A lot of personal finance is about cutting back, doing without -you know – saving.

But the real magic comes through the freedom that saving affords you.

A saver never says:

“I can’t afford that” or “I’ll never be able to do that“

Instead a saver thinks:

“How am I going to going to get there” or “Let’s do it …because I can”.

Growing your pennies isn’t all about filling your bank balance.

It’s more than that.

It’s about having respect for your own life; dreams; and hopes.

It’s about making sure you priortise where you want to go rather than waiting for your circumstances to change on their own.

Saving also means you have the freedom to do more fun things too.

In fact I’m off to meet the lovely lady of liberty herself as I travel across the pond to New York City for my first ever visit to America! If you’re in NYC say hello!

Why are you saving?

What do you want to do with the freedom that growing your pennies affords?

Magical Penny continues the  series on pensions.

Last week we looked into the state pension, which is paid for through your national insurance contributions. Even if you don’t save anything for retirement you will most likely retire with a state pension.

But did you know you probably have extra money coming to you in retirement (in addition to the state pension)? Money you don’t even know about?

Could you be getting extra money?

If you live in the UK and fit into any of these categories you’ll currently due to receive extra money on top of your normal state pension:

• employed and earning over £5,044 (from any one job)
• looking after children under 12 years old and claiming child benefit
• caring for a sick or disabled person for more than 20 hours a week and claiming Carer’s Credit
• a registered foster carer and claiming Carer’s Credit
• receiving certain other benefits due to illness or disab

So what is this extra money?

The Second State Pension.

You may have noticed that the more you earn the higher your National Insurance contributions become. Certainly the more you earn the more you contribute to the state’s coffers but some of your  extra contributions go towards a ‘top-up’ pension known as the State Second Pension.

The State Second Pension is one of the most confusing parts of the current pension provision but its worth knowing the basics to make sure you’re not caught.

The most important thing you should know about it is that you may be faced with the option to ‘contract out’ –meaning you give up your Second Pension, start paying less national insurance and have the state to start contributing to your own personal pension.

It may sound good but you shouldn’t do it. Here’s why:

Don’t be tempted by the ‘free money’

If you have a pension at your place of work you should be given the option to  ’contract out’ of the state pension and choose for the state to put money into your own personal pension.

‘Contracting out’, essentially giving up your second pension might seem like a good idea as you are given a rebate from the state that goes into your own pension that you control. The amount you could get varies by age and salary but, for example, someone aged 25 in 2009 earning £20,000 would have got  £1,128 paid into a personal pension on their behalf. A 45-year-old on the same earnings would have got £1,546 (slightly more as they are older and closer to retirement) Source

The money might seem nice but its debatable if it’s good value for money -you are trading away a safe monthly income at retirement for cash today. Will you be able to invest it well enough?

Being Proactive with your pension is not always a good thing

Magical Penny recommends being proactive with your long term savings but being proactive by ‘contracting out’ of the State Second Pension is the exception!

Whilst it is possible to do better than the state with good investing, you are most likely to underperform according to research undertaken by Which? in late 2005 which found that, contrary to expectations back in the 80s when contracting out was encouraged by many financial advisers and the government itself, millions of people are on course to be worse off in retirement as a result of contracting out.

By ‘ contracting out’ you are giving yourself an opportunity to try to better the returns the state promises for your retirement. This is a risk you shouldn’t take because it is the equivalent of leaving your eggs in one basket –you are banking 100% on your own investments – if your long term investments don’t grow as you expected you do not have the state second pension to help supplement your retirement. Why not invest on your own and have the Second state pension to fall back on?

That said, staying with the second state pension also carries a risk  as the pension rules are always changing and there might not even be a second state pension by the time you retire. However what the second pension automatically  provides you with should not be dismissed:

Saving for your long term is all about balance.

Certainly you should also be investing in your own savings plans rather than relying on the state to look after you in your old age, but if you choose to ‘contract-out’ you risk losing a safe and reliable income stream when you come to retire. If you ‘contract out’ your own investments will need to grow significantly to do as well as you would have done with the State Second pension, and when it comes to your retirement that’s a risk you don’t need to take.

The good news is that you don’t have to: most of us are automatically given a second state pension, a helpful supplement to your income during retirement. You should leave it well alone.

