Neither a borrower nor a lender be

Recently I have lent money to friends and family to cover essential bills. And according to a study done by O2, I’m not alone.

More than £2.6 billion was paid out in casual loans to family and friends last year. Mixing family and friends with money can turn sour. Sure, helping out your nearest and dearest by lending them money when they’re in a financial mess is a natural thing to do, and I’m not advocating that you should stop.

What I am saying is to be careful. Lay down the ground rules.

Both parties should lay down some ground rules before borrowing or lending money. For instance, how much is the loan, how much should be repaid, and when should it be repaid? Write this down so there are no ‘he said, she said’ arguments later on. Make sure you also discuss a contingency plan. What would happen if the borrower lost their job, or became ill? What about if the lender needs the money back more quickly than first thought? Discuss what would happen in these situations.

If the loan is for a large amount of money, consider lending on a more formal basis. Write down the agreements on the loan and then both parties can go to a solicitor who will witness the signing of a document.

Try using the new website Payumi if it’s a small amount you’re lending, which will remind friends of the dates to repay and let them pay with a debit card, credit card or PayPal.

If you need to borrow money, there are other ways to try first if you’re determined not to borrow from family members and friends, or if you want to avoid there being any possibility of fallout.

If it’s a small business loan you require, try a peer – to – peer lender. These lenders help borrowers get decent rates and more flexible terms than high street lenders.

Credit Unions are run as co-operatives – by the members for the members. They will also provide loans, although you may have to be a member for a certain amount of time before a loan is available.

High street loans are still worth considering now that interest rates have fallen so dramatically. I appreciate this is not an option if you don’t have a high credit rating though.

Lend to your family and friends and help them out by all means – but do it carefully.

minimum-5-pound-spend

Minimum £5 spend a thing of the past?

Minimum £5 spend a thing of the past?

Ever been to a small shop and read a sign declaring that you need to spend at least £5 to pay by debit card? My paper shop charges 50p for paying by debit card even if you meet the £5 minimum.  Most of these shops don’t accept credit cards either. But do you know why this is?

Every time a transaction is made, retailers have to pay a fee to whichever bank supplies the card. Currently, shop owners pay around 0.9% for credit card transactions, meaning that for smaller businesses the fees associated with paying by card are too high.

The European Union wants to change this and cap the fees at 0.3% of each transaction for credit cards, and 0.2% for debit cards. The EU also wants to ban surcharges – increasingly popular now at several merchants. Travel agents and airlines are one of the biggest culprits of surcharges; paying ‘administration fees’ when booking air tickets online can cost as much as £30.

So this sounds like a good thing, doesn’t it?

I fear the likelihood is that retailers won’t pass on these savings to the consumer, instead keeping that extra cash for themselves. These plans would reduce retailers’ outgoings by an estimated £2.4 billion. But how are the banks going to make back the money that they will lose from the planned strategy?

One way that is suggested is for banks to charge customers for opening a current account. Alternatively, a charge may be made for acquiring cards. A study published in July 2013 by the University of Essex and European Economics estimated that we could pay £11 for debit cards and £25 for credit cards.

What do you think? Will retailers pass their savings on to us? Or will we pay the same amount in stores, only to be hit by charges for obtaining a card in the first place?

 

Help to buy set to die?

The new help to buy scheme is due to launch next year and it’s not without its critics.

The scheme will allow buyers with a deposit of 5% to buy a house more easily – the government will under-write the risk of lending to buyers with less equity.

Raising a deposit is a house buyer’s nightmare, as few can save 10% of a house price along with stamp duty fees and solicitors costs. Help to buy hopes to give an answer to this problem. But the scheme is widely criticised.

The most widely held belief is that the scheme will push property prices higher and be a danger to the economy.

Personally, I think the critics are mistaken.

House prices are rising anyway – demand outweighs supply.

To address this, the government could build more houses, although on a crowded island with green belts and planning restrictions, this is much easier said than done. Another way of addressing the problem would be to curtail demand – hence, the help to buy scheme should not be available.

However, even if the help to buy scheme didn’t come in fruition, house prices will still rise. House prices in England have been rising steadily since 2007 and show no signs of slowing. The rise in prices is largely due to a number of buy – to – let investors. The sector is booming, with mortgage rates low and rental rates high.

Meanwhile, potential first times buyers are denied a mortgage, forcing them to rent. As rents increase, it becomes even harder to save for a deposit – so it’s a vicious circle.

If the government capped rates of rent, investors might stop piling their money into buy – to – let properties. One easy way to stabilise rents is to kill demand for rental properties – this is where the help – to – buy scheme comes in.

