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The Unspoken Cash Crisis

Dominic Thomas
Jan 2025  •  2 min read

The Unspoken Cash Crisis

There are lots of topics within the subject of a cash crisis. This could mean anything from struggling to find a bank to deposit a cheque, the growing number of retailers and businesses refusing to accept cash as a form of payment, struggling businesses, individuals, families, local authorities and national institutions. However, I’d like to turn to some rather alarming recent research about the level of savings that the general population has.

According to some recent research by a much-loved Building Society in the north east, the average adult doesn’t have much cash to fall back on in a crisis. Whilst admittedly a small survey of 1,200 adults (you’ve seen adverts for women’s products from multinationals who seem to have barely left the building to ask such small numbers of people and then claim 8/10… but I digress) only 13% had at least a month’s salary saved (in cash, not pensions or investments).

The younger members of the survey unsurprisingly fared worst with 57% of 18-25 year olds having no savings at all. The “at retirement group” aged 55-64 still had an alarming 34% without any cash savings at all.

There is, of course, multiple millions saved in bank and building society accounts. Data from the Building Society Association suggests that by the end of October 2024 there was £381,581,000,000 in Cash ISAs, but despite recent rises in interest rates, the average saver is getting a paltry 2.5% interest or 4.2% for those who have actively sought a one year fixed rate.

Today, cash management systems like Akoni, Insignis or Flagstone all offer a portal service to multiple banks and building societies, enabling you to receive very competitive rates, spread across different banks, with the added advantage of spreading your FSCS collapse insurance around without hassle.

Cash, as I have said before is always good to have. It’s there for planned projects and emergencies. There are no hard and fast rules about how much, but as a guide … 3-12 months of normal spending ought to be enough for most people who have not retired, but also allow for your projects and I’m not including your ‘saving to spend’ pots for your holidays.

Any questions, please ask.

As an aside – Accountants are currently in the throes of finalising 2023/24 tax returns and some have expressed surprise at just how much extra interest our clients have gained using cash management platforms (which, unfortunately, is subject to income tax).

The Unspoken Cash Crisis2025-01-21T15:19:23+00:00

INTERESTED IN HIGHER INTEREST ACCOUNTS?

TODAY’S BLOG

ARE YOU MORE INTERESTED?

The last year or so has seen enormous improvements in technology. Thankfully the money management technology is one of those elements that has improved.

Hunting for a decent interest rate is hard enough at the moment, but moving to a new better account once the rate has come to an end is a constant frustration due to the effort required and all the hurdles of proving your identity. As a result, most savers languish in poor accounts, earning next to diddly squat.

If you consider that your savings at a UK Bank or Building Society is only protected to the first £85,000 under FSCS rules, then balances that are larger give some concern, particularly when life feels somewhat uncertain.

MAKING MONEY MANAGEMENT EASIER

I’m pleased to announce that we have teamed up with Akoni, one of several cash management providers. They have branded the site with our logo – its their kit and service. I decided to remove any payments that we might get to your advantage. This is very self-service, but we can assist if you get stuck.

There are other solutions, this is aimed at those with cash savings of more than £85,000 – so not for everyone, but you can get rates of interest that others with much larger balances enjoy.

The aim of all these services is to make life easier for you, getting you better rates of interest. Its not free, no bank provides a free service (think about it – or ask if you still don’t understand). The Cash Management service company (Akoni in this instance) make a small charge which I believe is worth paying for the convenience.

Have a look for yourself by clicking this link.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

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Solomon’s Independent Financial Advisers
The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk 
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INTERESTED IN HIGHER INTEREST ACCOUNTS?2025-01-21T16:39:48+00:00

ARE YOU MISUSING YOUR CASH ISA?

TODAY’S BLOG

ARE YOU MISUSING YOUR CASH ISA?

You may have gathered that I am not a fan of the Cash ISA. If you really must have one, then you need to be clear that you are getting a top rate of interest (less than 1% at the moment) and that you are not locked in for too long. If you expect rates to rise, why on earth would you lock in to one?

We all have a personal savings allowance. That’s £1000, £500 or nothing depending on your highest rate of tax. Basic rate (20%) taxpayers have a £1000 savings allowance (interest from savings) and those that are higher rate (40%) have a £500 allowance. Therefore, majority of people will have at least £500 of interest that they can earn tax free. Today that means holding around £50,000 of cash, which is a little under twice the average national income. According to ONS data to the end of the 2019/20 tax year, that’s £29,900 (median household income).