If you’ve never been a member of a private pension scheme then you can’t be contracted out. But if you’re an employee you’ll be able to contract through an ASP or APP. If you’re self-employed you don’t contribute to the state second pension and so can’t contract out of it. Also, if you’re not sure whether you’re currently contracted in or out, you can find out by calling the Inland Revenue Pensions Helpline on 08459 150 150. You’ll need your National Insurance number.

As with most tax issues, the calculations are quite complex so you should never rely on the state to provide you with the money you need in retirement. But don’t worry, Magical Penny is here to help you grow your pennies without needing to rely on the state. If you do get a State Second pension, treat it as a bonus.

Further reading on the State Second Pension

http://www.thisismoney.co.uk/s2p

http://en.wikipedia.org/wiki/State_Second_Pension

http://www.direct.gov.uk/en/Pensionsandretirementplanning/StatePension/AdditionalStatePension/DG_4017827

http://www.moneymadeclear.org.uk/pdfs/contracting_out.pdf

I’m lusting after the Desire. Don’t feel too sorry for me though. It’s only a phone.

It started innocently enough. Yesterday morning regular reader and friend The Other Adam sent an group email to a few of us as he’s decided to get a new phone. A few suggestions came back and I casually googled the phones. And promptly fell in love.

Love at first sight

I’ve had a total of only three mobile phones since my first in 2004,  all of which have been bought with cash and a Pay As You Go arrangement (prepaid phone credit). I’ve always wanted to avoid a monthly bill and didn’t use my phone enough to warrent paying £20+ every month. This plan has worked brilliantly for me over the last six years and avoiding by direct debits and monthly bills it has helped me build my savings by:

• Spending consciously
• Avoiding lifestyle inflation
• Staying financially fit

But all this is easy to forget as I imagine that huge touch-screen and Android apps…

Justifying New Purchases

If you are to be successful at growing your pennies and reaching goals you have to be mindful of your spending at all times. Even if you’re doing well you can’t relax completely because it can take years to grow your pennies and only seconds to spend them.

You have to be careful with your spending because your mind can quickly start rationalising purchases, regardless of whether they are in your long-term best interests.

For example here’s a few ways I’ve rationalised that I need to get this phone:

• In the past I’ve not used my phone much but in recent months my usage has increased -I’ve enjoyed catching up with old and new friends and also started using the internet on my phone a lot more.This has been become more costly than originally calculated so if my usage were to stay the same a contract phone would be more economical.
• I’m a huge advocate for the power and potential of the internet to enrich lives. Through the internet I’ve managed to maintain friendships that may otherwise have faded; heard about amazing opportunies I would have missed; and learnt new things to make  my life better in  many ways – having a web-optimised phone would allow me to embrace this internet revolution more effectively on the move.
• This phone is highly rated on a number of websites, notably in this review.
• My current phone has limited memory and limited capacity, and is not as shiny as this new phone -JUST LOOK AT IT!

So there you have it -undeniable proof that this phone is the best.

The 30 Day Test

Of course I’m aware I may be acting a little irrational. The human brain has its limitations and quirks.

If it didn’t no-one would be in debt or have problems growing their pennies over the long term -if it was a simple choice between financial freedom and debt what would choose?

I’m sure I’m not alone in my occasional desire to impulse-buy something that looks appealing. But if you follow your impulses too much you risk not meeting important financial goals (you have them right?).

One interesting idea is that of the 30 Day Test - for every item that is merely a ‘want’ rather than a ‘need’  you wait 30 days before reviewing the possible purchase. By giving yourself time to reflect you help to avoid making purchasing decisions you may regret later (and also give yourself a chance to save or cut back on other spending to compensate).

So the 30 day countdown is on and I’ve set a calendar alarm in my possibly soon-to-be- replaced-phone.

One of the fun things about personal finance blogging is being able to have this kind of  discussion about spending decisions that we all have to make but rarely talk about.

What do you think? Will I change my mind in 30 days? Should I get the new phone or stick with the phone I was perfectly happy with until yesterday? Leave a comment!

What do you think of when you hear the word ‘pension’?

The Oxford Dictionary describes a pension as:

“…a regular payment made by the state to people of or above the official retirement age and to some widows and disabled people”

In the UK, this is referring to ’state’ pension. In the US it’s called “social security”. In any case, this ‘regular payment’ is very small amount you are paid when you are old is just about enough to eat and keep the lights on, but not much above that. However it’s an important piece of the pension puzzle so you should at least know the basics.

