Find Financial Freedom

With the ever increasing amount of attention being bestowed upon the environment and our carbon footprint it comes as a bit of a surprise that the govt has not started to offer incentives to property developers and investors who are doing their bit for the environment.

The govt are quite happy to add a tax on the aviation industry to offset the carbon footprint caused by all the cheap flights we go on, but they don’t seem to be offering tax breaks to property developers who go out of their way to build more energy efficient properties, and property investors who do their best to improve properties, such that they are more energy efficient.

Luckily for me, I rented my property out before the 1st October 2008, so I didn’t have to get an Energy Performance Certificate.

Now, assuming that for my next tenants I do have to get an EPC. If my property turns out to be very energy efficient, will I get any tax breaks? What if it’s not at all energy efficient? Will I get taxed more? The answer to both of these questions is no, so why should I care about the energy efficiency of my rental property?

However, if the govt offered me an incentive to reduce the carbon footprint of my property, I would of course be more inclined to take an interest in it. I notice that the govt are spending millions of pounds giving away more efficient boilers and such to poor people in the form of the govt’s Warm Front initiative, so why are they not able to offer any incentives to landlords such as myself?

I read an interesting article in the Guardian money section yesterday, which can be found here. The story is a question to readers of the paper, posed by another reader that had written in, seeking some useful advice.

I’ll briefly explain the situation. A readers’ partner has died, leaving her with some money, which she has decided that she wants to invest for her fourteen year old son, to give him a good start in life, once he’s old (and mature) enough to handle the money. Her question to the readers is “when should she give him the money?”.

Most of the answers seem to focus on the fact that at 18 years of age, the likelihood is that he will be too young to deal with the money, most likely spending it on a fast car and living it up for a while. The perceived wisdom is that at 25 he should be mature enough to handle the money.

There is even one reader that thinks it would be wise to give her son £10,000 a year while at university for three years, so that he would leave without any debt and have the best start in life.

I don’t agree with any of the advice. If I were in her position, I would put the money into trust for him, such that he can spend the income but never the capital, and make the income available to him from the time he starts university, should he go to university or from age 21 if he doesn’t go to university. This way, he’ll be motivated to go to university, which is a good thing, and if he doesn’t, when he gets to 21 he’ll have a helping hand in the form of extra income that he will probably appreciate all the more having worked for a few years already.

What I find most interesting is that the question is not “what should I invest in?” but rather “when should I give him the money?”. In my opinion, it doesn’t matter what age someone is, if they don’t understand money, the process of suddenly coming into a lump sum of £30,000 or more will usually result in the money being spent fairly frivoulously, so it’s in her best interests to educate her son about money so he is able to handle the money when she eventually gives it to him.

It’s an interesting position to be in, but more and more people are in this situation thanks to the credit crunch and subsequent economic slowdown (polite way of saying “bust”, eh Gordon Brown).

I read an article in The Times over the weekend about the “couple crunch”, which was referring to the number of couples that are breaking up due to one (or both) of them going through financial difficulties, as a result of job loss or drop in their self employed income.

There must be thousands of families all going through a similar situation, and there will be more in the future as the recession goes on - it will get worse before it gets better.

But what can you do about it? This entirely depends on your situation, but suffice to say that there are many options available.

If your problem is short-term, and you suspect you will get another job soon, then the best thing to do is cut back on spending where possible, contact your creditors (because we’ve all got creditors) and inform them of your change in circumstances. They may well accept a reduced payment from you while you sort out your employment situation. However, you will need to clear any unpaid amounts once you’ve started a new job, which may be difficult depending on how tight your budget is.

If your problem is not related to loss of income, but is endemic of the fact that you have lots of debts which aren’t getting paid off, then you may have to look into other solutions.

The three main solutions in situations like this are:

There are various ways that each different plan will help you, and each plan will affect your ability to borrow in different ways. I would recommend that if you are struggling with paying your bills, you seek professional advice.

