They both know how and why some people accumulate wealth and others remain poor and struggle financially all their lives.
The key is the values parents teach their children, though both men have expressed this in different ways.
Bourdieu, a sociologist, tried to understand why people seemed to stay within their social class and rarely ever leave it.
He concluded that it didn’t have much to do with the amount of cash that was readily available; instead he argued that there were different types of capital.
Educational capital, for example, was the sum total of knowledge and training a person received, which gave more educated people broader horizons and less educated people a more limited outlook.
This is the sum total of outlooks, attitudes and values towards everything in life, including the vexed issue of making, saving and investing money.
Bourdieu said that this explained inequality; there was an inequality of ideas, beliefs and values being passed on to subsequent generations.
Some people instinctively know how to be sensible with money and how to acquire more of it, where others struggle.
, in a less academic but more practical way has argued the same thing and has a loyal following of fans round the world.
He believes that sound financial planning is something that is passed from ‘rich dads’ to their children (along, presumably, with their wealth) and poor money advice is also passed on.
Kiyosaki has argued that in order to be wealthy money should be spent on assets, as opposed to luxuries.
The bigger portfolio of shares, bonds, property and other investments a person can acquire, the sooner they will enjoy a life of leisure and abundance.
There is an important relevance to these ideas in the 21st Century, as the gap between rich and poor has widened in the past decade more rapidly than at any other time since the 19th Century.
More people than ever before are looking for advice and guidance on how to invest their wealth and how to protect it.
The number of ‘gurus’ offering help and insights has dramatically multiplied with the advent of social media, meaning that finding advice has never been easier, but sourcing quality advice grows harder and harder.
Finding an advisor who can give reliable, expert and unbiased advice is more difficult, as the number of ‘experts’ grows.
Ultimately you need someone who has more to offer than well meaning platitudes and statements that start with the words ‘I was like you once…’
Getting on the Sunday Times Rich List might not be a possibility for all of us, but becoming better off by following tried and tested investment planning is possible for anyone.
It must of course be stated that there is no such thing as a get rich quick scheme and the value of investments can go down as well as up, meaning that if you invest, you might not get out what you put in.
This is why sound advice on financial planning is so eagerly sought, as investors seek to limit the risks and maximise the potential gains.
However, without a will to state who will benefit from your wealth, much of the hard work you have put in over the years might be lost.
Dying without a will (being intestate), can present your loved ones with all sorts of difficulties when it comes to dealing with your estate and it presents the tax man with an opportunity to extract wealth from your life savings.
This blog article is a quick guide to making a will and ensuring that your legacy goes to your loved ones as you intend.
A Will To Fit Your Circumstances
Leaving your wealth behind might not be quite as straight forward as you think.
Depending on your circumstances, your age, health and life expectancy and the number and age of your dependents, you might find you have to word your will specifically.
For example, if you have young children or grandchildren, you might want them to inherit your estate at a certain age, or you might stipulate that the money is used for something specific, such as university fees.
It might be that you want to appoint certain trustees or guardians in your will. This might be the solicitor who is drawing up the will or another legally recognised individual who can administer and distribute your estate.
Giving To Charity
If you are leaving an estate to others, you can give part (or all, if you want) of this away to charity.
The amount that you leave to charity will be deducted from your estate before the government calculates the amount of inheritance tax that is due.
If you leave at least ten percent of your estate to charity, the overall inheritance tax rate that is levied will decrease (though not if you take the option of deducting contributions from your estate first, as listed above).
Dying Without A Will
You should probably consider updating your will every five years or so. As your life circumstances, and that of your dependents, changes, your instructions on how to deal with your estate will change as well.
If you don’t have a will and pass away unexpectedly, a relative will have to apply for probate, the legal right to administer your estate.
There are legal processes that also decide who is legally entitled to what if you do die without a will.
Decisions made by the government might not match your own wishes, and they expose your estate to inheritance tax.
A will that is written by an inheritance expert can help avoid large portions of inheritance tax , simply by allocating money and property according to inheritance tax allowances. Anything left to your spouse or civil partner is inheritance tax exempt up to the value of £650,000 (if you both combine your allowances).