Does Everyone Get a Pension?

As with most things tax-related, it depends.

The state pension is funded by national insurance contributions, the ‘tax’ you pay the state for all social services if you are earning £95 or more a week (in 2009/10). In the UK this includes your pension and the national health service. The amount of your pension is therefore linked to the number of years you have been paying National insurance contributions.

Note: if you’re a small business earning a profit of less than £5075 you don’t ‘have’ to pay national insurance contributions but it’s worth considering doing so if you are short of years to fully qualify for a state pension- see below).

Contributions

If you haven’t retired yet you are nearer to qualifying for a state pension than anyone else has ever been at your age. The old rules said you had to make contributions for 44 of the 49 years between the ages of 16-65 to receive a full state pension.

This has now been cut significantly after The UK Pensions Act 2007 which reduced the number of qualifying years needed for a full basic State Pension to 30 for people who reach State Pension age on or after 6 April 2010.

Even better if you fall short of the 30 years of contributions you can ‘buy’ extra years to make sure you qualify for the full monthly payment. You can also still receive a full pension even if you’re out of work for some of those years -as part of any unemployment or disability benefit your national insurance contributions are paid, so from a state pension perspective it’s like you were never unemployed.

You can also have your National Insurance contributions paid if you’re a full time carer so have other special circumstances so if you are not paying National insurance for any reason make sure you’re not missing out by visiting the UK government’s website: direct.gov.uk.

If you pay less than 30 years worth of National insurance you still get a partial pension depending on the number of years but there is a risk you may qualify for nothing at all if you pay less than 10 years of contributions.

Is a Basic Pension enough?

Knowing about Magical Penny and my enthusiasm for getting your long-term finances sorted, a friend joked to me that a state pension didn’t seem that bad. At least I hope he was joking -if you have minimal needs then perhaps he’s right. It is possible live on the state pension -millions do, but even the government says the state pension has its limitations on the direct.gov.uk website:

“It can give you a reliable foundation for your income in retirement, although it might not be enough to support the lifestyle you want.”

In 2010-11, a single person can get a maximum of £97.65 a week basic State Pension (£152.40 for a married couple).  Seem a bit small? Even the government recognises this -if this is your only income you can have your pension topped up with a ‘pension credit’ to a total of £130.00 a week (198.45 for couples).

Conclusions

The Oxford Dictionary might have been right about its definition of a pension as a ‘regular payment’ but its not as simple as that. The basic state pension is really helpful at almost guaranteeing you an income when you reach your advancing years yet, as this article has shown, tax rules are always changing and can be difficult to follow.

One thing is for sure though: Relying on a state pension will limit your lifestyle options.

Thankfully it’s never been easier to become empowered about saving for the long-term and Magical Penny will show you how in future articles in this Pension series.

Other Reading

Best Of Money Carnival #64

Carnival of Personal Finance #271 – The Secret to Successful Budgeting eBook Edition | Provident Planning

I’ve just returned from the cinema where I went with my sister to see Toy Story 3. It may be about talking toys but it was filled with some wonderful script writing and it’s a thoroughly enjoyable film.

Amidst the humour and tension there are some powerful life lessons so here’s a few I picked up and how they relate to growing your pennies!

This post contains spoilers so only read if know or want to know the plot

Mistakes happen

Buzz and other toys should have been safely put away into the attic when Andy heads off the college. Instead, his Mum takes the toys out to the curb. Like the other Toy Story films the plot is driven by an accidental mistake happening and the attempt to put things right.

Life, for both the toys and ourselves, rarely goes smoothly.

Mistakes do happen. Yet the toys never give up in their mission to get home. Their determination is admirable and is a lesson for us all.

You will make mistakes (with your money and otherwise), the hard, but most important part, is that you pick yourself up and get your focus back.

The power of a well-executed plan

Escaping from being taken away with the trash, the toys take refuge in a box destined for day-care, but after reaching their destination, find that the centre is not what it seems.

They are trapped in a room with only a small window high above them.

It’s impossible for a toy to reach.