As the credit crunch bites, I have deceided that I need to get out of mortgage brokering and into something else for the meantime, so I have been looking into various roles that use the “transferrable skills” I have from working in financial services.

One of the areas I have been looking at is working as a recruitment consultant. It’s essentially a sales job, so uses the skills I’ve picked up over the past few years working as a mortgage broker.

So I went to an interview the other day for a firm that recruit IT professionals and contractors. I didn’t expect the recruiters themselves to be IT people, but I wasn’t expecting the guy who interviewed me to be an english version of Gordon Geko! The guy didn’t look like him, but the way he acted and conducted himself was very reminiscent of Michael Douglas in Wall Street.

He really was quite a personality, and definitely thought a lot of himself. At one point, he was bragging to me about what the earning potential within the industry, and more importantly his firm was. He was telling me that a guy that started last year earned £85,000 in his first year. He then asked me what car I drove. I told him, and he then proceeded to tell me that he drove a Porsche Cayenne and the other two directors in the business drove Range Rover’s.

Great I thought, they must cost a lot in petrol each month… I couldn’t help but think that it was such a waste of money. If you’re earning six figures, then you only really need to work for a few years then you can take early retirement. Instead, the guys there probably blow most of their money each month on car payments, champagne and whatever the latest “must have” gadget/phone/tv is that month.

If I do get a job in recruitment, and I earn that sort of money, I will be getting my mortgage cleared as quickly as possible, so that I can live a nice stress free life sipping rum cocktails on a beach!

I was thinking about expensive cars and how they are in real terms a bit of a waste of money and I came across a post on ListServe. Undoubtedly all the cars on the list are very nice cars, but of them all, I wonder which of them would go on to become a good investment.

In tenth place was the Maybach 57, which is in my opinion a German copy of a Rolls Royce, high end luxury, uncompromising on its quality without regard to the cost. I think a certain Simon Cowell has one of these, or perhaps he has the other model. With a list price of over £290,000, it’s a very expensive car, but I seem to recall an episode of Top Gear where they discussed it’s depreciation in a less than positive light. Not surprising, you only need to thumb through a copy of Auto Trader and you can pick up a 25 year old Rolls Royce for Mondeo money.

In ninth place was another Maybach, the Maybach 62, a slightly more expensive version of the 57. Again its value will probably fall sharply once driven off the forecourt, so not a good investment.

In eighth place is the Porsche Carrera GT, this is actually a very nice looking car and quite rare. If it were not a Porsche, it would probably hold its value rather well, but unfortunately, in my mind, Porsche have become a victim of their own success, and although this is a very exclusive car, it’s not an exclusive marquee anymore. A better investment than a Maybach no doubt, but not the best.

In seventh is the Mclaren-Mercedes SLR, which to me looks like a regular Mercedes SL on steroids! It looks the business, but it’s no Mclaren F1, which was its predecessor, before Mclaren jumped into bed with Mercedes. I don’t think the SLR will be as fondly looked back upon as the Mclaren F1 was and still is. The F1 had supercar status, it had a normally aspirated V12 pumping out over 600bhp, whereas the Mercedes engine uses a supercharged V8 to give it a similar number of ponies. I think it will hold its value reasonably well, but again like the Porsche, Mercedes is no longer an exclusive marquee.

In sixth place is the Koenigsegg CCR, costing over half a million US dollars, it’s a lot of money, but it is a lot of car! It was reviewed on Top Gear and I think Clarkson almost wet himself with excitement at how good it was as a car. So it’s got some guts, it’s a beautiful looking car and it will be very rare, as they are only building a handful a year, and unlike other supercars manufacturers, Koenigsegg only build supercars. I think this car would hold its value well.

I will complete the top five in another post, in the meantime I don’t think any of these cars will be worth more than they are currently worth now in ten years time. However, in the long term, in twenty five or more years from now they could appreciate in value, assuming they are kept in mint condition. Given inflation, it’s possible that the value could rise to more than it is currently. Being completely hard nosed about it, taking into account cost of servicing, cost of capital tied up in the cars, they would really need to appreciate by a huge amount for any of them to outperform property or stocks/shares as an investment, but if you have the money spare then why not enjoy it!

