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96% of Spanish savings account pay 0.5% interest or less

By Barry Davys - Topics: Barcelona, Interest rates, Saving, spain
This article is published on: 18th September 2018

18.09.18

96% of Spanish savings accounts pay 0.5% interest or less. However, the price of our weekly shop is going up by 2.3% per annum in Spain. It is a concern as the value of our money is going backwards. In fact, it makes us worry “what shall we do with the money in the bank”.

As a seasoned adviser and an expat myself for 12 years, I understand that people can be concerned about moving from a bank account to an alternative where the value fluctuates. Your personal situation and outlook on life should be taken into account before looking at alternatives to a very low interest rate bank account. This can then help you decide whether you should look at a bank account, an investment such as funds or indeed a smoothed investment. We will always need to keep some money in the bank for emergencies. For the rest of the money in the bank, the time has come to look at alternatives.

It is useful to have an independent financial adviser (IFA) listen to your requirements and then help you decide what to do with your money. An IFA can help you in lots of ways, including building a model of what your future looks like and practical things such as mortgages, currency exchange, tax efficient savings and Inheritance Tax planning.

When my back started hurting I had no idea what was wrong. My Chiropractor knew as this was his expertise. My expertise is financial planning for the international community in the Barcelona and Costa Brava areas. If you would like to find out more, please contact me, Barry Davys, at The Spectrum IFA Group by telephone on +34 645 257 525 or email barry.davys@spectrum-ifa.com. .

Sources:
Thebanks.eu as at 8th September 2018
Spanish Inflation, National Statistics Institute, Madrid July 2018

Saving tax is a good policy

By John Hayward - Topics: Bonds, insurance bond, Investments, Saving, spain
This article is published on: 9th October 2017

09.10.17

Having recently written about the benefits of using a well-established investment or insurance company to manage your savings, within a Spanish compliant insurance bond, with the benefit of your money growing by more than inflation and far more than any bank has offered in recent years, I want now to explain how brilliantly tax efficient a Spanish compliant insurance bond is. I will do this by telling stories of two married couples. Mr and Mrs Justgetby and Mr and Mrs Happywithlife. Both couples are retired and tax resident in Spain. Also, both couples have two adult children in the UK.

Story 1 – Mr and Mrs Justgetby
Mr and Mrs Justgetby have lived in Spain for 10 years. They had sold up in the UK in 2007 and bought a property on the Costa Blanca (Valencian Community). This is valued at €300,000 and owned jointly. They each receive pensions from the UK in the form of State pensions and both have small company pensions. These cover their expenses but do not allow them to do much more. From the sale of their property in the UK, they were left with £200,000. They exchanged £50,000 before moving to Spain when the exchange rate was 1.45 euros to the pound. This gave them €72,500. They have had to eat into this because they needed a new car, they have done a bit of work on their house, and they have had to supplement their pension income. The exchange rate has also gone against them by about 20%. They are now left with €50,000 in their joint Spanish bank account. This does not pay any interest. The remaining £150,000 is in the UK in a variety of investments made up of premium bonds, ISAs, and fixed term savings accounts. The accounts have been split so that each holds exactly the same in individual accounts so that they each hold £75,000.

INCOME/SAVINGS TAX
“ISAs and premium bonds are…..not tax free for Spanish residents”!
Whilst no interest is being paid on their Spanish bank account, at least there is not a tax concern there. However, some of the money in the UK is in tax free accounts. ISAs and premium bonds are tax free for UK tax residents but are not tax free for Spanish residents. Therefore, any income or gains from these investments should be declared to Spain. Mr and Mrs Justgetby have not been declaring any of the prizes they have received from neither the premium bonds nor the interest from the ISAs believing this not to be necessary. With automatic exchange of information that has come into force, Mr and Mrs Justgetby may be in for a nasty shock for unintentionally evading tax.

INHERITANCE TAX
On the death of either Mr or Mrs Justgetby, there are some significant tax issues. As they are tax resident in Spain, the surviving spouse will be liable to Spanish inheritance tax (known as succession tax in Spain) on 50% of both the property value and the bank account as well as 100% of the assets owned by the deceased in the UK. The inherited amount in euro terms, based on an exchange rate of 1.13 euros to the pound, is €150,000 (property), €25,000 (bank account), and €84.750 (UK investments). This totals €259,750. The Spanish inheritance tax on this, after allowances, could be around €11,500.