Having a will drawn up might cost in the region of £150-£250, but in the long run, it is worth an immense amount more in terms of peace of mind and the knowledge that your life’s savings will go to good use.
Leaving wealth behind is a way in which we leave something of ourselves to future generations and it can be more complex than it appears to be.
THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE WILL WRITING
If you are a first time investor, you may be feeling nervous about taking the plunge. That’s fine; there are a range of low risk investments to help you take your first steps into investing.
Here are some tips to get you started.
You’ll Still Need Some Cash (So Make It Work As Hard As It Can)
Having cash to hand acts as a buffer against life’s ups and downs. How much cash you need to keep depends on your situation. Some people like to keep a couple of months’ salary.
That being so, it’s a good idea to make your cash savings work as hard as they can.
From Autumn this year, ISAs (Individual Savings Accounts) will become more flexible. You will be allowed to withdraw and replace money as you wish.
The only condition is that the net contributions stay within the ISA limit for any given year. This means that all or part of your ISA allowance can essentially be used as a standard savings account. It will have the benefit of allowing you to receive interest on your savings without paying tax.
Look At Government-Backed Schemes
Every now and again, governments introduce schemes to encourage saving and/or investing.
At the moment, first-time buyers building a deposit for a house might like to look at the “Help To Buy ISA”. This scheme is due to start in autumn this year. In short, for every £200 saved, the government will add £50, up to a maximum of £3000.
The government also recently ran a “Pensioner Bonds” scheme for over 65s. This is currently closed, but given its huge popularity, it is entirely possible that it will open again.
It’s always worth keeping an eye open for government-backed schemes as they may offer special benefits.
Make Your Investments Match Your Needs
There is a huge range of investment products available.
Instead of thinking in terms of “good” and “bad”, think in terms of “appropriate” or “inappropriate”. In order to decide whether or not an investment is appropriate, you will need to start by taking stock of your current situation.
In particular, you will need to be realistic as to whether you should start investing right now at all. If you have high-interest debts, you may be better to spend any spare cash you have, on paying them down first.
Once you are ready to start investing, you will need to think about your short-, medium- and long-term goals. You will also need to be realistic about your attitude to risk.
You may have heard the expression “the value of an investment can go down as well as up”. This is true. It is also true that some investments carry more risk than others. Some people are happy to accept higher risk for the possibility of higher reward. Other people prefer to take a safer line in their investment strategy.
Of course it is perfectly possible to divide your investment funds between investments with different levels of risk.
Diversification And Dividends – The Two Pillars Of Investment
You’ve probably heard the saying “don’t put all your eggs in one basket”. That often holds true for investments. Putting all your money into high-risk investments creates the risk of losing it all.
By contrast, putting it all into lower-risk investments means you can miss out on some great returns.
By having a mixture of investments of different degrees of risk, you can have the best of both worlds.
Also remember that investments can be for growth or income or a mixture of both. Many listed companies pay dividends to shareholders. These can be reinvested for more growth or used as income.
THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.
Judging by recent newspaper headlines, it seems that if you are rich and famous tax avoidance is almost compulsory.
Whilst actual tax evasion is illegal (ie stashing it under your mattress), tax avoidance is not, it is simply the practice of being savvy with your money to limit the amount it can be taxed within the law.
This quick guide will talk you through some of your options if you are looking to reduce the tax burden on your personal income. If you ever wonder: ‘how can I reduce my tax bill?’ this guide is for you.
How To Pay Less Tax: The Obvious Methods
The government already provide a generous annual entitlement to every UK saver in the form of ISAs. If you open and Independent Savings Account, you will be able to deposit £15,240 tax free each year.
This means that any interest earned on the money invested is yours, tax free.
As well as paying into an ISA, the more of your income that you put into a private pension, the less of it can be taxed.
You can be eligible for tax relief on pension contributions of up to, the lower of; 100% of your earnings or £40,000 annual allowance, making it one of the most important means of limiting your exposure to taxation.