I take a keen interest in the Bank of England base rate, and the information that is used by the Bank to make their monthly decisions on what level to set the Bank of England Base Rate (BOEBR). This is because firstly, my mortgage is a tracker mortgage, but secondly, as a mortgage advisor, I’m always keen to know what trend the rates are going in so that I can give advice to my clients about what sort of product is right for them in the current and future financial climate.

According to the BOE website and their most recent inflation report for May 2008, they state that the rate of inflation for March 2008 is 2.5%, which is 0.75% higher than six months ago.

I tend to think that the real inflation level is much higher. This is because the figures used by the BOE are largely manipulated by what they use to assess the cost of living. For instance, the figures take into account the costs of white goods, TV’s, stereo’s, and many other goods that a typical person would probably only purchase every few years.

What about the things that people pay for every month, like petrol, gas, electricity, water, food. The cost of all of these has been steadily (in some cases quickly) rising over the past few months.

I’ve been having a look at the reason why the price of these everyday purchases has been rising, by looking at the wholesale prices of commodities on the Financial Times website. It makes for interesting reading.

On the 4/6/2008, the annual price rise for Brent Crude Oil, which directly affects the price of our petrol, had risen by 75.12%. Has the price of petrol risen by 75% this year though? Nope, according to various newspapers articles that I’ve read recently, the rate of inflation on petrol has been around 20% this year. Why is there such a difference? I suspect that some of the price rises have been swallowed by the petrol companies, or possibly the inflation figures are slightly out.

What about other products that we buy on regular basis? Bread for instance. The price of wheat has increased 42.14% in 2008. No surprise that a loaf of bread now costs over a £1 in most stores.

So how does that impact your weekly shopping budget? In my house, we get through on average, one loaf of bread each week. So if I am now paying roughly £1.20 for a loaf of bread, which would have cost roughly 85p at the start of the year, each month I’m speding an extra £1.40 a month just on bread!

More importantly, it is the impact that the price of wheat and corn has on other food products that we buy, as they are fed on foodstuffs derived from corn or wheat.

The only commodity that has decreased in value this year is orange juice. Scant conciliation, if you can now no longer afford to buy juice because the price of everything else has risen…

Having read John’s article – The four pillars of financial freedom – I thought I would make write about one aspect that he touched on very briefly in the section entitled Making regular savings and investments.

John quite rightly points out that nearly 50% of UK households have savings that are less than or equivalent to one months income. Now, I haven’t researched the relevant statistics for this claim, so I cannot possible agree or disagree with the accuracy of the figures.

However, in my experience as a mortgage advisor, I would agree that a large proportion of the UK population have little or no savings, living each month from hand to mouth. In most cases, the reason they have got into financial difficulties in the past is through having a period of time without any income through unemployment, illness or injury.

In many cases, they could have avoided this situation by taking out various protection products, which are designed to protect against adverse circumstances, like loss of life, loss of job or loss of ability to work and therefore earn money. These products are useful for those that have no savings, as they can provide a safety net where there is none. They are also just as valuable to those that do have significant savings, as they can minimise the need to dip into those savings, should they suffer any interruptions to their income.

At this junction I should probably explain what products I am talking about, and how they can be used.

• Life insurance, which can be used to repay a mortgage (or any liability) in the event of death.
• Family income benefit, which can be used to provide an income to your surviving family in the event of death.
• Critical illness cover, which can also be used to repay a mortgage (or any liability) in the event of diagnosis of a specified critical illness.
• Income protection, which can be used to protect your income in the event of illness or injury.
• Unemployment protection, which can be used to protect against loss of job through no fault of your own, it won’t usually protect you in the event of being sacked.

There is of course a price to be paid for each of the policies that you take out; the price will largely depend on your age, medical history, smoker status and occupation. The key to saving money on these products is to shop around, get good advice on what products to take out and take them out when you are young, as they will increase significantly with age.