On the death of the other spouse, the children in the UK would have a liability of around €5,000 each based on current rules and on the assumption that their pre-existing wealth is not over certain limits.

Story 2 – Mr and Mrs Happywithlife
By coincidence, Mr and Mrs Happywithlife were in the exactly same position as Mr and Mrs Justgetby in terms of when they sold their UK property and they had exactly the same amount of money as Mr and Mrs Justgetby in cash. They also have a property in Spain worth €300,000. Instead of investing in ISAs, premium bonds, and deposit accounts in the UK, from the £200,000 property sale proceeds, they put £175,000 into a Spanish compliant insurance bond in joint names. The policy will pay out on the request of Mr and Mrs Happywithlife or when the second of them dies. They felt that it would not be necessary to hold so many euros in a low or no interest bank account in Spain. They kept £5,000 in a UK bank account to cover the times that they pop back to the UK to see their children and the remaining £20,000 they exchanged into euros and deposited almost €30,000 with their local bank.

INCOME/SAVINGS TAX
“……tax is only due when withdrawals are made.”
Once again, the interest in the bank account in Spain has paid little interest and so has not created a tax problem. However, the Spanish compliant insurance bond has increased in value but has not created a tax liability to date. This is because tax is only due when withdrawals are made and then only on the gain part of the withdrawal. This has allowed the plan to increase on a compound basis as tax has not been chipping away at the growth. They have decided to take regular amounts from the bond now. Each time the money is paid out, the insurance company deducts the appropriate amount of tax and pays this to Spain. As mentioned, the amount of the tax will be determined by the gain portion. In the early years, this is generally little or nothing due to the special tax treatment afforded to these types of savings plans. Longer term, the tax payable is likely to be a fraction of that payable by those who own non-compliant investments.

“….tax that they saved has gone towards a cruise….”!

Unlike Mr & Mrs Justgetby who would have had to pay €1,980 on the €10,000 gains they made, Mr and Mrs Happywithlife would not have had to pay anything. Instead, the €1,980 tax that they saved has gone towards a cruise they are going on next year.

INHERITANCE TAX
On the death of either Mr or Mrs Happywithlife, using the same assumptions as with Mr and Mrs Justgetby, the surviving spouse will inherit 50% of the property value (€150,000), 50% of the Spanish bank account (€15,000) and 50% of the UK bank account (€2,825). This totals £167,825. The Spanish inheritance tax on this, after allowances, could be around €3,500, €8,000 less than Mr and Mrs Justgetby´s position.

On the death of the other spouse, the children in the UK would have a tax liability of closer to €4,500 each as their parents had less money in the Spanish bank than Mr and Mrs Justgetby.

The difference the Spanish compliant bond makes
As the bond was set up on a joint-life, last survivor (second death) basis, there is no “chargeable event”, as it is known, on the death of the first spouse. Nothing is paid out on the first death as the insurance bond was taken out to pay out when the second party dies. This will have saved either Mr or Mrs Happywithlife thousands of euros in tax.

Words of warning
Tax rules change regularly and the figures quoted are estimates based on our knowledge at this time. The allowances assumed are those applying to the Valencian Community at the time of writing.

Brexit could have an effect on the benefits received by the children in the above cases. Allowances apply currently to the children as they live in the UK and are part of the EU. The allowances may not be there after Brexit.

There are a number of other ways to reduce taxes by distributing wealth appropriately. Everyone is an individual and we all have different needs. Therefore, a financial review is the first part of the solution.

It is vital, from a compliance point of view, to take a look at all our financial arrangements and more importantly to review them on a regular basis. What we may have once bought many years ago, and which complied then, may now have become obsolete and could cause tax questions later.

Reviewing existing contracts and investment arrangements has become much more important with the open border tax sharing arrangement, the Common Reporting Standard’ which has now been fully implemented.

It might just be the right time to start looking at your existing arrangements to ensure they comply before anyone starts looking.

Fun Financial Fact
The Latin for head is caput. In ancient times, cattle were used as a form of money and each head of cattle was a caput. Therefore, someone with a lot of cattle had lots of caput or capital

Has your bank in Spain paid you over 3% p.a. interest on your savings recently?