If you smoke, drink to excess and drive a gas-guzzling car, then you are making life easy for HMRC.
By giving up these vices, you not only make yourself far healthier and protect the environment, but you also prevent yourself from losing money through indirect taxation like VAT.
If you are married, you might want to take advantage of the new rules that allow you to transfer your tax allowance to your partner or vice versa. If your partner pays a lower rate of tax than you do, transfer or ‘gift’ them an amount of savings that come up to their personal allowance threshold.
How To Pay Less Tax: The Less Obvious Methods
If you are a parent with young children you can avoid paying taxation on £55 a week by investing in the government’s child care vouchers, if your employer is enrolled in the scheme. This allowance is allocated to each parent and therefore a couple can buy £110 a week of vouchers.
By diverting your income into the vouchers, you can avoid income tax and NI contributions being levied on the sum and have the full amount to buy child care with.
This means that most tax payers on basic rate can save a maximum of £930 per year on income tax and NI.
Another way of protecting your income from taxation is through renting out part of your property. The government’s Rent a Room Scheme has a tax threshold of £4,250 per year.
You will need to charge at least that amount to a tenant per year before you have to pay any tax at all, making room rental an attractive means of tax free income generation.
Getting Some Guidance
This list of tax benefits is by no means exhaustive and it is simply there to show that you don’t need Take That’s accountant to simply be sensible with your finances and to reduce your tax liability.
Getting help and seeking advice can be one of the most effective investments, however, if you are looking to streamline your finances and reduce your overall tax burden.
If you’re looking for a character-filled period property then obviously you will need to buy an existing home. If, however, you’d prefer a modern home built to your exact requirements, then maybe it’s time to look at building your own home.
How Do I Build My Own Home?
Building a home is obviously a major undertaking.
First of all you will need to find suitable land. This means a place where you would be happy to live and where you can get planning permission for a house. How easy this will be depends greatly on what part of the country you want to live in. It is likely to be easier to find a plot of land in rural Yorkshire than in Central London.
You will then need to decide exactly what type of home you want. Again a 1 bedroom cottage will be cheaper to build than a 4 bedroom family home. With a self build you can always start small and leave your options open to extend later, e.g. if you start a family.
Finally you have to decide how you want to go about building your new home. If you have the necessary skills you can, of course, build it yourself. Otherwise you will need to get in people to help. If you need professional help then you will need to budget for this.
Budgeting to Build Your Own Home
The budget for your future home can be divided into 4 parts: land, fees and miscellaneous costs, materials and labour.
Land, materials and labour are all essentially self-explanatory. How much you will need to budget for these depends on what you are building, where and how.
As a note of caution, be very realistic about what you can achieve yourself. Your time and health have a value and trying to spread yourself too thinly can be a recipe for struggle if not disaster.
For an accurate budget, you will also need to be prepared for various fees and miscellaneous costs you will encounter along the way. For example, like buying a house, buying a plot of land may require the help of a solicitor. You may also require 3rd-party insurance during the build process. Then there may be connection fees for utilities and other services.
Financing The Build
The good news is that building a home from scratch can work out much cheaper than buying the equivalent property ready-built. The bad news is that self build mortgages are a specialist market.
As fewer people require them, there is less incentive for lenders to offer them at all. There is even less incentive for them to offer the wide range of options and deals available for mortgages on ready-built properties.
In practical terms, most self-build mortgages work along broadly similar lines. The buyer pays the costs up-front and then recovers the money from the lender in stages. This means that people building their own home need to have sufficient funds to hand, to cover each phase of the build process until they are refunded.
It may be possible to find a self-build mortgage which pays the money for each building phase up front. Prospective builders should, however, look carefully at the cost of these mortgages. The convenience may be outweighed by extra charges.
On the subject of extra charges, self build mortgages are likely to be more expensive than traditional mortgages. This is partly because lenders see them as more risky and partly because there is less competition in the self-build market.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
“Breaking up is never easy” but sometimes it’s the best you can do. The Abba hit “Knowing Me, Knowing You” was released in 1976. A lot has changed since then, but breaking up still remains a painful and potentially expensive matter.