Based on current savings it would take the average tenant 23 years to save the necessary deposit for a home, according to a study by Scottish widows. Based on the average property prices, a 5% deposit equates to more than £8,000. It’s not the sort of money that most people having sitting in their back pockets.

Of course, the government still needs to address the supply issue and build more homes, but its private landlords that have driven house prices for the last decade.

I think that giving people a helping hand onto the property ladder could help the market by reducing demand for rental properties and therefore driving down the profit for landlords. What do you think?

Santander and Funding Circle in Bed Together?

In the Financial Times last week, a partnership between Santander and Funding Circle was mooted. Funding circle is a peer – to – peer lender who focuses on providing loans to small businesses. The company has grown significantly this year alongside its rivals in the same sector such as Zopa and Ratesetter. Other Chinese businesses are also making a headway with many businesses considering doing business with DHgate.

Peer –to – Peer companies cut out the middle man – in this case, the banks, – and work directly with the small businesses which means cheaper loans for borrowers and better interest rates for savers.

If Santander did partner with Funding Circle, the peer – to – peer lending market would be extremely shaken up. Although it would provide more capital for small business to borrow against, peer – to – peer websites are not covered by the Financial Services Compensation Scheme. How would Santander manage this huge risk?

If a small business has been turned down by a high street lender or have been put off by horror stories regarding the banks, they have often turned to Funding Circle instead. If the merger happens, the two will be one and the same.  If the two companies did become partners however, the suggestion is that the bank will suggest a peer – to – peer lender if they reject the loan application from the small business, then a small part of the loan would be funded by the bank and the rest by the peer – to – peer lender.

Both Funding Circle and Santander have stressed that this collaboration is based on speculation at the moment and talks are at an extremely early stage.

There are more than 49,000 lenders registered with Funding Circle and since the company began £129 million has been lent. The proportion of this money has gone to small businesses which have been rejected by high street banks.

The proposed partnership is a double edged sword in my opinion. On a positive note, it will prove credibility of the peer – to – peer lender and therefore attract more customers.

The down side is that the suggested merger goes against everything peer – to – peer companies stand for and this, in my opinion, will put off loyal customers or small businesses that have been turned down for credit by the bank. If it were me I would assuming that having been turned down by a particular bank, I would also automatically be turned down by a peer – to – peer lender associated with that bank.

What do you think of this proposed merger?

risky-americans

Americans don’t want to take any risks – they’re stockpiling their cash

There are a lot of ways to save money, some documented on my blog here and many more articles scattered over the internet.

However, it seems that there is a big ‘hangover’ from the financial crisis in America.

According to bankrate.com, cash is now the preferred way to save any money which won’t be needed for at least 10 years. Over and above property, gold or stocks, savings accounts and certificates of deposit are the favoured ways to save for the midterm in the USA.

In my opinion, this has the potential to leave a lot of people short of their retirement or rainy day fund. Considering the average deposit account in America yields only 0.11%, a $10,000 dollar initial investment would only accrue $110.55 over 10 years.

Although higher income households have a propensity for saving with the stock market according to bankrate.com, 1 in 5 of these types of households still prefer cash to avoid the risk associated with stock markets.

The study also found that people under 30 were the most likely to save in cash, and adults between the ages of 50 -64 were more likely to save in stocks.

This means that people under 30 may find themselves very short when they come to retire as their savings will have hardly made any money at all.

This looks like a high level of risk aversion across the board, or perhaps those under 30 years old do not feel that they are well informed about other methods of saving.

Whichever it is, I think we can count on the fact that when my generation comes to retire, there will be many Americans out of pocket. How do you prefer to save your money?

car-shopping

How to Find a Vehicle That Fits Your Budget

How to Find a Vehicle That Fits Your Budget

If you have ever needed to purchase a vehicle during a time where you were experiencing a budget crunch, than you know how difficult it can be to find something both reasonably priced and reliable. Don’t worry though, as there are ways you can obtain quality for an amount that won’t make you lose sleep at night.

The Internet is a fantastic tool when you are searching for a vehicle. Having had to purchase a new vehicle myself last year, I know that you can find some excellent deals on Craigslist.com. If buying from an online source, you should never make a purchase without having the car fully examined. Always ask for a CarFax History Report if you are buying through a dealer. If you decide to purchase from an individual owner, make sure to take the car over to your mechanic to have the vehicle inspected. In the scenario that either request is denied, it is time to keep searching.