By John Hayward - Topics: Costa Blanca, Interest rates, Investment Risk, Investments, Saving, spain, Uncategorised
This article is published on: 19th September 2017

19.09.17

The probability is that it hasn´t. However, you could have made more than 3% a year in a low risk savings plan with one of the biggest insurance companies in the world. We have many happy savers who have seen steady growth of over 3% a year for the last few years. How? Read on…

Saving money in a low interest world

Losing spending power to inflation
With special offers currently being offered by banks of 0.10% APR interest and inflation in Spain running at 1.6%, there is a guaranteed loss of the real value of money at the rate of 1.5% a year. There are some who would be disappointed, if not angry, if their money in an investment had lost 7.5% over 5 years yet this is exactly what has been happening to people over the last few years without them really appreciating it. 3% a year is not only an attractive rate of return but it is necessary to cope with inflation and provide real growth.

Spanish compliant insurance bonds
ISAs, Premium Bonds, and some other investments in the UK are tax free for UK residents. They are not tax free for Spanish residents. We are licensed to promote insurance bonds in Spain which are provided by insurance companies outside Spain but still in the EU. In fact, even after Brexit, these companies will still be EU based and so Brexit will not have the impact on these plans that it could have on UK investments. As the bonds are with EU companies, and the companies themselves disclose information to Spain on the amount invested, as well as any tax detail, the bonds are Spanish compliant which makes them extremely tax efficient. We do not deal with companies based outside the EU as we are satisfied that the regulation within the EU is for the benefit of the investor. We do not have the same confidence in some other financial jurisdictions and neither do Spain.

What investment decisions do you have to make?
Although we have the facility to personalise an investment portfolio within the parameters laid down by the EU regulators, offering discretionary fund management with some of the largest and best known investment management companies, we can also use a more simple approach for those who do not require any input into the day to day investment decisions.

So what has happened over the last 5 years?
The chart below illustrates the performance of one of fund’s available to you compared to the FTSE100 and the UK Consumer Price index. The argument to stay invested when markets fall is valid when one looks at the FTSE100 roller coaster line with the increase we have seen over the last year or so since the Brexit vote. However, anyone accessing their money around the time of the vote could have seen a 25% drop in the investment values. Not so with the fund in the insurance bond.

Real cases

Real case 1 – £40,000 invested 24/07/12. £50,770 as at 14/09/17. Up 26.92% in 5 years

Real case 2 – £356,669 invested 10/09/14. £431,177 as at 14/09/17. Up 20.88% in 3 years

Real case 3 – £316,000 invested 05/04/16. £334,422 as at 14/09/17. Up 5.82% in 18 months

Real case 4 – £80,000 invested 13/07/16. £86,160 as at 14/09/17. Up 7.70% in 15 months

Real case 5 – £20,000 invested 27/01/17. £20,712 as at 14/09/17. Up 3.56% in 8 months

These growth rates are not guaranteed but are published to illustrate what has actually happened and that the percentage returns on the fund are irrespective of the amount invested.

How can they produce such consistency?
Each quarter, the insurance company estimates what the growth rate will be for the following 12 months. This rate is reviewed based on the views of the underlying management company with people situated in all parts of the globe specialising in their own particular area. In good times, the company will hold back money that it has made so that, when things are not so good, they are still able to pay a steady rate of growth to their savers.

I don´t want to take any risk
It is difficult to avoid risk. In fact it´s practically impossible. A risky investment is seen by many as something which has a good chance of failure, either in part or completely. Stocks and shares are seen as risky whilst putting money into a bank deposit account is not. It is generally known that stocks and shares can go down as well as up but some people are unaware, or simply ignore, the risk of keeping money in a perceived “safe” bank deposit. Bank accounts have limited protection against the bank going bust. Then, if it came to the situation where a bank had to be bailed out by the government, it could take months, if not years, to access your money. As already mentioned, if the account is making less than inflation, you are losing money in real terms. So a bank account is far from risk free. The fund illustrated above is rated by Financial Express as having a risk rating of 22% of that applicable to FTSE100, much further down the risk scale and in an area that many people feel comfortable with.

What are the charges?
We explain in detail the underlying costs. In my experience, far too many people commit to a contract without understanding what they have, having received little explanation of the terms and conditions. This is where we differ to most. Different companies have different ways of charging and we run through all of the charges so that you are happy with what you have. The real examples above have had charges deducted and so these are the real values. Your bank may not charge you for the 0.10% interest (less tax) they are paying you but they are making money through investment but not passing anything on to you even though you supplied the money they invest.

What do I need to do next?
Contact me and I can review your savings, investments, and pension funds. I can then explain how you could arrange these in a tax efficient way whilst giving you the opportunity to access the growth that is available, for an improved lifestyle and to cope with rising costs.