As I have said before, I am a great believer in holding cash. It provides for projects and emergency. Good planning – which is something that you already do better than most because you are here today, means getting a realistic estimate for something you intend to do and setting that aside prior to starting the project. This is therefore based on your research, quotes, and prudence to allow a sensible margin for error, or builder maths.

Wheat and Chaff

CASH FOR EMERGENCIES

Then there is your emergency fund. This is entirely subjective. It is an amount that enables you to sleep at night knowing that if something disastrous happened by the time you woke, you and your family would be able to cope financially. Things like loss of your job, the boiler breaking down, your car being vandalised or stolen, perhaps even a quick getaway fund from an abusive relationship. You might relate this number to how much you normally spend each month and hold a multiple of that.

RISKS CHANGE AS YOU AGE

Those that have a guaranteed income (people that are retired and living on State Pensions, annuities, or final salary pension benefits) arguably don’t need to worry about the loss of a job or their income. Its more likely that, if that’s you, you think of the extra income sources – from your investments or perhaps a holiday home that is let during a pandemic.

Most people will probably not need more than £50,000 (in 2021) but I did say it was subjective and personal to you. Cash doesn’t really work for you; it works for a bank who lend your money out at a rate that makes them rather more than they offer you to “store” it with them. If this drags on for months and years, you will undoubtedly see the spending power of your money reduce due to inflation. It needs to do some heavy lifting, which means investment. This comes at the price of market volatility in the short term, but if done properly, will deliver greater yields.

PARABLES ABOUT BARNS AND GRAIN

To my mind, it’s like an arable farmer keeping all their seed (cash crop) in a barn and not sowing enough. At some point, the barn will run out as its consumed or rots, missing out on all that multiplication and future harvests.

Anyway, given that most people don’t need to hold much more that £50,000 and would get the interest on it tax free anyway, there is no point using your valuable ISA allowance to give you something you already have.

Of course, this is what a plan will help determine and why understanding what the money is for and the reasons for your anxieties about money. Do get in touch.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk 
Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

Take Survey

PRIVACY POLICY  |  DATA PROTECTION

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk    Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

Take Survey

PRIVACY POLICY  |  DATA PROTECTION

ARE YOU MISUSING YOUR CASH ISA?2023-12-01T12:13:02+00:00

ENERGY COST CRISIS

TODAY’S BLOG

ENERGY COST CRISIS

It seems that there is a weekly crisis at present, by the time you read this there will likely be a new one! I wonder if you are bracing yourself for an expensive winter? As you probably know, there is a global surge in the cost of gas at wholesale has led many companies to drastically increase their prices. While many companies have reacted by hiking up costs even more for customers, others have taken themselves off price comparison websites and some have gone bust. Its worth mentioning that price comparison websites aren’t all that you may imagine, they are not whole of market and only show companies that provide them with a commission.

Anyway your household and mine are facing much higher gas bills this winter due to a global surge in wholesale gas prices that have forced some energy companies to go bust. The British public has already been hit with energy price hikes over the last few months and could be paying hundreds more this winter, unless they counterbalance the extra costs by making some simple changes to their usage. The news that another five energy firms have folded in recent months will no doubt worry many householders but Ofgem has said it “has systems in place to look after consumers”. An Ofgem spokesman said that currently wholesale gas prices are at a record high, driven by international supply and demand factors. This is undoubtedly putting pressure on companies – with four leaving the market over the last few weeks. In the past few months Utility Point, People’s Energy, PfP Energy, MoneyPlus Energy and Hub Energy have all ceased trading – something which is thought to have affected half a million British households.  More recently Green and AVRO Energy both collapsed with an estimated 800,000 customers between them – Octopus has stepped in to takeover.

Energy Crisis 2021

FULL OF GAS

These consumers will be given a new supplier, that means extra hassle for them with the costs passed onto customers. Speaking from personal experience, my supplier “Green Energy Network” went bust last year and we were switched over to EDF. An unfortunately timed problem with the meter itself during this period, left us in limbo as we waited for a new account to be registered and set up, which too several weeks. We finally got there and it wasnt a major problem, but it wasnt “straight-forward”.

OFGEM added that it is working closely with the Government to manage the wider implications of the global gas price increase and it is not thought that this will lead to a complete halt in supply. Make of that what you will, I’m yet to be convinced that the current Government could successfuly manage a raffle.