Supposing you are looking for a fixer upper, Craigslist is a great place to find used vehicles for low prices that have a few minor problems. In many cases, it will not cost too much to fix the problems and you will have a car for much cheaper. For instance, if there is a vehicle being sold for $500, but needs repairs that total $300, it is a good purchase; you get a dependable vehicle that fits into your budget and it only cost you $800. You would be surprised how many choices you will have if you go this route, though it is better suited for individuals who are not unfamiliar with caring for a car.

Another issue I have run across when searching for a vehicle is the lack of competitive prices. If you live in a small town where there are very few car dealerships than you will not get a deal that fits your budget. This is because the dealers know that you do not have many choices. The best thing to do in this situation is to go to a larger town or city. The more dealerships there are in a given area, the better chance you will have at finding a deal to fit your budget. The vendors in larger areas are aware of their surroundings and know that if you do not get the price you want, you can just go to another location close by. The amount of competition is what drives prices. The more competition the better the deals and the better the deals the better your chance at getting the vehicle that fits nicely with your budget.

Once you do find the vehicle you wish to purchase, you must then be very clear and firm about what you can afford, as a dealer will do their best to talk you into a payment you cannot afford. Do not budge on your original amount. If they want your business bad enough they will bend to your will. During this time it is also smart to talk interest rates. Moreover, I recommend you to do research on your own to determine the best car loan possible, as prematurely pulling the trigger may lead to regrets down the line.  Even if it takes you all day, do not leave the dealership until the dealer has exhausted every possibility when it comes to the finance company you will be using to get your vehicle. Once they see that you are serious and firm in what you are telling them, they will do all they can to get that sale closed.

So to sum it up, stay firm, stand your ground, and examine all possibilities and examine any vehicle carefully before you make your purchase. It may take some time and hard work, but in the end you will find the right vehicle for you and your wallet.

Be Your Own Boss – But Beware

I love it when people make a good job of being their own boss. There’s no commute, no office distractions, no uniforms and no strict time scale. Not to mention nobody telling you what to do. I love the benefits of being self employed.

However, I’ve also read a lot about the downside.No pension, no redundancy package, no PAYE and no national insurance payments made on your behalf – you’re responsible for these yourself. Too many self employed people ignore all this, either because they think it’s not that important or because they’re too busy with other ‘more important’ things. But if you ignore them, you’re flirting with disaster.

Nearly half of people who are self employed have no pension savings at all. Because you’re not getting any pension contributions from an employer, saving for a pension can seem like a tall order and maybe you hope that you’ll have a flourishing business to sell to provide for your retirement. That’s not financial planning though, that’s wishful thinking.

Start with a low-cost stakeholder pension. You can claim tax relief at 20% on your personal pension contributions using a Taxcaster calculator. You can’t touch these funds until you’re 55, which could be a positive or a negative depending on your views.

ISA’s are more flexible because you can dip into your savings. You won’t get tax relief, but the growth and income is tax free.

You will still get state pension of course – in today’s prices a single tier pension is £144. This isn’t enough to live comfortably – so save in your own name as well.

Being self employed can be tax hell – sorting out your own tax affairs. Hire an accountant – it’s too difficult to sort out the nitty gritty stuff if you’re not experienced in accounting. It’s worth paying for their services and their bill is tax deductable.

Tax is payable twice a year on 31st January and 31st July in two big chunks. Make sure you have the money to hand because late payments incur charges.

National insurance is also payable twice. If you’re likely to earn more than £77,000 a year, you need to register for VAT within 30 days. There are strict penalties for failing to do so.

Keep every single receipt as a lot can be deducted from your tax bill including stationary, furniture and even coffee providing they are ‘solely for business purpose’.

The other vital insurance is income protection, which will cover your income should you fall ill and be unable to work. This will kick in after 6 months of illness – so it’s not an immediate solution but it will keep paying out until you’re well enough to work again, or until you’re 60 if you can’t work anymore.

Bear all this in mind before you take the plunge, but definitely don’t let it put you off it you have the dream to do it!

Baby Business – The Royal One

I don’t want to monetize everything in sight, but it has to be said that Royal babies are good for business.

All economic impact from the birth should be positive. Many commemorative items sold and nothing to offset this – for instance, no public holiday to be taken into consideration unlike for the Royal wedding.

Bookies have cleaned up after the Royal birth, with punters betting on baby names, weights, and sex. Souvenirs and commemorative items will help give a huge boost in sales to retailers, along with alcohol sales slightly rising as people toast the Royal baby.