The Basics of Divorce
There are three steps to getting a divorce.
Step one is to file a divorce petition. This currently carries a fee of £410.
If your spouse accepts the divorce petition, you can then apply for a decree nisi. This is essentially a statement which confirms that it is legally acceptable to end the marriage. If your spouse refuses to accept the petition and you wish to proceed with the divorce, you will need to attend a court hearing. You may require legal representation for this. The cost of this will vary depending on your needs.
If a decree nisi is granted, there is a 6-week cooling off period before you can apply for a decree absolute. The decree absolute formally and finally ends the marriage.
The Basics of Divorce Finance
It is perfectly possible and legal for two parties to divide their assets between themselves amicably upon divorce. Whether or not this is advisable depends on a number of factors.
Even if the divorce is amicable, it may still be worth both parties taking legal advice. Divorce can be a highly emotional situation. Having professional legal advice can help to keep both people focused on the practicalities.
There are basically four points to consider when looking at finances during a divorce.
- The needs of children.
- The immediate needs of the divorcing parties.
- Longer-term maintenance.
- The division of assets and debts
Where there are children in a marriage their needs will always be the highest priority. After this, both couples will need sufficient funds to meet their current needs. How much this will be will depend on individual circumstances.
It may also be considered appropriate for one party to pay another maintenance over a longer-term period. This is particularly likely if there are children. Even without children, however, the lower-income partner may be entitled to maintenance.
The division of assets and debts covers basically everything else – including pension savings.
How to Protect Your Finances in Divorce
Moving on financially after divorce is a bit like unscrambling eggs. Fortunately it can be done. You will need to disentangle yourself and your credit record from your spouse as quickly and effectively as possible.
One of your first priorities should therefore be to set up a current account in your own name. You should also aim to close all joint accounts as soon as you can. Separate lives mean separate bank accounts.
If you have joint debt, then this also needs to be dealt with. In an ideal world, the debt would be repaid as part of the divorce process. For example, joint assets could be sold and the proceeds used to pay the debt.
In the real world, this may not be possible. For example if children are to stay in the family home, then the mortgage payments on it will still need to be met.
Therefore the division of debts needs to be looked at just as carefully as the division of assets.
Divorce and Retirement Planning
Divorce can have a significant impact on your financial health in your later years.
First of all your existing retirement savings may well need to be split with your ex spouse.
Secondly you are each going to need to run your own home. This means that you may have the initial expenses of renting or buying a new property. It also means that bills which may have been split by two people now need to be paid individually.
Young adults with no capital, low wages and uncertain financial futures stand next to no chance of accessing finance from a bank, but neither do older people with a low level of savings.
Many older people who have rented all their lives or have been council house tenants, find the cost of renting in retirement too high.
The retirees who have owned properties all their lives and who have paid off their mortgages, generally get to enjoy a far better standard of living, than those who have not if they’ve not budgeted for their accommodation.
Some children of retirees who are finding their retirement a struggle have, in recent years, come up with new and innovative financial strategies to help their parents.
If your parents have existed on a low income for much of their lives and they lack the money to put down a deposit on a property (normally 25 percent of the property’s value), banks will be less than enthusiastic to lend to them.
One of the more popular strategies for getting round this is to purchase a second property for retired parents (or any dependent for that matter). Funding a second property and buying a home for a family member can be a great investment and can help to relieve financial pressure for your loved ones.
How to get a second mortgage
If you decide to go down this route, you must be at pains to point out to a potential lender that your parents are not your tenants.
You need to give the bank clear and precise information that distinguishes you from a buy-to-let property owner.
Simply keeping the bank informed about you and your parents needs will prevent you from winding up with a much more expensive mortgage product.
It is important not to be (wrongly) classed as a buy-to-let landlord and only offered specific (and expensive) buy to let mortgage packages.
The banks, in principal, are more than happy to lend you the funds to buy another person a house to live in, without you also having to live on site, as long as it is not a formal tenancy situation.