As such there is no better time to see if you qualify for the Warm Home Discount Scheme, which could ensure some people are £140 better off. To find out, people can speak to their energy supplier, most of them are signed up to the scheme if they have 250,000 customers or more. More than two million UK households should qualify for this rebate on their energy bills this year and it’s important to get in touch with them early as there is only a limited amount of people energy companies can help.

What I might suggest is that you get on with reviewing your gas supply. I would recommend having a look at Martin Lewis’ website www.moneysavingexpert.com where you can do a search. If you want a £50 discount off Octopus, here is a code that you can use (I get £50 too) but do your own research about what is best for your usage. Here is the link: https://share.octopus.energy/tulip-shark-521.

Long story short, make a record and update your spending plan – either just let us know with an email, or update your information within our secure portal.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk 
Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

Take Survey

PRIVACY POLICY  |  DATA PROTECTION

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk    Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

Take Survey

PRIVACY POLICY  |  DATA PROTECTION

ENERGY COST CRISIS2025-01-21T16:00:08+00:00

IT COULD BE YOU… BUT ITS UNLIKELY

TODAY’S BLOG

IT COULD BE YOU… BUT ITS UNLIKELY

If you have been a client for more than a week, you will have gathered that I like, want and encourage clients to hold some cash. The key word is some. This will be different for everyone and depend on several things. Your planned projects over the next 36 months and the emergency buffer you believe is appropriate should your employed (or self-employed) income cease. If you draw a pension from an annuity, the State or an old final salary pension, those are guaranteed and won’t stop until you do.

10 YEARS ON

Cash rates as we all know have been very low for a decade or so now. Holding cash in a world of rising costs over the “long-term” isn’t good for your wealth. By way of comparison 10 years ago a first-class stamp was 46p, today it is 85p…. ah you sensibly plan ahead and use second class, 36p has become 66p.

If I am generous about cash deposit rates, using a Cash ISA rate, a typical “decent” rate in 2011 was 2.75% today its about 0.4%. Remember, costs have gone up, the interest you have been getting has reduced. Holding cash for 10 years… that warrants a discussion, but let’s just assume it’s the same emergency “help me sleep at night” reserve. In June 2011 the rate of inflation in the UK was 4.2% today (data from May 2021) it’s around 2.1% and you will have likely heard some noise about it rising having jumped  from 0.5% in February.

How safe if your safety net really?

FEAR IS EATING YOUR WEALTH

There is no way that I would attempt to encourage you to place all of your money into investments, but unless you are preparing for Armageddon, I cannot see much logic in holding large sums. We can help get better rates for those with sums over £100,000 but its still peanuts, even using a decent cash management platform.

PREMIUM BONDS

Some of you like NS&I Premium Bonds. They are a bit of fun, the Government’s way of raising money without raising taxes, borrowing from taxpayers. Whilst NS&I are not backed by the FSCS cover of £85,000, they are backed by HM Treasury, so… pretty safe. Premium Bonds are really a lottery without loss of your stake money. The chance of your Bond winning even the smallest prize is now 34,500:1…. Rather less than your chance of contracting covid or going on holiday. So to have a reasonable chance you need at least £34,500 in Premium Bonds and preferably £50,000 (the maximum).

We are a small firm, so the sample size may not be terribly helpful, but in the 30 years or so (over 360 draws) that I have been doing this, not a single client has won more than £1,000 from a single Premium Bond. None of our clients have won prizes in the high value band (£5,000 to the two £1m jackpots each month).

I do understand that there is a charm about Premium Bonds, but the maths just doesn’t stack up for you. There are 25million NS&I customers – that’s getting towards half of the UK. The draw for June saw the usual 2 jackpot winners and a further 190 people that won £5,000 or more. The bulk of “winners” some 3,101,040 of them won £25 (97.89% of winners win £25). The total winnings (all prizes) was £91m.. which sounds a lot until you realise that £77.5m is those £25 payments. There were, wait for it.. 109,286million entries (qualifying £1 Premium Bonds). The chance of winning anything is certainly 3.1m in 109,286 million… that is a very small chance of winning. Most think of the big £1m jackpot, the chance in June was effectively 1 in 54,643,229,674, yes you get a bite at the same pie each month, but so does everyone else. So to put this in context you are 1 in 67,081,000 as a member of the UK population and you might be picked for a gong or almost anything.

