Stretch your salary and boost your income
Making savings on everyday living expenses is a great way to stretch your salary or boost your income. Supplement this strategy with extra earnings and you’ll free up plenty of cash to save, invest or maybe even spend.
"I challenge people to spend a few hours working through their finances to see where they can save money," says Clare Francis, spokesperson for Moneysupermarket.com. "You can save hundreds of pounds a year simply by switching car and home insurance and energy and home service providers. And, if you have debts such as a mortgage or credit card, the savings could add up to thousands of pounds a year."
To illustrate this, Moneysupermarket.com ran some figures to show how much you could save by shopping around. It found that a typical family could save as much £3,018 in one year by switching to more competitive providers for their financial and household services (mortgage, utilities, mobile, car and home insurance, loan and credit card).
"There’s no hard and fast rule as to how often you should review your finances but it’s a job worth doing at least once a year or more often if you have products with short-term bonuses or interest-free periods," says Francis, adding that it’s worth noting these dates in your diary so you’re ready to switch.
As well as reviewing these types of products, smarter spending can make significant savings. For this, the internet has made life much easier. Shopbots such as Kelkoo, PriceRunner and Shopping.com, help you find out which retailer has the best price on any item you want to buy. As an example, if you fancied a Dyson Animal vacuum cleaner, input this into Kelkoo and it will show you the price at its listed retailers - anything from £213 to £305.49.
Cashback sites such as Greasypalm, Internet Cashback and My Shopping Rewards can also help you stretch your cash, rewarding you whenever you shop. These sites have deals with retailers so whenever you buy from them you receive a set amount or a percentage of what you spend.
Cash in on your home
Your home is also a potential money-spinner. In addition to wiping a sizeable chunk off your monthly mortgage repayments by remortgaging, it’s possible to use your bricks and mortar to make some hard cash. If you’ve got the space then you could take in a lodger, taking advantage of the government’s Rent a Room scheme.
This allows you to earn up to £4,250 a year tax-free if you rent a room in your house. "If you rent rooms to two lodgers you can’t spread the exemption across the two. For example if you let two rooms at £3,000 each, you’ll only be able to claim £3,000," says Ray Boulger, senior technical manager at John Charcol, an independent mortgage adviser.
As well as long-term rental possibilities, you might be able to rent it out for short periods, potentially making even more money. "Short lets, which are anything from a few weeks to six months get between 40% and 150% more than long lets. However, if you have a house to let during Wimbledon fortnight, for example, you can get substantially more," says Sarah Shortridge, director of short lets and corporate services at Foxtons.
Depending on demand she says that you might be able to ask £10,000 a week for a house that would normally rent for £2,000. "Get two players wanting your house and the price can shoot up," she says.
You don’t just have to live in SW19 to cash in on short-term lets. Close proximity to other sporting events can also be profitable. These could include Ascot, Henley for the Regatta and, come 2012, East London homeowners should also feel some of the benefits when the Olympics come to town. Those living in central Edinburgh can also rake in a small fortune if they’re prepared to vacate their property during the festival in August.
You may also be able to make money by realising your home’s star potential. Film and TV production and advertising companies are always on the look out for property that can be used as a set. Depending on the use, you could net anything from £200 to £5,000 a day.
"It takes a certain type of homeowner to hire out their property," says Louise Myers, senior location co-ordinator at Location Works, the UK’s longest-standing location resource company. "Some of the smaller shoots may only involve a model and a photographer but if your home is used for a big filming job or a music video you could have 25 to 30 people taking over your home. You do need to be quite laidback but most of our owners love it."
Current trends are for faded grandeur and industrial spaces, especially for fashion photography, but as well as unusual and aspirational property, there’s always demand for the more standard housing stock, even pebble-dashed semis. Kell Gatherer, founder of Location Works, adds:
"For film work you need to have a space for the crew, so, as an example, a kitchen knocked through to a breakfast room would work well. Location is also important. A film crew won’t travel 100 miles or more if they can find the same style of property within a few miles."
There’s no guarantee your home will get picked or that you’ll have supermodels on your sofa or Daniel Craig in your dining room, but given the fact it’s free to register your home, it may well be worth giving it a shot.
Come holiday time swapping your property is another option for saving money. Home exchange services such as HomeLink International, Home Base Holidays and Intervac enable you to holiday in someone else’s home, anywhere in the world, while they spend time in yours.
There is a charge to use these services. For instance, HomeLink charges an annual membership fee of £115, Intervac £74.99 a year and Home Base Holidays £29 a year. However, providing you’re happy for someone else to use your home as their own, home exchange schemes can save you hundreds of pounds in hotel bills as well as giving you access to a more authentic experience.
Top up retirement income
If you’re retired, additional factors come into play when it comes to stretching your income. Unless you’ve taken an investment-based annuity or you’re in an unsecured or alternatively secured pension, it’s likely your income will be the same for the rest of your life or, at most, inch up in line with inflation. This makes it even more important to get the most out of your finances, shopping around to save as much as possible.