How Safe is your Bank?

By Pauline Bowden - Topics: Banking, Costa Blanca, Costa del Sol, Inflation, International Bank Accounts, Saving, spain
This article is published on: 24th August 2017

24.08.17

Which bank? Which jurisdiction? As more amazing stories come out about the world’s banks, we have seen a shift from Deposit Accounts being a low risk investment, to a much higher rated risk. So what exactly does each jurisdiction offer as security against your bank going bust?

Isle of Man Personal Account 50,000GBP
EU €100,000
UK 85,000GBP
Jersey 50,000GBP
Guernsey 50,000GBP
Gibraltar €100,000

 

Many people in this area of Andalucia have bank accounts in Gibraltar, Isle of Man or The Channel Islands. Of the above list, the Isle of Man and Channel Islands have the least protection for the account holder.

I often write about spreading your risk, by investing in different asset classes. Perhaps now we should also spread our bank accounts and have smaller deposits in more banks, in more jurisdictions.

It can make life a little more complicated, but it makes financial sense not to put all your eggs in one basket. At least then, if one egg gets broken, you do not lose all of them!

Holding cash as an asset class is no longer a “safe bet”. With interest rates so low now, the real value of the capital is being eroded by inflation. People that relied on the income from deposit accounts have seen their disposable income fall drastically, especially if they are sterling investors in receipt of sterling pay or pensions. Many are having to eat into their capital to maintain their lifestyles.

Alternative investment strategies need to be considered in order to protect the wealth that you already have and maximise the returns from that wealth.

Keeping On Track

By Chris Webb - Topics: Estate Planning, Financial Planning, Madrid, Pensions, Retirement, Saving, wealth management
This article is published on: 5th May 2017

05.05.17

Speaking with my many clients one of the most talked about topics is “I wish I had done something sooner” or “I wish I had put a plan in place”.

All too often in our younger years we race through the nitty-gritty details of our finances and neglect to focus on crucial “future proofing” in the process. In our 20’s we tend to spend, spend, spend. In our 30’s we try to save, but starting a family or purchasing property make it difficult. In our 40’s we’re still suffering the hangover from our 30’s and inevitably the work required to provide for your financial future becomes increasingly harder.

But if you adopt a marathon approach to money (opposed to a sprint – see my article on this topic), it can allow you to take a more holistic look at your overall financial picture and see how decisions that you make in your 20s and 30s can impact your 40s, 50s and into your retirement years.

It doesn’t matter how old you are, being financially healthy boils down to two things. The level of debt you have and the level of savings/investments you have. The only real difference is how you approach both subjects, as this will change with age .

Tips in your 20’s

1. Debt – Loans And Cards
It’s easy to think that making the minimal payments and delaying paying them off, to save more, is a good idea, but this strategy rarely works. The more you make the more you tend to spend, so getting round to clearing off these debts never comes any closer. As you go through the 20’s cycle, additional costs will start being considered, like starting a family or purchasing a house therefore the ability to clear your debts just doesn’t materialise.
This is why now is the time to work on breaking the credit card debt or loan cycle for good.

2. Start An Emergency Fund
While you’re busy paying down your debt, don’t forget that you should always be planning on having a “savings buffer” in the bank. To help accomplish this goal you should transfer funds straight from your “day to day” account into a deposit account. One where your aren’t likely to get access through an ATM which reduces the temptation to spend it on a whim. Ideally, you should aim to have three times your take-home pay saved up in your emergency fund.

3. Contemplate Your Future – Retirement

At this point in your life, retirement is far off, but it can be important to start saving as early as you can. Even small amounts can make a big difference over time, thanks to the effect of compound interest. Start saving a small percentage of your salary now to reap the rewards later in life. See my articles on compound interest and retirement planning to see the difference it can make.

Tips in your 30’s

During this decade, your financial goals are likely to get a bit more complicated. Some people will still be paying off credit card debt and loans, whilst still working on the “emergency account”. So what’s the secret to juggling it all? Rather than focusing on one goal you should be looking at the biggest of your goals, even if there are three or four.

1. Continue Reducing Debt
If you’re still paying down your credit card balances then considering consolidating onto one card with an attractive interest free period should be your first task. Failing that you need to concentrate on the card with the highest interest rate and reduce the balance ASAP. The most important thing to consider with debt is the interest rate, If you have low interest rates (I’d be surprised) then there’s no major rush to pay them off, as you could manage the repayments and contribute to other financial goals at the same time. If your interest rates are quite high then the priority is to clear these debts down.

