Give yourself a £10,000 pay rise
In today’s tough economic climate, it’s not that easy to convince your employer to pay you more. Statistics from Incomes Data Services show that in the three months to the end of April, the average pay rise was just 2%, with almost a third of reviews resulting in pay freezes.
However, there are other ways you can give your bank balance a boost; by taking just a few simple steps, you could give yourself the equivalent of a £10,000 pay rise.
If you’re a basic-rate taxpayer, this would equal an extra £575 a month, or £6,900 a year after tax and national insurance contributions have been deducted.
Here’s how you can buck the trend and end up better off – even if your boss refuses to play ball.
Cut your debts
Your first line of attack is to sort out any debts you might have. “You could be paying as much as 30% for credit card borrowing,” says Richard Mason, managing director of moneyextra.com. “This is a very expensive way to borrow and you should be able to reduce it.”
If you’re creditworthy, then choosing a 0% balance transfer deals is a good option. These deals charge a fee for transferring your balance, but after that you can have a year or more to clear your debt. For example, Virgin has a 16-month interest-free period, or you could have 15 months interest-free with Abbey.
If you do opt for a balance transfer card, be careful about additional spending. “Purchases will usually incur interest, and they’ll be the last thing that’s cleared from your card, which means they could attract a lot of interest before they’re paid off,” explains Mason.
If you’re a homeowner, another option for reducing the interest on your debts is to remortgage. “Mortgages interest rates are low, so if you remortgage, you could consider paying off other debts too,” says Mason.
Switching debts onto your mortgage will reduce your outgoings – but as mortgages are spread over a longer period than most loans or credit cards, the total interest could actually be more.
If you can spend your money more wisely, you could save hundreds of pounds a year. “You need to take stock of all your expenditure including the small things,” says Joe Surtees, policy and research officer at the Consumer Credit Counselling Service.
He recommends drawing up a budget that lists your income and expenditure, so you can see where you can make savings. Use the Moneywise budget planner
It’s also worth looking through your bank statements for unnecessary expenses, such as membership of gyms you never visit or subscriptions to magazines you never read.
Once you’ve listed all your spending, Surtees says it’s easy to start making savings. “Look at every item you spend money on. Could you get it cheaper? For instance, you could take your own lunch into work rather than buy sandwiches,” he explains.
Travel is another area where you can reduce your spending. For example, Joe Surtees says that in London the average tube ticket costs £2.70 for one journey, while a bus ticket is just £1.10. Alternatively, check whether your employer offers interest-free season ticket loans, as these will be cheaper in the long run.
Another major area of expenditure that’s ripe for slashing is your grocery bill. Budget supermarkets Aldi and Lidl have seen sales rise as shoppers hunt out food bargains.
And you don’t need to go for the very cheapest: by switching from the luxury range to the standard, or from a brand label to a supermarket own-label, you could cut the cost of your shopping basket.
Review your regular outgoings
As well as your day-to-day expenses, there are plenty of near-invisible regular outgoings, such as utilities, insurance and telephone bills, that could benefit from a little attention.
“A household can save hundreds of pounds a year by switching to the best deals. Do your homework first, so you know what you currently pay and what your usual behaviour is, then use a price-comparison site to compare deals,” suggests Jo Ganly, a spokesperson for uSwitch.com.
Starting with energy, Ganly says the average house could save up to £350 a year by switching to a better deal: “All suppliers are offering their cheapest prices and best deals online. Also consider moving to a dual-fuel tariff and paying by direct debit, as these will generate savings.”
Insurance, whether it be for your car or home, is another area where you can make savings by shopping around.
Figures from the Association of British Insurers show that by comparing just five insurers you can save as much as 35% on your car insurance.
To enhance savings, consider buying online and paying annually as it’s often cheaper. Paying by direct debit also tends to reduce your bill. You can also make massive savings on your phone and broadband packages.
Jo Ganly says the average home could save up to £250 a year on their phone and up to £90 on broadband. “Shop around: the broadband market in particular is always changing, and new entrants often offer much better deals than the bigger, older broadband providers,” she says.
Cash in on your home
Your home is likely to be your biggest asset – and it’s also where you can make the most cash.
“Keep your mortgage under review,” says David Hollingworth, mortgage specialist for broker London & Country. “There are fewer deals around at the moment, but you could still reduce your monthly mortgage payment.”
For the best mortgage rates, you’ll need at least 25% equity in your home.
To help you on your way to a £10,000 pay rise, you could consider the government’s Rent a Room scheme. This allows you to receive up to £4,250 a year tax-free if you take in a lodger.