As well as shaping up your finances by switching to better-value products and services, it’s possible to make extra money in retirement. Age discrimination rules mean that your date of birth can no longer be taken into account when you apply for jobs and some employers, notably B&Q, Asda, Barclays and Nationwide, have been encouraging older people to work for them for some time now.
Working need not mean returning to the 9-to-5 routine and instead you can look into part-time options that will allow you to boost your income without sacrificing all your free time.
Freelance work is another flexible option, allowing you to tap into the skills you developed during your work career. This is something 54-year-old Charles Crawford started doing this year. At the end of 2007 he retired from a 28-year career in the UK’s diplomatic service, which had seen him serving as an ambassador in Sarajevo, Belgrade and Poland.
"I wanted a change," he explains. "I took early retirement and we moved back to England where I am building up a number of freelance careers including training and coaching diplomats, mediating and writing."
One of the tools Charles uses to help him find work is PeoplePerHour.com. This website was set up by Xenios Thrasyvoulou in 2007 and uses some of the same principles as eBay. "If you’re looking for freelance work you can upload your profile for free.
Over time you’ll build up a track record, in much the same way as on eBay. People post up the work they have on offer and you can bid for it, with the successful bidder being the person whose experience and track record fits best," explains Thrasyvoulou.
Whether or not you return to the world of the gainfully employed to supplement a pension, it’s worth making sure your money is still working hard for you in your retirement.
At this time, the emphasis for any investment strategy will be on generating an income rather than producing capital growth. "You can expect a yield of around 5% on a corporate bond fund and around 3.5% on equity income," explains James Davies, investment research manager at independent advisers Chartwell Group.
Although these yields can easily be beaten by some of the more competitive savings accounts without any risk to capital, Davies says that you should still consider stockmarket investments in retirement. "If you retire at 60, you could have another 20 years or more and while inflation will erode your capital in a savings account, with equities there is an opportunity for capital growth too."
On the equity income side, he recommends taking a global approach as markets, especially in Europe, are becoming more aware of the importance of shareholder value. In particular he recommends the Resolution Argonaut European Income fund and the Newton Global Higher Income fund.
For corporate bonds, Davies also has a couple of favourites. "A good plain vanilla fund is the Old Mutual Corporate Bond fund, which holds some lower-grade bonds but is essentially investment grade," he explains. "For something slightly different I’d go for the M&G Optimal Income. This can invest in equities and derivatives which can protect against falling yields."
You may also want to consider using up your annual capital gains allowance (£9,600 for the 2008/09 tax year) to boost your income. "If you’ve built up a large basket of stocks and shares then, even in the present market conditions, you could be sitting on a large capital gains tax liability. Selling some to use up your annual allowance will help to reduce this while also giving you an additional income stream," explains Davies.
You can reinvest some, or all, of the money once you’ve realised the gain to create a more income friendly portfolio. But, to avoid falling foul of HM Revenue & Custom’s rules you must wait 30 days if you’re putting the money back into the same investments. Fail to do this, and it’ll appear as if you never sold, meaning your gain will remain intact.
Whether you are in retirement or still in work, taking the time to review your finances can take some time. However if you are prepared to put in some legwork to ensure your money is working as hard as it can, and are able to ‘think outside the box’ it’s easy to make more of the money you do have and even earn a bob or two more.
Changing mortgages without moving home. Property owners chiefly remortgage to get a better deal but some do so to release equity in their homes or to finance home improvements, the costs of which are added to the new mortgage. Even though you’re not moving house, you still need to engage solicitors, conveyancing and the new lender will require the property to be surveyed and valued.
The general term for the rate of income from an investment expressed as an annual percentage and based on its current market value. For example, if a corporate bond or gilt originally sold at £100 par value with a coupon of 10% is bought for £100 then the coupon and the yield are the same at 10%, or £10. But if an investor buys the bond for £125, its coupon is still 10% (or £10) and the investor receives £10 but as the investor bought the bond for £125 (not £100) the yield on the investment is 8%.
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.
Capital gains tax
If you buy an asset – shares, a second home, arts and antiques – and then sell it at a later date and make a profit, that profit could be subject to CGT. You don’t pay CGT on selling your main home (which is why MPs “flipped” theirs so regularly) or any securities sheltered in an ISA. Individuals get an annual CGT allowance (£10,600 in 2010/2011) but if you have substantial assets it’s worth paying an accountant to sort it for you.
Corporate bonds are one of the main ways companies can raise money (the other is by issuing shares) by borrowing from the markets at a fixed rate of interest (the reason why they are also known as “fixed-interest securities”), which is called the “coupon”, paid twice yearly. But the nominal value of the bond – usually £100 – can fluctuate depending on the fortunes of the company and also the economy. However it will repay the original amount on maturity.
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).