You might find that with the spiralling costs of university tuition and accommodation, that it makes sense to buy a property for your son or daughter while they are studying.
Again, you need to establish with your bank that you are buying for a relative or dependent and not establishing a formal tenancy agreement as a landlord.
You can access a standard mortgage for another person and agree to take on the responsibility for repayment of the loan, or you can access the equity in your own property.
In the first scenario, the second home is at risk, but in the second scenario, your home is, and the equity that you have built up over the years will be spent.
This means that you need to be careful with such decisions and where possible, access some expert and impartial advice.
You might find that the type of deal you need is not available through your high street lender and consulting an independent advisor could help you access different mortgage products that suit your needs.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
After a life of hard manual work, most people of retirement age had approximately five years to savour the meagre entitlements available, before shuffling off this mortal coil aged, on average, 52.
The future for retirees today could not be more different, the years that follow the end of a working life are no longer counted in single digits but normally, decades.
For many, their retirements are a time of new opportunities when a lifetime of prudence and investment in pension pots pays off.
With the advent of new pension freedoms enabling savers to draw down large lump sums from their pensions without large tax penalties, it might be possible for a generation of ‘silver entrepreneurs’ to emerge.
According to the Daily Mail, a tenth of retirees are now considering taking the plunge and setting up small businesses with their nest eggs and on average, the size of the pot they can draw from is £550,000.
This suggests that the desire to ‘start a business using my pension’, is widespread amongst retirees.
A lifetime of expertise
Ending a career at 55 or 65 has often meant abandoning a lifetime of knowledge and expertise acquired in a valuable and important field.
With new opportunities to ‘use my pension to invest in a business’ opening to entrepreneurial pensioners, these skills no longer have to go to waste.
It might be that in retirement you can establish the type of small business or consultancy that you had always dreamt of, one which is not necessarily based on your work.
Some retirees, used to a life of frenetic activity in business, have found doing nothing in retirement frustrating and there is growing evidence that simply ‘giving up’ at 65 is very bad for mental and physical health.
Even though many retirees might have had successful business careers, the prospect of cashing in up to a quarter of an entire pension pot in one go to set up a small business can be daunting.
Firstly, any investment is a risk, even if you think the business idea is sound and likely to work. Taking a risk when you are 35 is a different proposition to taking one when you are 65.
This means that, not only should you not gamble more than you can afford to lose (not that you can really ‘afford’ to lose any pension at all), but seeking professional business and investment advice is essential.
Many people who have worked in law, finance, engineering or other key professions or trades might have managed throughout their career to have successfully avoided ever creating a business plan or cash flow forecast.
Most local authorities run free business courses, which are always worthwhile investing your time in, but getting expert independent financial advice on your new business is also important.
Making the business as tax efficient as possible, ensuring that the right kinds of personal and professional insurance, or public liability insurance is purchased at as cheap a price as possible – these are the types of issues that a trained advisor can give you some guidance on.
The first only-Conservative budget since 1996 was eagerly awaited by some and dreaded by others. Freed from the restraining hands of the Lib Dems he was free to produce the budget he wanted. In his sights were benefits, tax credits and student grants, while he also indicated a slightly less draconian approach to austerity.
Good news on the economy
From the outset, he was keen to promote the government’s economic credentials. Britain was growing faster than any other major advanced economy at 2.6% in 2014. Over the next few years, GDP would be 2.5% in 2015, 2.3% in 2016 and 2.4% in 2019. Employment is on the up and 1,000 extra jobs have been created every day.
The work to cut the deficit is to continue albeit at a slightly slower rate than before. The much longed-for surplus has been postponed by a year until 2019-20. Borrowing is expected to fall from £69.5bn this year to £43.1bn, £24.3bn and £6bn over the following few years culminating in a £10bn surplus in 2019/20. Debt, as a share of GDP, is at 80.4% this year and will fall to 79.8%, 77.8%, 74.8%, before it reaches 71.6% in 2019/20.