2. Planning For Kids
Little ones may also be entering the picture, or becoming a frequent conversation. Once this is a part of your life you’ll start thinking about the cost implications as well. Setting aside a small amount of funds now to cater for the ever increasing costs of bringing up a child will reduce the financial stress later down the line. If you have grand plans for them to attend university, potentially in another country, then knowing these costs and planning for these costs should be part of your overall financial planning.

3. Assess Your Insurance
The thing that most people forget. Big life events such as getting married, having kids, buying a house are all trigger points for reassessing what insurance you have in place and more crucially what insurance you should have in place. If you have dependents, having sufficient Life cover is paramount. Other considerations should be disability, critical illness and even income protection.

4. Start that Retirement Plan
It’s time to stop just thinking about setting up what you call a Pension Pot, it’s time to take action. Starting now makes it an achievable goal, leaving it on the back burner because you’re still too young to think about retiring is going to come back and haunt you later in life.

Tips in your 40’s

This is the decade where you need to make sure you’re on top of your money. At this point in your life, the ideal scenario would be to have cleared any debts and to have a nice healthy emergency fund sitting in a deposit account.

1. Retirement Savings – Priority
During your 40s it’s critical to understand how much you should be saving for retirement and to analyse what you may already have in place to cater for this. In my opinion it’s now that you need to start putting your financial future/ retirement ahead of any other financial goals or “needs”.

2. Focus Your Investments
Although you may not have paid much attention to “wealth management” in your 30s, you’ve probably started accumulating some wealth by your 40s. Evaluate this wealth and ensure there is a purpose or goal behind the investments you have done. Each goal will have a different time horizon and potentially you will have a different risk tolerance on each goal. The further away the goal is the more you can afford to take a “riskier” option.

3. Enjoy Your Wealth
It’s about getting the balance right. Hopefully you’ve worked hard and things are stable from a financial point of view. You need to remember to enjoy life today as well as planning on the future. As long as important financial goals are being met there is no harm is splashing out on that dream holiday, and enjoying it whilst you can.

Tips in your 50’s

You may find yourself being pulled in different directions with your money. Do the children still require financial support, do your parents require more support than before ?, The key thing to remember is to put your financial security first, and yes I know that sounds a bit tough…….. You still have your retirement to consider and probably a mortgage that you’d like to clear down before retirement age.

1. Revisit Your Savings and Investing Goals
Your 50’s are prime time to fully prepare for retirement, whether it’s five years away or fifteen. At this point you should be working as hard as possible to ensure you reach your required amount. This means that careful management of your assets is even more critical now. It’s time to focus on changing from a growth portfolio to a combined growth, income and more importantly a preservation portfolio. What I’m saying here is it’s time to really analyse the level of risk within your asset basket.

2. Prioritise – Your Future V Kid’s Future ( It’s a tough one….)
During their 50’s a lot of clients struggle with figuring out how much they can afford to keep supporting a grown child, especially when they’re out there earning themselves. The bottom line is that although it can be tough you have to continue to put yourself. first. The day of retirement is only getting closer and unless your planning has been disciplined there’s a possibility you may need to work longer than anticipated, or accept less in your pocket than you hoped for.
You are number 1…….

3. Retirement Decisions and considerations
You should begin to revisit your estate planning, your last will and testament, power of attorney if you feel necessary and confirm that your beneficiaries on any insurance policies or investment accounts are all valid.
Once you’ve covered off the administration part then I’d suggest you sit back and look forward to the biggest holiday off your life……..have a great time !!!

How can I make my money grow when interest rates are so low?

By Pauline Bowden - Topics: Interest rates, Investments, Saving, spain
This article is published on: 26th April 2017

26.04.17

“Devastating, that is the effect that low interest rates have had on our income.” This quote shows that the impact of low interest rates is real, not some arbitrary number that may or may not be higher from another bank. Another recent quote from a client is “I am trying to build a pot for my retirement but interest rates will be low for the rest of my working life”.

Arguably, the person above who is still working has the chance to do something about the interest rates. For the couple from the first quote, they had been used to an income of 11,000€ pa from the interest on their bank accounts. When interest rates fell, so did their income to just 2,000€ pa. The Interbank ie base rates are minimal. You would be lucky to get 0.25% interest on a normal deposit account.

How to improve your income and investment return.