But, moments later, Buzz is flying through the air -or rather, falling with style – catapulted by a series of aerial stunts, to the promised land of the open window. It is a true testament to the power of a well-executed plan.

Just like looking at an impossibly high window, we face our own challenges in life: thinking about all the different things we need to buy in the coming years can be daunting. Cars, houses, weddings, retirement…it may seem unachievable sometimes. But if, like the toys, you develop a game plan, then with a bit of luck and creativity, you’ll get there.

Spend on the things that matter to you, not anyone else

Ken is teased for his extensive clothing collection. From an outside perspective it seems ridiculous to have so many outfits to wear but Ken is delighted when Barbie gives him the opportunity to wear them.

Many of us have the equivalent of Ken’s wardrobe. We spend our money on things that our friends or family don’t understand: perhaps piles of books, shiny electronics, or flash cars?

People often think personal finance is about cutting back, being sensible with your money.

It’s not.

It’s more about being conscious with your spending.  Certainly you should make sure you’re saving for your goals in the short and long term, but you should also not feel bad spending money in the present on the things that matter.

But also remember, Ken might have enjoyed his ’stuff’ but he had even more fun when he had someone to share the experience with. As Suze Orman says: “People, then Money, Then Things.”

Mix it up a bit -you might just like it

In the midst of the adventure and daring escape, Buzz is reset to factory settings and reboots into a Spanish version of himself, much to Jessie’s delight.
Buzz’s Spanish transformation offers a much needed comedic element easing the tension that has built up, and Jessie finds a whole new side to Buzz, changing the way she feels about it forever!

Similarly in life, random events and meet ups happen all the time and can send your life down a whole new path. Being in control of your money makes it much easier to follow these opportunities. Certainly a budget helps you stay focused but it also allows you to ‘mix it up’ a bit which time and again can lead to a more fulfilling and fun life- and who doesn’t want that?

-To use a personal example, in recent weeks my budget has allowed me to head off to Ireland for an evening, and I’m heading to NYC in September!

It’s never too late to redeem yourself

Towards the end of the film, Ken sees the error of his ways and switches allegiances to Woody and the gang. It’s a risky move but Toy Story 3 teaches us that it’s never too late to be redeemed from poor judgement in the past. Woody even gives the evil, strawberry smelling, teddy bear an opportunity for redemption.

Likewise it’s never too late to redeem yourself from poor money habits or judgements you have made in the past. The sooner you get started on the right path to growing your pennies, the more time you have for your savings to grow.

Life goes by so fast

I remember when Andy was young, playing with Woody and Buzz in the first Toy Story film. By Toy Story 3,  Andy has grown up and is moving to college. Life goes by so fast!

• You may think you’ve got ages until retirement or before you get started on the property ladder but it will come around so so fast.
• You may think you’ll begin saving when you’re earning more money.
• You may think you’ll start learning about investing when you have a little more time.

But, like Andy, you’re growing up fast

Toys fear their owners growing up and not playing with them anymore. Thankfully we don’t have to fear the future. Follow through with a plan and we can embrace it.

Being ‘good with money’ isn’t something you can tick off a ‘To-do’ list.

It might sound obvious but how many times have you been ‘good’ by saving towards something, like a holiday, and then after the fact you go back to your ‘normal’ spending habits?

How many times have you tried to find some kind of balance after spending too much.

Today in the office two friends were lamenting on how much they had spent at the weekend. Finally one of them declared:

“I need to spend less…these last two months have been heavy”

Everyone has ‘heavy’ spending months from time to time but if you find yourself spending too much every month you may think the solution is to stop spending. But it’s not.

No spend days

One popular ‘trick’ people use to take control of their spending are ‘no spend days’. The idea is based on the observation that it’s too easy to go through a day spending small amounts here and there.

By forcing yourself to delay spending you become more conscious of your money habits and can tackle any problem areas in which you are spending a disproportionate amount.

It’s always a good idea to become more conscious about the things in which you are spending your pennies but the problem, however, is that no-spend days or their cousins, the no-spend weeks, are not sustainable.

Money Saving Cooking

The other day another friend was really pleased with himself as he recounted a recent victory: He had cut his grocery spending from £80 a week to £20 a week, with a simple ‘trick’ -writing a menu for himself and cooking at home every day.

It’s a great achievement but just like the ‘no spend days’ the real test will be how long he can maintain this amazing cost saving in the coming weeks.

