider locking your money away in a 1 year bond or certificate of deposit so you are protected from yourself. But make sure that you can access the money in an emergency if you really need it (most restricted access deposit accounts let you access the money if you need it albeit for a fee or forfeiting any interest you may have earned). Paying a fee might not sound that smart but if it protects your money from your self-sabotaging mind, then it can definitely be worth it.
Whilst you shouldn’t be investing the money in your ‘Emergency fund’, I definitely found myself saving more (and not touching it), once I began investing parts of my savings into the markets. The act of investing made me really appreciate that the money was now earning and growing on my behalf and the reward of seeing it grow in value over time was fulfilling enough to prevent me from wanting to ‘cash out’ and spend my savings. There was also the risk that I could lose money by selling at a bad time, so by increasing my investments, it made me want to increase my emergency fund further to make sure I would never be forced to sell my investments if I needed extra money in the future.
Click for more information about investing.
I wish I could say I had a more ‘sexy’ tip but there really isn’t anything more important:
To care enough about yourself.
To care enough about achieving your goals and ambitions and not letting money issues hold you back.
When you think about it, it’s really easy to CARE about making things happen in your life because the alternative, living with regrets about things that never happened, is enough to make any one cry….well, at least I do whenever I watch the introduction to Up:
Carl and Ellie never made it to Paradise Falls together, because they let life get in the way. Sure, they cared enough to save for the trip, but didn’t truly make it a priority.
Don’t be like them….make sure you are funding your Emergency and Opportunity Funds today.
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This post is inspired by recent events in my life…just last week I ended my employment at my day job and am striking it out on my own!
And having my ‘Opportunity fund’ is making me smile so wide my friends and family think I’m a bit crazy!
I’m feeling the empowerment that building an Emergency/Opportunity fund for yourself can bring. And it’s awesome that you’re reading this and following along for the ride.
The first thing I did was book a plane ticket to Austin, Texas for South by South West this weekend – to network and party with some of the top creative minds on the planet.
Thank you for being here with me -I want you to succeed in growing your pennies and I want to help you live an empowered life!
Now I’ve got more time than ever to help you do just that!
What are your Emergency and Opportunity Funds for?
Leave a comment and share with the Magical Penny community
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A guest post by a reader, Louise.
Picture the scene: you’re browsing on Amazon and you suddenly notice a cool looking camera on sale, 50% off.
It’s a great deal; the camera is a good brand, got good specifications and a lot of good reviews…it’s too good an opportunity to miss! So you click ‘Add to Basket’ and eagerly await the delivery of your shiny new camera.
When it arrives, you take a few pictures of your fireplace, the dog and a few passing cars…then leave the camera in a drawer, occasionally taking it out for an annual trip to the zoo or a family Christmas, but mostly you use the 5 megapixel camera on your phone because, well, that’s good enough and it’s more convenient than carrying around a bulky camera all the time.
If this scenario sounds familiar, you’ve suffered from buyer’s remorse. It can be applied to anything; a gorgeous pair of shoes with unfeasibly high heels; “they’ll be fine if I wear jelly insoles”, a camping holiday down in Cornwall; “if it rains we’ll just go to the nearest café”, or a ‘doer-upper’ house “I can finally renovate my own home!”.
It turns out that we’re very good at lying to ourselves, especially when we want something. The best barrister in the world couldn’t compete with your reasoning if you really, really want that new £45 Xbox 360 game. We’ll convince ourselves that this item will change our lives, that we’ll get hours of fun or use out of it, and that if we ever do decide to sell it on, we’ll get back what we paid for it.
Sadly the reality is often the opposite. That expensive game will be played for an hour, maybe two, then left on the shelf because your busy life just won’t allow you time to relax and play. The pair of shoes will be worn for one night after which you’ll deem them far too painful to ever go near your feet again, and they’ll sit in the bottom of the wardrobe forever.
As for selling them on; have you ever tried to sell a used game months after it was released? They lose value faster than British cars, and you’d be lucky if you got half of your money back. As for shoes; as soon as they’ve been worn once they’re only fit for a car boot where you’d get offered a pound for them from an old lady who thinks her granddaughter might like them.