Here is a strategy that will help overcome very low interest rates. Firstly, there is no alternative to a bank account for some of your money. If you have planned expenditure then leave this money in the bank. Typically, this would be for a car, cruise or even perhaps a wedding just as some examples. Add to this an amount for an emergency fund. The amount will vary depending on your circumstances but three months of your normal expenditure is a good guideline.

Why do you need to leave money in the bank for these purposes? It is because other forms of investment often need to be allocated for the medium term. And unless you are simply lucky, money put into other investments needs to be allowed time to grow.

Are there alternatives to bank accounts? Yes, there are many alternatives. Do they work in the same manner as a bank account? No, they do not. This is why they can provide a better return on your investment. For this type of investment, do not put all your eggs in one basket. You need different types of investments (different asset classes) to give you diversification. Stick to the basics such as top quality fund management names. You do NOT need to be investing in rainforest woods, bitcoins or oil exploration companies that are about to discover hidden reserves (examples we come across regularly).

The outcome of a diversified portfolio will make a big difference to you, whether you are seeking income or capital growth. A 200,000€ investment with a return of, say, 5% would produce 10,000€ per annum. Not quite the 11,000€ that you may have been used to but certainly better than leaving it in the bank!

Reasons to Wrap

By Sue Regan - Topics: Assurance Vie, France, Investment Risk, Investments, Saving
This article is published on: 3rd March 2017

03.03.17

It’s no secret that the Assurance Vie (AV) is by far and away the most popular investment vehicle in France……….and for good reason! Most of you will already be familiar with these investments, or at the very least, have heard of them, but it doesn’t harm to be reminded now and again as to why they are so popular.

What are they? – An AV is simply a life assurance wrapper that holds financial assets, often with a wide choice of investments, and there is no limit on the amount that can be invested.

What’s so good about them?…..quite simply, their huge tax advantages, such as:

  • Tax-free growth – funds remaining within an AV grow free of French Income and Capital Gains tax
  • Simplified tax return reporting – considerable savings in terms of time and tax adviser fees
  • Favourable tax treatment on withdrawals – only the gain element of any amount that you withdraw is liable to tax. There is an additional benefit after eight years in the form of an annual Income tax allowance of €4,600 for an individual and €9,200 for a married couple
  • Succession tax benefits – AV policies fall outside of your estate for Succession tax and the proceeds can be left directly to any number of beneficiaries of your choice (not just the ones Napoleon thought you should leave them to!). There are very generous allowances available to beneficiaries of contracts taken out before the age of 70.

Why invest in an International Assurance Vie? 

There are a number of insurance companies that have designed French compliant international AV products, aimed specifically at the expatriate market in France. These companies are typically situated in highly regulated financial centres, such as Dublin and Luxembourg. Some of the advantages of the international AV contracts are:

  • The possibility to invest in multiple currencies, including Sterling and Euros.
  • A large range of investment possibilities available.
  • The majority of international AV policies are portable, which means that should you return to the UK, it will not be necessary to surrender the bond.
  • The documentation for international bonds is available in English.

At Spectrum, we only recommend products of financially strong institutions and domiciled in highly regulated jurisdictions. If you would like to know more about these extremely tax efficient investments, or would like to have a confidential review of your financial situation, please feel free to contact me.

The Spectrum IFA Group advisers do not charge any fees directly to clients for their time or for advice given, as can be seen from our Client Charter at www.spectrum-ifa.com/spectrum-ifa-client-charter

Achieving financial stability in France

By Amanda Johnson - Topics: France, Saving, Uncategorised
This article is published on: 31st January 2017

31.01.17

When looking at achieving financial stability in France, budget planning and regular savings are two ways which can help smooth out any bumps in the road. Unexpected expenditure can put immense pressures on most families and adopting a few simple actions from today can really help you, in the event of an issue arising.

The first thing to do is understand exactly how much money comes in monthly. For those who are salaried or on pensions, this can be easier than those who work for themselves. If your income is erratic, it is worth looking at your last 12-24 months’ bank statements and seeing if you have seasonal income or regular money coming in.