Binge Saving

Once you get into the mindset its relatively easy to ‘binge-save’ -to pour every last penny into a savings account. As your savings begin to grow you can feel the momentum and you are encouraged to save even more until you find yourself with an impressive nest-egg.

So far so good.

But as with most binges, there follows the purge…

Don’t misunderstand me – looking for ways to cut costs or making a declaration that you will reduce your spending are both great -it means you have more money to spend on other things.

Yet what most people miss is that if cutting costs makes you feel like you’re depriving yourself, then sooner or later you’ll, at best,want to return to ‘normal’, or, at worst, start spending extravagantly to make up for lost time.

It’s easier said than done but the real ‘trick’ to money is making sure you’re ‘normal’ spending is at a level that is less than you earn. It is not what you save over a week or a month, it is what you save over a year and ultimately over a life-time that really matters.

“We are what we repeatedly do. Excellence, therefore, is not an act, but a habit.”
– Aristotle

You don’t have to be perfect -just be as smart as you can on the little things (as excellent as you can be in the ordinary), automate the big savings goals and then:

Get on with your life!

That way, it doesn’t matter how much you spent last weekend.

Pensions shouldn’t be the scary, confusing, or boring. But they are. And for good reason!

They are rarely flexible, have expensive fees, and worst of all, are seen by many as something you start in middle age.

As you’re reading Magical Penny I hope I’ve convinced you that you should be saving for the long term whatever your age but navigating the dizzying array of options out there can be difficult.

Today, I’m beginning to lift the lid on pensions with Part 1 of the Magical Penny Pension series, helping you find the best way to grow your pennies for retirement.

To begin we’ll be looking at the traditional final salary pension.

Final Salary Pensions

The traditional pension of the 20th century was that of a ‘final salary’ pension: Many professional jobs offered such a scheme where every month you and your employer would pay into a ‘pension fund’, an investment account that would grow over time. When you came to retirement, you would then receive a ‘pension’ equal to a proportion of your ‘final salary’ depending on the number of years you have worked at the company.

The great thing about final salary pensions is you can work out how much your pension will be each month.

For example if your company offers you a 40th of your final salary as a pension and you work for the company for 20 years ending on £40k a year, you will retire on half pay (your pension will be: (40000*0.025)*20 =£20k a year).

This type of pension is known as a “defined earnings” pension as you know how much your monthly income will be. You don’t have to know anything about investing but still finish with a comfortable retirement income for the rest of your life.

Another compelling reason to have one is how generous they can be. You do not have to save as much nor take on as much investment risk to secure a good income in retirement. If you wanted to guaratee a £20000 a year income without a final salary pension scheme you would need your pension pot to be hundreds of thousands of pounds.

As it is ‘defined earnings’ it’s the pension fund’s responsibility to pay you what you are promised. Compare this to if you were investing yourself into a pension ‘defined contributions’ -if your investments go down you are out of luck and money, but if a final salary pension fund loses value, the fund goes into debt in order to keep paying you!

Whilst final salary pension schemes have their merits they can also be troublesome:

If the investments in the pension fund do not grow as expected, the pension fund can end up with a deficit (debt). This can cause all sorts of problems and if you have not yet retired some schemes have been known to be ‘creative’ with their calculations on what they are able to pay you as a pension when you eventually do retire.

Also the rules differ on how the final salary is calculated so if you have such a pension make sure you understand it. Some schemes take an average of your salary during the last 5 years, whilst others look only at what you were earning in your last year.

Others still might take an average of what you earned for the past 10 years then divide that by the number of letters in your name, then multiply that by pi. You think I’m joking?

It is worth noting too that there have been been instances where ‘final salaries’ of employees have been cut just before retirement so their final pension is dramatically reduced.

There is therefore an element of luck involved and when we’re talking about the income you will be receiving for the rest of your life who wants that?!

Final salary pension schemes also tend to unflexible and non-transparent. You are likely to have little control over the investments in the fund. There may be instances where you feel uncomfortable not knowing where your money is going each month, particularly if the investments chosen are not deemed ethical by your standards.

Another thing to consider  are costly fees for administration and commissions.You wouldn’t notice them as they come out of the pension fund itself but your company’s investment returns calculations will have included them so the odds are you are getting a lower rate of return than if you had set something else up as your retirement savings vehicle.