Shoes and SavingsBuyer’s remorse isn’t just limited to tangible purchases. Have you ever taken out an insurance policy only to find a better deal a month or two later? Or maybe you’ve gotten a new credit card and later found that the APR is much higher than you expected?
While it’s not buyer’s remorse as such, it’s still a horrible feeling of something being wasted, the object of which will (technically) be much harder to get rid of than a camera or pair of shoes. Opening and then cancelling a credit card could look bad on your credit file, and if you try to cancel an insurance policy you’ll probably face penalty charges.
Fortunately, it’s quite easy to train your mind to prevent buyer’s remorse from happening. It’s simply a matter of really thinking about your purchase and how it will fit into your life. All too often we think abstractly about something instead of taking the time to consider the finer practical details.
The next time you think about buying something; really think about buying it. If it’s a camera, ask yourself how often you’re really likely to use it. Would you be happy carrying it around everywhere or will your phone camera suffice? If you’re eyeing up a pair of shoes; do you actually have any outfits that they’d go with, and do you already have going-out shoes which don’t cripple you?
In the case of financial products, the key word is compare. Whether it’s credit cards, current accounts, insurance policies or a broadband provider; compare as many different ones as you can. It’s the only way to find out what’s truly the best deal and reduce the risk of buyer’s remorse later on.
Have you ever experienced Buyers remorse?
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We would all love to make a fortune, but most of us don’t know how we will become millionaires. However, it is still possible to make small investments and get a good return on your money (if you’re lucky/make your own luck!), effectively turning a tiny amount into a relative fortune – as long as you invest consistantly and are willing to take on the risk that comes with any investment.
Don’t confuse risk with ‘gambling’ though. It’s a bit different to playing slots for iphone. Both can be fun but when it comes to investing you need to thing about it in a different way.
For this type of investment you put your money into an ISA account which then is invested in various stocks and shares (this varies depending on the specific ISA that you have chosen and the options available).
The great thing about ISAs is that your money can grow tax-free, so you don’t have to worry about paying any tax on the interest, capital gains or share dividends you may earn as a result – which is one way you can help turn your small investment into a relative fortune, as the lack of tax helps to boost your return.
You can also choose whether you want to reinvest your dividends in more shares (recommended for simplicity and to compound your returns), and you can generally put as much or as little into your share ISA as you like each month; just don’t go over the total annual limit that is placed on all ISAs which is currently over £10k per year.
Of course, it is important to note the risk that comes with a Stocks and Shares ISA – the stock market is not guaranteed to rise continuously and so your investment has the potential to dip – but if you are able to leave your money in the ISA over the long term, there is a good chance that the investment will grow.
It’s a good idea to investigate the best stocks and shares ISA for your needs, and understand what you are investing in as investment risk varies enormously. For instance, investing in a climate change mutual fund inside your ISA (that invests in energy-conscious businesses) is one of the riskier investments, but it has may perform very well over the long term.
If you are looking to spread out your options, one particular favourite investment is the FTSE all-share tracker fund so you never miss out when the stock market grows. Adding bonds and gilts into your ISA could also be worth considering; these can offer lower returns but they have less risk attached.
Overall, making a fortune requires dedication and care to make sure you make the best investments for your needs and that you manage the risk attached to investments wherever possible. With one eye on the long game and one eye on your current investment portfolio, you should have a decent chance of growing your ISA investment in the months and years to come.
Overwhelmed by your options but want to start investing? Sign up for updates and I’ll walk you through it.
You may also find helpful:
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Like many other people, one of my resolutions this year is to cut back on my spending.
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The following is a sponsored post with a very worthwhile message that I’m proud to share
If you’re just starting out in the world, beginning your financial life, it’s likely that you’re looking to get a car.
Buying a car is a pretty ‘normal’ thing to do for many 20 somethings -after all, you’re an adult and you don’t want to have to rely on others for your transport needs.
Unfortunately, car ownership can be surprisingly expensive, and whilst you could be justified that it’s a necessary purchase, it’s important you walk into the deal with all the facts.