Once you have an idea of the size and regularity of your income, you should then look at your expenditure and again look at when these monies are due, not just the amounts. Include all bills such as car servicing, insurances, taxes, average food costs and aspirational costs such as holidays, birthdays, new white goods etc…

The third step is to look at these figures/estimations and get an idea of your personal cash-flow. e.g.:

       Jan        Feb        March        April        May        June        etc.
       Income        €1500        €1500        €1500        €1500        €1500        €1500
       Expenditure        €1300        €1400        €1850        €1500        €1100        €1700
       Surplus/deficit per month        +€200        +€100        -€350        €0        +€400        -€200
       Running Balance        +€200        +€300        -€50        -€50        +€350        +€150

 

Now you can see your anticipated income verses expenditure on a month by month basis, it is possible to spot “pinch points” (March & June in this example) and plan to get around them:

  • Can some of the March or June expenditure be put back a month?
  • Can I increase my income slightly by working a few additional hours or taking on a few extra orders?
  • Can I reduce by bills by swapping suppliers?
  • Can I reduce my food bills by shopping at alternative supermarkets or growing things myself?

Finally, I recommend a plan to overcome any emergencies, which may arise. It is worth sitting down and discussing what emergencies may merge and their cost, both in what you spend to fix them plus any income you may lose in lost time. Emergencies can include boiler failure, serious car repairs, recovery from accident of illness and returning to the U.K. to support family needs. Whilst you cannot plan for every eventuality, you can get an idea of the likely maximum cost of one of these emergencies becoming a reality. You can now ensure you have a plan in place to implement and overcome the stress an emergency invariably brings:

  • Does your budget plan show a regular surplus which can start to save regularly to cover an emergency?
  • Do you have a credit card with a sufficient credit balance to cover your emergency cost?
  • Do you have a good track record with your bank, which would enable you to take a 3-6-month payment deferment on any mortgages or loans and get your cash-flow back on track?
  • How easily and quickly can your current investments be partially encashed to release monies to cover the emergency?

I hope that this article enables some of the mums here to plan more effectively. Knowing when your money comes in and goes out, working around “pinch points” in advance and preparing for how to deal with the costs of an emergency, will help you in handling issues when they do arise. It will also reduce stresses and strains on your personal and family life which can arise.

Whether you want to register for our newsletter, attend one of our road shows or speak to me directly, please call or email me on the contacts below & I will be glad to help you. We do not charge for reviews, reports or recommendations we provide.

This article first appeared on MUMS SPACE FRANCE Money Matters

Coveting the shiny stuff – Gold

By Gareth Horsfall - Topics: BREXIT, Investment Risk, Investments, Italy, Saving, Uncategorised
This article is published on: 7th September 2016

07.09.16

Dear Readers, please forgive me for I have sinned. It has been quite some time since my last post and during this time I confess I have been having impure thoughts.

I have been dreaming that the UK did not vote to leave Europe. I have been dreaming that Sterling had not fallen 12% against the Euro since June 23rd and that pasta was not now 10% more expensive in the UK, I have been having impure thoughts about low(ish) inflation in the UK and not rampant price increases after BREXIT. Lastly, I have been dreaming that interest rates would rise and not fall further into negative territory, basically charging customers to hold money with them.

Forgive me for my sins and lead me not into new temptation…………GOLD

There is a lot of talk going around at the moment about gold being the best investment to hold and certainly since BREXIT it has proven its case. However, gold has some signifcant shortcomings alongside other forms of investment. Essentially, it is of pretty much no use and it does not produce any yield. True gold has some decorative and industrial uses but demand is limited and doesn’t really use up all of the production. If you hold a kilo of gold today it will still be a kilo of gold at the end of eternity (taking into account any chance events which may affect the gravitational effects on earth).

THE INVESTMENT CHOICE DILEMMA

PILE A
Today the worlds total gold stores are approximately 170,000 tons. If all this gold was melded together it would form a cube of about 21 metres per side. Thats about as long as a blue whale. At $1750 per ounce, it is worth about $9.6 TRILLION.

PILE B
Warren Buffet, who is not a fan of gold as an investment, is famously quoted as saying that with the same amount of money you could buy ALL US cropland (which produces about $200 billion annually), plus 16 Exxon Mobils (which earns $40 billion annually). After these purchases you would still have $1 trillion left over. (You wouldn’t want to feel strapped for cash after such a big spending spree, so best to leave some spare cash lying around)

So the Investment choice dilemma is who, given the choice, would choose PILE A over PILE B?

In 100 years from now the 400 million acres of farmland would have produced an immense amount of corn, wheat, cotton, and other crops and should continue to do so. Exxon Mobil will probably have delivered back to shareholders, in the form of dividends, trillions of dollars and will hold assets worth a lot more. The 170,000 tons of gold will still be the same and still incapable of producing anything. You can cuddle and hug the cube, and I am sure it would look very nice but I don’t think you will get much response.