Lastly final salary pension schemes can also act as ‘golden handcuffs’ -if you know you will give up a guarateed £20k for life you may be less inclined to leave the company before you retire, even if it would otherwise be the right thing to do for your career, your family, or yourself.

Conclusion:

Final salary pensions work well if you are with a company for many years. But the world is very different now than when such schemes were being introduced in the 20th century.  It is unlikely you will be at your current company for decades. Moving from job to job could result in numerous pension accounts scattered around different providers and final salary pensions are harder to calculate and understand so make retirement planning more difficult.

Final salary pension schemes tend to be quite generous but they are becoming increasingly rare. Companies do not want to take the financial risk of having to pay out the ‘defined earnings’ and adminstratively it is costly, particularly as people are less likely to be at their current job for a lifetime.

Despite their flaws, if your company does offer a final salary pension scheme it makes sense to join given how generous they tend to be. That said, as final salary pension schemes are not always straightforward nor do you have much control, it should not be your only retirement savings strategy.

Thankfully there are many other ways to save that are less complicated, and Magical Penny will detailing them in later posts in the series.

If you have a final salary pension scheme leave a comment if there’s anything you would like to share about it to help other readers!

Perhaps it’s because talking about money is so taboo in ‘real life’ that I find the frank discussion and exchange of ideas so interesting and different. And a few months ago I came across something completely different:  a young American talking about money in Japan!

Ever since discovering it I’ve a big fan of Foreigner’s Finances, a site founded by Austin, an American personal finance blogger currently living and teaching English in Japan.

After reading his blog for a few months I jumped at the invitation to speak with Austin about investing as 20-somethings and the differences between money in the U.S. and the UK.

Click here to listen to the interview!

When you’re had a listen we’d love for you to leave a comment if you enjoyed it and be sure to subscribe to Austin’s financial related podcast’s RSS feed or download and subscribe on iTunes to get every future episode delivered to you.

Other Reading

The Carnival of Personal Finance

Best of Money Carnival

Be sure to follow Magical Penny on Twitter and ‘like’ it on Facebook too!

Meeting new people is fun and naturally when people ask what I do, I often start talking about Magical Penny.

Because of this revelation earlier on in the week, the conversation in the pub the other day turned to pensions (Yes I know how cool we are!).

Some of my friends have no pensions (the horror!), but two friends mentioned they had final salary pension schemes, whilst others had stakeholder pensions, or private pensions.

Confused?

Thought so.

Pensions are one the most confusing financial product out there!

According to a recent study by the University of Bristol and Confused.com, pensions are the most confusing product, with 83.9% of people finding them confusing.

In fact 33.8% of people said they were ‘very’ or ‘totally’ confused by pensions. That’s over a 3rd of the 6000 respondents in the survey!

I enjoy learning about financial products and even I struggle to get my head around all the different options sometimes.

Confusion on pensions is not surprising though.

There is so much choice of pension products and within each pension product there are thousands of funds and investments to choose from. Most people are either crippled by too much choice, don’t think they need to save just yet or are saving in a pension but are likely to be getting a poor deal.

Introducing the Magical Penny Pension Series

Magical Penny’s primary aim is to help you understand how you can grow your pennies and get started on saving for your future.

Starting only a few years earlier than you might have otherwise can mean the difference of tens of thousands of pounds over the course of your lifetime so it’s important to learn about the differences between different pension products and if you even need to have a pension at all (hint: it’s not always the best way to save your your future!).

Before the series starts I would love to hear your questions or suggestions on what pension information you are most interested in. Leave a comment on this post or send me an email at adam AT magicalpenny.com.

Have a great week and keep saving.

Source: Confused Nation study:

The study revealed that:

• 71.9% of people suffer from confusion over how to make money and use it wisely;
• Pensions are the most confusing product, with 83.9% of people finding them confusing;
• 33.8% of people said they were ‘very’ or ‘totally’ confused by pensions;
• 79.1% of people said they found mortgages confusing;
• Credit cards were the least confusing product – 40% of people said they were not at all confused by credit cards.

The study was developed by the University of Bristol and Confused.com, which covers a cross section of 6,000 UK residents. It explores how people feel about modern life and how they cope with its demands. The findings have been used to create a new website http://www.confusednation.co.uk which helps baffled Brits by providing clarity on confusing issues.