The other thing that people forget is that £1m, which for most of us would be nice to have! isn’t the same value as £1m in 2011. It buys you rather less because of the decade of inflation, yet the prizes don’t really increase, because they are nice, neat, round numbers. Its a bit like the TV gameshow “Who Wants To Be A Millionnaire?” which first aired on 4 September 1998… thats now nearly 23 years ago! A million isn’t what it was, yet all of us were brought up to believe that it was a vast sum of money, which when we were children, it was. In fact £1m in 1998 is about the same as £1,840,000 now, but that doesn’t make a good strap-line for a TV show does it. To put it another way £543,478 now (roughly) was £1m in 1998.

The truth (remember I promised you that) however uncomfortable it is, is that holding cash will provide the sense of security but you will experience your spending power reduce each year. Admittedly not all the things we buy rise at the rate of Royal Mail, but have your basic costs really reduced or stood still? I suspect not.

You need to use your money in assets that grow and generate wealth. Talk to me.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk 
Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

Take Survey

PRIVACY POLICY  |  DATA PROTECTION

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk    Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

Take Survey

PRIVACY POLICY  |  DATA PROTECTION

IT COULD BE YOU… BUT ITS UNLIKELY2023-12-01T12:13:06+00:00

ITS IN YOUR INTEREST

TODAY’S BLOG

IT IS IN YOUR INTEREST

You may have noticed a press release by National Savings or more accurately, NS&I – of for most of us “the post office”. Sadly, we all know that cash savings rates have been in the doldrums since the financial crash and took yet another nosedive (who would have thought it possible?) in March once Covid became something that the Government actively noticed.

Over the last few months, I have been suggesting various cash deposit solutions and NS&I has been one of them. Now that rates are at rock bottom (hopefully they cannot get worse) it is a good time to review where your cash is and what rate you are receiving.

SOLOMONS IFA AUTUMN 2020 ARRIVING

MORE HIGHLY RATED

As you may have gathered from previous posts, we can provide access to online cash management solutions, these are designed to achieve two things. Firstly, to get a better rate, secondly to keep funds within the £85,000 FSCS protection limit. An additional benefit is that you only need to apply once, as rates come to an end you simply reselect the best from those available via the service. There is no additional paperwork or hassle trawling to find the new “best buy” only to discover it has ended or is about to.

Get in touch if you wish to know more about this, it is a service relevant to individuals, business owners, Trusts and Charities (so pretty much everyone).

Anyway, here are the changes announced by NS&I this week.

PRODUCT RATE NOW RATE FROM 24/11/2020
Direct Saver 1.00% 0.15%
Investment Account 0.80% 0.01%
Income Bonds 1.15% 0.01%
Direct Cash ISA 0.90% 0.10%
Junior ISA 3.25% 1.50%

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk 
Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

Take Survey

PRIVACY POLICY  |  DATA PROTECTION

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk    Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

Take Survey

PRIVACY POLICY  |  DATA PROTECTION

ITS IN YOUR INTEREST2023-12-01T12:13:12+00:00

WHAT YOU CAN DO NOW

TODAY’S BLOG

WHAT YOU CAN DO NOW

When things around us begin to collapse, there is an undeniable sense that screams within us to “do something!” (I’m sure it’s not just me). The global stock markets taking a battering are not good for our nerves (we were not designed for this). The temptation to do something, anything! is palpable… but you have me and all proper financial planners telling you that selling in a crisis is just about the worst thing you could do. These things happen, they come they go, they happen again. This does not placate any of our feelings, but it may help remind us of truths.

However, we are still left with the feeling about wanting to do something, even if that is not to mess with your portfolio. So here I have compiled a list of things to do. It is not exhaustive, some are more important than others, but I would urge you to consider them, particularly if you are feeling reasonably well, but having to self-isolate, or have chosen to do so.