The Royal baby was born into the middle of some lovely weather in the UK, heightening the ‘feel good’ factor of his birth. With Andy Murray winning Wimbledon, the UK has had good news lately and this lift in spirits for the country will reflect on business sales too.

Another significant difference is that there won’t be the great pageantry and celebratory public events which we saw at the Diamond jubilee and the Royal wedding. Although these likely had an impact in lifting tourism,  with the high media coverage and interest in the birth of the Royal baby throughout the world, the UK will be advertised globally.

It sounds like a baby boom for the UK to me – let’s hope the positive impact continues.

A guide to making extra money from unused items

Everyone acquires stuff they do not need. Instead of letting it pile up in the nooks and crannies around your house or donating it all to charity, why not make some extra money from selling it to someone who needs it?

There are all sorts of ways to make some extra money by selling your stuff. It is not as difficult as you might think. All items have some value to someone so if you are not using it yourself then pass it on to someone who will appreciate it. You will end up with a cleaner, tidier home and a bit of extra cash in your pocket. What’s not to love?

 Things you can sell

Obviously there are items that really are better off going in the bin, but on the whole the old adage of ‘one man’s trash is another man’s treasure’ is true. However it is important to sell your unwanted items as quickly as possible if you want to receive the maximum return. Items such as consumer electronics tend to depreciate in value relatively quickly so the sooner you have a clear out the more money you will make.

There are all sorts of electronic items that people will be quite happy to buy second hand. For example you could get money for your Nintendo DS, iPod or digital camera by selling it online. If you have upgraded and are no longer using an item then sell it as soon as possible to ensure that it doesn’t become obsolete and make sure you include any user guides or instruction manuals to help you get the maximum return.

Other second hand items that sell well are things such as DVDs, computer games and even old books. With smaller items it is often better for you to sell them as a job lot. This minimises your effort and makes sure you get one larger lump sum than lots of smaller payments which can be easily frittered away without you really feeling the benefit of the extra cash in your pocket.

Children’s toys also have a good resell value so if you have kids you can encourage them to tidy their rooms and make a bit of extra pocket money by selling the toys they no longer play with. Giving your kids the control over what they want to sell will ensure their cooperation. The fact they get some financial reward will help them to see the value of their possessions.

Where to sell

There are all sorts of places you can take your stuff to sell. Car boot sales are a great way to get out in the fresh air and meet some new people – although there is always the danger of coming home with more than you take. If you are the kind of person that can’t resist a bargain then proceed with caution.

Second hand shops are another good place to go, however they have overheads to cover which means that you may not always get the maximum value for your items. Really the best way to make money from your unwanted items is by selling it online. There are many different ways to sell online with minimum effort and maximum returns for your unwanted items.

When is it Better to Rent Instead of Buy a Property?

Is it even better at all to rent instead of buy a  property?

According to a report in The Telegraph, it may be more suitable for those looking to move into a new home to rent instead of buy a property. The choice to rent could prove to be better for the economy, since banks are not approving mortgage loans for home buyers who can’t afford the loans long-term. Also, individuals and families who are considering buying a home are very unlikely to seriously consider homes that would put a strain on their overall budget. I had a look on Citylets and there were some absolute bargains, like a modern one bedroom flat in Edinburgh for as little as £420 per calendar month. Some people pay more than that for their car.

It’s also important to think about how long you’re going to be living in the area where the home is. Do you want to raise your family in this city? Do you have job security there? Does your extended family also live there? These factors will help you determine if you’ll be in the area for a year or two, or if you want to make this home your permanent residence. The general rule of thumb is that you should live in a house for about five years before you decide to buy it. This way, you’re likely to get back the money spent on closing costs and home maintenance. So, if you know you’re only going to be living in the home for two or three years, renting is a better option.

Renting is also a better option if you have a hectic schedule and know that you won’t be able to keep up with all the maintenance the house needs on your own. When you own a home, all the repairs and upgrades are your responsibility. When there’s a plumbing issue or landscaping problem with a rental property, it’s up to the landlord to resolve the issue. This puts more money in your pocket, and debunks the myth that renting is more expensive than buying in all cases. You’ll also have the peace of mind of knowing that homeowner association fees are not yours to pay as long as you’re renting the home.

As with all financial decisions, it’s important to properly weigh the pros and cons of renting a home before you make your final decision. Purchasing a home is one of the most important choices you’ll make. Thinking about the length of time you’re going to be in the home, how much you can afford to pay each month for the home,and the fees associated with living in the home will likely assist you in making the decision to rent – at least for now.

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