In taking a slightly gentler approach to balancing the books, the government will be spending more than was previously planned. According to the Office of Budget Responsibility, it will be spending £83bn more than announced in the March budget. The squeeze on public sector spending will end a year earlier.
If the pace of austerity is a little slower, benefits were still firmly on the chopping block. Working age benefits have been frozen for four years including tax credits. Child tax credits will be restricted to two children after April 2017. The level of tax credit withdrawal will be reduced from £6,420 to £3,850. Young people will be forced to either earn or learn, meaning they will no longer be automatically entitled to housing benefit.
In pensions, a new green paper published by the government opens the way to a significant change in the way we save for pensions. If the changes, which will be open to a public consultation period are adopted, pensions will become more like ISAs with people able to earn a tax-free sum that is topped up by the government. Meanwhile, the triple lock on the state pension will be maintained and tax relief on pension earnings restricted to £10,000 a year for those earning in excess of £150,000 per year.
Tax and pay
As expected, the rate at which earners enter income tax has been increased again. That pops up to £11,000 as the government edges closer to its target of £12,000. The rate for the 40p rate rose from £42,385 to 43,000. As predicted, inheritance tax has received another cut. The threshold increases to £1million from 2017 with people being able to transfer an extra £175,000 “family home allowance” to their children tax-free on their death.
However, the headline grabber was the theft of an old Labour policy. The minimum wage would be replaced which something labelled as a National Living Wage. This will start at £7.20 an hour in April 2016 and will rise to £9 an hour by 2020, replacing the £6.50 per hour minimum wage. However, the levels more or less match predictions for the minimum wage over the same period. Critics were quick to argue that they had done little more than rebrand the existing system.
Osbourne spoke at length in support of non-dom tax arrangements, which he said were crucial to encouraging investment in the country, but he accepted the system needed to change and abolished permanent non-dom status. Anyone who has been living in the country for 15 of the last 20 years will be forced to pay the same amount of tax as everyone else.
Tax avoidance will also be targeted, with £750 million going to HMRC to target tax avoidance and evasion. With users of complex evasion schemes being named and shamed, he hopes to raise an estimated £7.2bn.
There were a number of measures designed to appeal to businesses. Corporation tax is to come down from 20% to 19% in 2017 and 18% in 2020. The bank levy, which has sparked wails of protest from the City, will be decreased to 0.21%, to 0.18%, reducing to 0.1% in 2021.
Small businesses had reason for cheer with an increase in the level of national insurance provisions. From 2016 this will rise by 50% to £3,000. At the same time, though, he made moves to clamp down on attempts by businesses to exploit loopholes such as setting up separate companies for each of their employees to reduce National Insurance contributions.
There are more moves to spread the wealth a little wider with attempts to spark faster growth away from the capital. Dusting down the Northern Powerhouse, he spoke of more powers being given to Greater Manchester and an Oyster card style travel system across the region. However, moves to electrify parts of the rail network in Northern England have been postponed, giving Harriet Harman a chance to lay into the plan in her response. “You can’t build a productive economy on a political slogan,” she said.
Any other business
This was a budget packed with policies. Among the other announcements was a restriction of Mortgage interest relief for buy-to-let mortgages to the rate of income tax. The rent a room relief is to be extended to £7,500 and the NHS will receive £8bn of extra funding. There was also a slight surprise in a commitment to meet NATO targets of spending 2% of GDP on defence. The UK had been widely expected to fall below this figure. Maintaining the 2% figure will require significant reinvestment into the armed forces.
Students suffered a hit with the removal of maintenance grants to be replaced by loans. However, to make up the shortfall the size of the loans is to be increased to £8,200. This will be repayable once the student’s earnings exceed £20,000.
This was a budget the budget most people expected. For the Conservatives it has intended to place them as the party of fiscal responsibility. Osbourne said he hoped to set a standard that would require all future Chancellors to only spend as much as they brought in. Critics, meanwhile point to the cut in housing benefits to the young, the removal of maintenance grants, benefits caps, and tax credit cuts, as well as the absence of green issues.