YOUR TO DO LIST

  1. DON’T PANIC: The first thing is not to panic, whilst this version of calamity has not happened before, something very similar has. Disasters have a lot in common, they are fairly regular and prone to repeat without much warning.
  2. TAKE STOCK: This is a good opportunity to review your cash savings. You will remember that we have talked about having reserve cash funds of anything between 3-12 months of typical spending, more in some instances. See our video. Well this is the moment that those reserves may need to be called upon. Also remember that you should try to limit cash savings at any one bank to £85,000 for full FSCS protection. Let me know if you want more about this.
  3. CHECK YOUR PRIORITIES: We all know that plans are well intended, but life has a habit of getting in the way. That doesn’t mean that the plan is wrong or doomed, merely that some flexibility is probably required. So your plans may need to be adjusted, reconsidered, reviewed, postponed, delayed or cancelled, depending on your circumstances and what is wise for you.
  4. REVIEW YOUR BUDGET: You should also take this opportunity to review your regular outgoings. Have another look at your spending plan. What is important and essential, what is nice to have and what is superfluous. Let me be clear, with some luck and good leadership, the current crisis may be over within a few weeks or months, but it could drag on for a bit longer. Stopping your subscriptions to things you enjoy and use may not be sensible, unless you don’t benefit from having them.
  5. LIVE GENEROUSLY: I am a great believer in small businesses, so think about the impact of your financial choices on those within your local community and our wider one. If you have booked and paid for something and now plan to cancel, yes that might be sensible, but you have a choice about whether you simply treat the money as gone, perhaps to someone that needs it more. I’m not suggesting you should, but to merely raise the fact that you have a choice.
  6. HOPE FOR THE BEST, PLAN FOR THE WORST: The current coronavirus is not going to be a “walk in the park”. If statistics are correct the fatality rate is higher than the normal flu, particularly for those with pre-existing serious health and respiratory problems, but we expect the vast majority of people to survive.  We all hope that we will all survive whatever is coming down the road, but some will not. Yes, this is very morbid. However, I am assuming that one of the reasons that I am in your life is so that I do not ignore the difficult challenges to do with money and your financial wellbeing. My job is not to sweet talk you with nice words, but to provide a responsible truthful voice, at least as far as I see it. You need to ensure that your Will is up to date, that your Executors know what their responsibilities are, that protection policies provide ample cover. You should also consider Power of Attorney so that someone you trust can take financial decisions on your behalf if you cannot. Need help? get in touch.
  7. COMMUNICATE – GET IN TOUCH: You also need to ensure that the relevant people know where your important documents are. Why not put a copy on our portal too – see www.solomonsifa.co.uk/pfp for more.
  8. REFLECT & REMEMBER: If you find yourself having to “self-isolate” why not take the time to finally get around to writing up a brief version of your life-story. I hope that this will have the effect of reminding you of many good experiences in life and happy memories and provide space to reflect on who and what is important. Add photographs, then get to work on creating a book using a bit of software within Apple or Vistaprint or something similar, get it printed, get it done. If you would like a useful template email me.
  9. CHECK IN ABOUT YOUR LONG-TERM PLANS: In terms of your financial planning – I’m working on the assumption that your plans have not altered. If they have get in touch. It is possible that some may need to be adjusted, but I doubt that this is a wise time to do that. Your investments remain globally diversified, across various asset classes and low cost where possible. We have seen the value fall sharply before and we will see it again, but there is no need to panic. In the same way that you didn’t sell your home during the last property crash, you sat it out.
  10. REVIEW YOUR BUCKET LIST: Appreciating the precarious and fragility of life will hopefully bring to mind some things that you would like to experience – have a think and let me know if anything new should be added to your bucket list, they dont have to have a financial price tag, but at least when we next review your plans together we can check to see how you are getting along…

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk 
Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

Take Survey

PRIVACY POLICY  |  DATA PROTECTION

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk    Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

Take Survey

PRIVACY POLICY  |  DATA PROTECTION

WHAT YOU CAN DO NOW2023-12-01T12:13:21+00:00

STAMPS TELL STORIES OF INFLATION

TODAY’S BLOG

THE PRICE OF A STAMP

Royal Mail announced yet another increase to the price of a first-class stamp. As of 23 March 2020, the price will rise from 70p to 76p. Second class rises 4p to 65p. This will possibly have you gasping at yet another increase and recollecting when stamps used to be much cheaper.

This neatly leads me to discuss the topic of inflation. Whatever anyone within the financial world tells you, this is arguably the most devastating element to your financial wellbeing. Imagine you have £100,000 and inflation runs at an average 3% a year. Over the course of 25 years £100,000 is effectively worth £50,000.

Most people should be investing for decades, not days, weeks or months – decades. Your finances need to outlast you. When you enter the adult workforce and ultimately leave it, you have to rely on your investments to provide an income.

First Class 1970,1980,1990,2000,2010

FIVE DECADES OF FIRST CLASS STAMPS

The price of a first-class stamp 10 years ago was 41p. In the millennium year 27p would have covered the cost of your standard first-class letter, which was not that much more than the 22p it cost in 1990. If you remember 1980, you will perhaps remember the 12p first class stamp and a decade before that – well, we hadn’t yet gone decimal, so 5d would have paid for your first-class letter which is around 2p. Over 50 years the price has risen from 2p to 76p for the same service.