The scheme applies whether you own or rent your home, but not if you’ve converted it into separate flats. “It’s a generous tax break, but be prepared for the inconvenience,” says Hollingworth, adding that it might work well if you let a room to a friend.
Maximise your savings
Interest rates might be low, but leaving your savings to languish in a poorly paying account won’t help. For the best rates, Michelle Slade, a spokesperson for Moneyfacts, says you need to look at tying your money up for at least a year.
You can even give your interest rate a boost by leaving your money untouched for a few months.
Although interest rates are low, it’s still worth avoiding paying tax on your interest by using your individual savings account allowance.
This tax year, you can put up to £3,600 into a cash ISA and receive your interest tax-free. If you are over 50 you will be able to add a further £1,500 to your cash ISA after 6 October 2009.
Make the most of the new ISA rules
You can also use your investment portfolio to supplement your income. “There are three main assets besides cash that produce an income – fixed income, property and equities,” says James Davies, investment research manager at Chartwell. “As there’s risk involved, the return is higher than you’d get from a savings account.”
With fixed income, which can be government stocks or corporate bonds, you’re effectively investing in IOUs. You receive interest and the repayment of the capital at the end of the term, although there is a risk of default. Returns vary between around 5% and 8%. Davies recommends going for a fund that invests in government and corporate debt and picks out M&G Optimal Income and Investec Sterling Bond fund.
Property is the next asset class – you can access it through commercial property funds. These return around 5% a year, but Davies advises caution: “The outlook for the next 18 months isn’t good, so unless you’re building a long-term portfolio, steer clear.”
Equities are another option, delivering returns of around 3%-4%, with capital growth on top. “The longer you hold equities the better they perform, and they’re not eroded by inflation,” says Davies, who recommends Invesco Perpetual High Income, and, for a global slant, Newton Global Higher Income and Sarasin International Equity Income.
Other ways to boost your income
1. Take a second job
If your salary from one job isn’t enough, then taking on a second job might be the answer. Evening jobs in pubs or supermarkets can fit in neatly with your main 9-5 job. But if pulling pints or stacking shelves doesn’t appeal, then why not put other skills to use?
For example, 22-year-old Vesta Charlesworth works as an optical adviser at Vision Express, but supplements her income by selling illustration services through peopleperhour.com in her spare time. “I’ve got a degree in animation and wanted to use my skills to make extra cash,” she says. “So far, I’ve been commissioned to do a caricature for a website; some illustrations for a present; and illustrations for four children’s books.”
But be aware that many employers stipulate that you should inform them if you take on additional work.
2. Maximise your retirement income
Maximising your income in retirement is also essential – especially as once you take out an annuity you won’t be able to change the income level. “There’s a huge difference between the best and worst annuity, and you should never simply opt for the annuity your pension firm offers without shopping around first,” says Stuart Bayliss, managing director of Annuity Direct. “On average, we increase our clients’ annuity income by just under 20%.”
Health and lifestyle conditions can also boost your annuity. “If your life expectancy is reduced – through smoking or high blood pressure, for instance – your rate will be enhanced,” says Bayliss.
Because of the huge difference in the rates available to you if you shop around, Bayliss recommends seeking advice: “A specialist adviser will be able to check you don’t have a guaranteed rate, which could be very valuable. They’ll then find the best rate for you, taking into account any health issues.”
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
A scheme originally established in 1944 to provide protection against sickness and unemployment as well as helping fund the National Health Service (NHS) and state benefits. NI contributions are compulsory and based on a person’s earnings above a certain threshold. There are several classes of NI, but which one an individual pays depends on whether they are employed, self-employed, unemployed or an employer. Payment of Class 1 contributions by employees gives them entitlement to the basic state pension, the additional state pension, jobseeker’s allowance, employment and support allowance, maternity allowance and bereavement benefits. From April 2016, to qualify for the full state pension, individuals will need 35 years’ of NI contributions.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
Association of British Insurers
Established in 1985, the ABI is the trade body for UK insurance companies. It has more than 400 member companies that provide around 90% of domestic insurance services sold in the UK. The ABI speaks out on issues of common interest and acts as an advocate for high standards of customer service in the insurance industry. The ABI is funded by the subscriptions of member companies.
Moving money from one account to another, whether switching bank accounts or more likely transferring the outstanding balance on your credit card to another card that charges a lower – or 0% – rate of interest. Some card providers may charge a transfer fee that can be a percentage of the balance transferred.
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).