With the exception of student debt, a car loan is often the first major debt that young people beginning their careers sign up for: it’s very common to use financing and focusing only the monthly payment rather than the total cost.
But carrying debt can be surprisingly costly and who knows what might happen in the future when it comes to your job.
The cost of car ownership is further compounded by the fact that car valuations can quickly fall leaving you potentially owing more than the car is worth if you are forced to sell.
Car insurance is another cost that comes with car ownership. But whilst it will always be a significant cost, there are also great ways to save money on your car insurance. For example, by shopping around (it’s a competitive market!), and taking advantage of your situation to lower your premiums like looking to women-only insurance providers for lower premiums if you’re gender-advantaged (!) or considering multi-car savings if you have more than one car.
Saving money with a multi-car policy is no joke!
Ultimately when it comes to car ownership you need to make sure you are making CONSCIOUS decisions rather than sleep-walking into an expensive commitment.
Is the personal freedom today worth the financial burden and will your car payment commitment stop you from growing your pennies for your future?
Deciding to wait a little while for a car can mean the difference of tens of thousands of pounds considering how much the pennies you save in your 20s will grow in value over time.
You don’t need a shiny new car to enjoy the crazy adventure of early adult life. Not having a car payment (or a very low one) allows more flexibility to travel, visit friends or simply save for other things like a down-payment on a house.
Having an older car will lower your insurance premiums and if you have more than one car in your household you can save even more with a multi-car policy.
Making smart choices really will pay off in the future so get your thinking caps on and start asking these questions to yourself today.
Conscious spending at the beginning of your financial journey really can have a Magical impact when it comes to growing your pennies.
Good luck!
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If you’re planning on living with tenants in your own investment property, it’s essential to take out landlord insurance and to choose lodgers carefully.
Sharing a house can be challenging, but there are ways to make your time together bearable or even fun.
I actually have first hand experience of this arrangement and know it can be beneficial for both parties. But there are things you should consider:
Letting out one of the rooms in your house is a great way to utilise space and make extra money – important if you are looking to grow your pennies in the long run. However, it’s important to interview tenants before they move in to ensure they’re suitable for a house share.
Have a good chat over a cup of coffee and find out as much as you can about the other person in a short space of time. Ask them about their job and delve into their personal life without being too evasive. Find out if they’ve got a partner (as this could affect you) and inquire how they’ll be spending their time. Lodgers also have expectations, so ask what they expect from you and decide if you’re compatible. Of course, people usually want to create a good first impression so use your natural instincts if possible.
Start off by drawing up a three-month contract and have all tenants sign it before they move in with a deposit for security. This will make things official and will help you throw them out if things don’t work out. Write down the rules and regulations of the house share and make sure everyone understands their responsibilities. Establishing a rota and laying down guidelines from the very start will help everyone know their place and should allow you to live in harmony.
Give each other spaceIt’s really important to respect your tenants by giving them privacy and space. Just because it’s your house does not mean you can stroll into their room whenever you feel. You wouldn’t like it if they snooped around your bedroom, so never enter their own living quarters without asking permission.
If you want to clean the whole house, always speak to the tenants first. Some might be happy for you to hoover and dust, whereas others would prefer to do it themselves. Everyone needs time to relax and breath, so don’t crowd your lodgers.
Always tell your tenants before inviting guests and ask them to do the same. That way everyone will know who’s coming round and will expect different people in the house. You might not care who your housemates bring home, but they might get concerned if they hear strange voices, so keep things fair. You don’t have to sit down and formally introduce everyone who walks through the door or anything like that, but just leave a note or tell everyone quickly. If you respect others, you should find they respect your back.
If there’s a problem in the house, it’s essential to talk through any issues before they get worse. Have a calm discussion over dinner with the person who’s bothering you and let them voice their concerns too. Talking face-to-face is one of the best ways to iron out issues and is much more productive than gossiping behind their back. You might find a good chin wag strengthens your relationship and getting everything in the open is sure to improve the atmosphere in the house.
Living amicably with tenants is as important as taking out cheap landlord insurance, so always treat each other with care.
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