The illustrations that you receive about investments (which are nothing like as beautiful as those of stamps) try to account for inflation, typically assuming 2.5%. CPI (yet another measure of inflation) is currently 1.8%.

IS YOUR MONEY GOING BACK IN TIME?

So, think on this. If your money in the bank is getting less than 1.8% interest, you are losing money. Your purchasing power is shrinking. Whilst this is great for those that owe money, it is terrible for those living off their savings. Yet I regularly come across people that lack into 3 or 5 years fixed rates of interest that are less than inflation. There are a variety of reasons, partly poor alternative cash deposit rates, but also a deep misunderstanding of how investments work and the dreaded “stock market” which news outlets seem to do their best to instils a sense of terror at the daily movements.

THERE IS NEVER A RIGHT TIME TO INVEST

Many of you worry about the right time to invest – the truth is, that it was 50 years ago, but otherwise it is today. Yes, we do not know what will happen to the UK economy, (we never do) we are facing all sorts of significant problems (again) but these will pass (again) being replaced by the next round of bad news and you will still have to live with the consequences of your decisions.

CHECK YOU ARE NOT DESIGNING TO FAIL

As the tax year is drawing to a close, check that you are not holding too much in cash. Certainly, having access to cash is vital – for planned expenses and the occasional mishap. You should have an emergency fund if your income is likely to stop. However, beyond that, you need to deploy your money to work for you over the coming decades so that it grows faster than inflation.

Do not make the mistakes you made a decade ago, holding onto cash and worrying about the financial crisis, or the decade before about Y2K or the one before that… inflation does not reward anxiety, it eats it for breakfast.

Pick up your phone or send me an email. It’s about time that this was mastered. Let’s get started…

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

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The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk 
Call – 020 8542 8084

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GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk    Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

Take Survey

PRIVACY POLICY  |  DATA PROTECTION

STAMPS TELL STORIES OF INFLATION2025-01-21T15:53:24+00:00

Pensioners set to run out of cash

Pensioners set to run out of cash

The Social Market Foundation released a report yesterday called “The Golden Years – What freedom and choice will mean for pensioners“. This explores the new pension freedoms that were introduced and considers the experience of other nations where this has already happened to see what we might learn.

It will come as little surprise to anyone, that given the opportunity to take money from a pension, many people struggle to make it last for the remainder of their lifetime, yet this is precisely what underpins the point of a pension.

The report points to experience in Australia and the US where similar pension freedoms have been enjoyed. They note three main types of behaviour and problems.

  1. Cautious Australians – who withdraw less than 1% of their pension fund
  2. Quick spending Australians – one in 4 clear out their pension fund by 75
  3. Typical Americans – who withdraw 8% a year

Overspending and pessimism

I’m not going to pretend that this is an easy problem. As a financial planner I have to make lots of assumptions about the future and I typically advise clients that few of them will be accurate, but they are all reasonable, but just as importantly, they are reviewed.

In simple terms, financial planning attempts to ensure that you don’t run out of money. Great financial planning attempts to ensure that you get and keep the lifestyle you want. There are numerous assumptions that I have to make, not least of which is your life expectancy. Most people under estimate this. Pause for a moment. At the risk of boring you… as I say this to clients… if we take a conservative approach to your life expectancy and assume you live until you are 100, your money has to last longer and thus work harder… if we assume you live to say 80, then it doesn’t need to last as long or work as hard… but if you invite me to your 80th birthday party, I’m the least popular person in the room, because once we’ve had a drink, the cake and a bit of a dance, I turn the lights off. That’s it.

OK, you may have other sources of income (State Pension etc) which would continue, but the point is merely to help you grasp the significance of this assumption… which I find seems to work. Importantly we review this (its an educated guess)…  the day you die isn’t something that we can easily predict, but we can at least build scenarios into your plan.

The Destitute Pensioner

There’e a new film out which I plan to see as it stars the rather wonderful Maggie Smith. Its called “Lady in the Van” and is on general release on 13th November. Its based on a true story. I’m not sure if this was a lifestyle choice or something that was forced upon her, but it makes for a good script. Without proper financial planning advice, many pensioners are going to run out of money, the only way to properly engage with this prospect is to provide a proper financial plan which includes cash-flow forecasts, without it (as many advisers still appear to be) you are up the creek with the proverbial paddle. Here’s the trailer.

 

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Pensioners set to run out of cash2023-12-01T12:19:52+00:00

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