I’m still enjoying my holiday, singing with friends, so long term reader and friend Andrew Knight has written a brilliant guest post about why being ‘bad’ can be good. The great thing about this post is I know Andrew has implemented every one of these tips himself to better provide for his family.

Did you know that one third of us have on average only £500 in savings?

No? Well, would you be surprised to know that one half of us in the UK have no savings at all?

This leaves one-sixth of us with either a steely determination to save or an otherworldly ability to squirrel away every last penny.

But does this mean those who of us who aren’t in this one sixth of savers should just give up and drown our sorrows buying over-priced goods our under-valued incomes shouldn’t really allow?

No!

You should listen to the pearls of wisdom in the blog for savings tips and ways to keep mental focus high but you should also hear the often over-looked statements to tailor your savings to you.

And if you are a rubbish saver with an attitude more akin to an open flood gate during a financial storm there are a few other things you can do to improve your networth, which is afterall the real aim of saving.

Firstly,

LOYALTY DOESN’T PAY

Another question for you, how happy are you in your job? I mean really, does it thrill you? Does it stimulate you? Or is it just a means to an end?

And if you’re not happy why are you sitting there?

Did you know that only 45%/49% (US/UK) of people are satisfied in their role with satisfaction dropping significantly for 16-34 year olds?

With the average UK salary hovering around the 21k mark are you getting what you deserve?

Forget Loyalty, get your CV up to scratch, practice your interview skills and search for that higher paid role. You are worth more than society tells you, but more importantly, you are worth more than you give yourself credit for.

Moving jobs can be scary but often employers look for nothing more from you than what you can do for them. At times of financial pressure the hard work you’ve done and your optimistic attitude will mean nothing if you are surplus to requirement. Turn the tables and take control, if you are important don’t just stick with your job, look for another one and be vocal about it (to the right people) as long as you put your message across gently and tactfully you’ll appreciate it around salary review time.

Please note you must be very confident and very tactful when playing the ‘I may leave’ game because if you fail your employer may realise they just don’t need you anymore.

A higher income, especially a large increase in income makes saving much easier as you can allocate part or all of the increase in pay to savings and you won’t feel the change.

NOTHING FOR NICEY NICEY

How often do you check your bills? Do you ever speak to your providers? Do you blindly accept increases because that’s ‘just what happens’?

Review your home insurance annually; do you need all the cover they automatically offer? Do they say they’ve given 40% discount for staying with them but it’s still more expensive than other insurance on the market?

Do you fear winter and your gas bills? Do you really understand the pence per kilowatt hour of electricity? Probably not.

Is your rent up for renewal? Or your mortgage deal ending?

In all these cases and more you should not role over and accept changes. You need to don your armour and prepare your fighting face ready for the battle ahead.

As your situation changes you should check your insurances and get rid of what you don’t need. Throw in a threat to leave as well as quotes from a few other providers and your current provider will probably lower their prices. Feel free to feign ignorance or get angry, whatever works for you, but understand that all insurance providers have an unadvertised lower retention tariff.

Gas and electricity is needlessly complicated but price comparison websites help out. Again often your own provider has a lower tariff which they’ve not told you about (or they have in the unread junk mail at the bottom of your bin). I moved to a tariff which saved me 6% annually by just one phone call.

If your rent is up for renewal you’re in a position of power. If you’re in a place that is swamped with rental properties which no one is taking (such as inner city new-builds) ask for a lower price for your continued presence and you’ll often get it.

Mortgages are much more complicated but it’s almost always the case that the deal and provider you started with wont be the best to continue with when you go for renewal so shop around for a better rate. However in the case of a mortgage it may actually be better to just pay more to save more. Just £90 extra per month on my mortgage takes 10 years away from my term meaning I can get to mid-life hard-core saving earlier!

AND FINALLY…

So in conclusion a positive mental attitude to saving is only part of the route to financial success. Add salary increase and cost decrease to the mix and you can open up ways to increase your networth to a brighter financial future.

Get rid of ideas of loyalty, practice your scary phone voice, step out of your comfort zone, learn that you can do the wrong thing for the right reasons and ultimately…

Be a bit bad for goodness sake.