So, taking all this into consideration, you would be forgiven for thinking that gold really doesn’t have a place in anyone’s portfolio. I think you would be wrong.

Gold may not produce any yield, but with people in Asia, especially China and India, gold is very popular. In addition, it is also proving very popular for nearly ALL central banks around the world. Are all they all going mad, or do they have specific reasons for holding gold?

Well, despite Warren Buffets’ musings above, gold has to be seen in todays world as another form of money as central governments continue to print more traditional money, uncontrollably, and the paper currencies that we use in everday life become more and more worthless.

We must remember that the history of gold is that it rose, on its own, as a tradeable form of money in the world. No one has been forced into using gold as a form of money, whereas paper money is controlled by the state and has never been adopted voluntarily, at any time.

So this is where Waren Buffets argument falls down, because actual money in itself has exactly the same characteristics as gold. Its value! (Gold has some minor commercial uses, but its true value is in its store of value). Therefore, it should not be considered an investment, but actually another form of money/currency. In its basic form it is a form of barter and exchange.

Unlike paper money which can just be created without limit and at next to no cost, gold is both scarce and expensive to mine. It takes 38 man hours to produce one ounce, about 1400 gallons of water, enough electricity to run a large house for 10 days, upto 565 cubic feet of air under pressure and lots of toxic chemicals, cyanide, acids, lead, borax, and lime. (Just writing this makes me feel sick about the environmental impact of mining gold).

So, in summary the problem with the PILE A and Pile B scenario is that it assumes that gold is a form of investment, whereas in reality it should be considered another form of money.

For 6000 years gold has been an effective store of value.

The correct comparison that should be made is gold versus cash. Imagine a gigantic pile of cash. This pile of cash would be as equally inert and equally unproductive as gold, in itself.

The only way you could earn anything from gold or cash, in this case, is by depositing it with a bank and earning interest, at which point you relinquish your ownership (it becomes the property of the bank) and you then become an unsecured creditor to the bank itself, i.e if the bank fails it has the legal right to take all your gold and cash. Sound familiar? It might be better to hold true gold in a safe at home!

The question is whether you invest directly in gold or the gold mining companies themselves?

Parkinson’s Law

By Victoria Lewis - Topics: France, Investments, Saving, Tips, Uncategorised
This article is published on: 24th August 2016

24.08.16

Are you familiar with Parkinson’s Law? Originally it stated that “work expands to fill the time available for its completion.”

Parkinson’s Law is the title of the book written by Englishman Cyril Northcote Parkinson in 1958 and today, the more recent understanding of the law is a reference to the self-satisfying uncontrolled growth of the bureaucratic apparatus in an organization.

The Law is also applied to money and wealth accumulation: expenses always rise to match income. Parkinson’s Law can explain why many people retire poor and why some people succeed, whilst others fail.

The law says that, no matter how much money people earn, they tend to spend the entire amount and a little bit more. Their expenses increase in line with their earnings. Many people earn today several times more than they were earning at their first jobs. But somehow, they seem to need every single penny to maintain their current lifestyles. No matter how much they make, it is never enough.

The key to financial success – break the (Parkinson’s) law
Parkinson’s Law explains the trap that most people fall into. This is the reason for debt, money worries and financial frustration. It is only when you have sufficient willpower to resist the urge to spend everything you make that you begin to accumulate money – the perfect environment to help you achieve financial independence.

Reduce your outgoings
If you ensure your expenses increase at a slower rate than your earnings, and you save or invest the difference, you will become financially independent in your working lifetime (and retirement).

Measure the difference between your earnings and the costs of your lifestyle, and then save and invest the difference. You can continue to improve your lifestyle as you make more money.

Take action
Here are two things you can do to apply this law immediately:

  1. Imagine that your financial life is like a failing company that you have taken over.  Stop all non-essential expenses. Draw up a budget of your fixed, unavoidable costs per month and resolve to limit your expenditures to these amounts. The aim is to make sure that your ‘company is making a profit’.

Carefully examine every expense. Question it as though you were analysing someone else’s expenses and look for ways to economise. Aim for a minimum of say, 10% reduction in your living costs.

  1. Resolve to save and invest 50% of any increase you receive in your earnings from any source. Learn to live on the rest. This still leaves you the other 50 percent to do with as you desire!