I receive a lot of questions about “how to start investing” and this month alone I’ve fielded more questions than ever before, so, as a belated birthday present to myself I decided to get this all out into a simple blog.

A couple of housekeeping points first:
 
Any tax rates and thresholds mentioned in this post will be correct as at the time of writing but tax is something that gets tinkered with all the time so this could get dated pretty quickly but using figures will help you to understand how it all currently works, in principle.
 
Everything I share here is information not advice. Once you decide to actually start investing you would be well advised to:
     a) do some further research yourself; and
     b) speak to a fee-only all-of-market independent financial advisor.
Fee only means they don’t charge you a percentage of what you have to invest (that is, they charge a fixed fee) and all-of-market means they can offer products from a range of institutions..
 
Ideally, you should only invest money that you will not need for at least 5 years. This is because share market prices move up and down a lot and if you need that money before five years is up, there is more chance that you might have to sell at a loss.
 
Investing is a long-term game, the longer the time you can wait, the higher the probability of being up. Over a 20 year period, the S&P500 (which is the 500 largest listed companies in the USA) has returned a positive return 100% of the time.  While the future may turn out to be different, you are generally well advised to leave money invested for as long as possible.
 
While my aim is to make this discussion as simple and as unintimidating as possible, at times it will feel really complex not because investing is hard but because we invest within the context of a very complicated and convoluted tax system. But you have to get to grips with our tax system to get ahead with investing…anyhow,…I’ll divide this into four parts to keep it clear:

• Part 1 (04:54) is all about what sort of investment account to put your money in;
• Part 2 (19:14) lays out what to think about when deciding which institution to invest your money through;
• Part 3 (26:35) helps you think about how much to invest over time;
• Part 4 (30:22) provides pointers regarding what you should invest in. Part 4 is very much based on how I choose to invest and this is the area where you may want to talk to more people about including your chosen IFA.

Feel free to jump to the part that you need and which is most relevant to you...

You can think of your 'investment account' or ‘investment vehicle’ as the “house” where your money is kept. There are three different types of vehicles:
 
1. A pension be it a workplace place pension or personal pension (aka a Self Invested Personal Pension) allows you to invest money before it is taxed;
2. A “stocks and shares” individual savings account or ISA allows you to invest money after it’s been taxed but all dividends and capitals gains are tax free;
3. A taxable brokerage account – means you invest money after it’s been taxed and any capital gains and dividends are also taxable.
 
Any business that offers the services to buy or sell shares and investment funds will typically offer all three vehicles, i.e. they will usually offer pension accounts, ISA accounts, and taxable trading accounts.
 
There are different pros and cons of investing in each of these three. I will highlight the main pros and cons.
 
PENSIONS
 
I am only going to cover defined contribution pension schemes in this post, which is what most people have nowadays. I won’t cover defined benefit pension schemes in which the employer commits to pay you a specific amount from a pre-defined retirement date until death.
 
The rules are much the same between the two but if you’re responsible for your own retirement income as is the case if you have a DC scheme you’re likely to be more aggressive with building that pension pot. I’ll cover the difference between DC and DB pensions in a future post.
 
Pros of investing through a pension

• Current rules allow you to access to pension money from the age of 55. This is good because once you invest, there is no temptation to spend the money on a new kitchen, holiday or anything else. There are, however, plans to peg this to 10-years below the state pension age – so, wherever the state pension age set, personal pensions could be accessed 10 years prior to that…
• The money you invest is pre-tax – so tax is only calculated on the portion that remains after what has gone into your pension. If you’re in the 20% tax bracket this is all automatic, however, if you’re in the 40% tax bracket some of the tax deduction will have to be calculated when you do your self assessment tax return and it reduces what you owe in tax.
  • As a simple example, if you earn £45,000 and put £5,000 into a personal pension, tax is calculated as though you earn £40,000.
  • If you earn £60,000 and put £12,000 into your personal pension, tax is calculated as though you earn £48,000 so you effectively take yourself out the 40% tax bracket completely but a portion of this tax reduction has to be claimed via your annual self assessment return. Your pension vehicle can only claim tax back from HMRC as though you’re in the 20% bracket only. So, it is important to fill out a self-assessment tax return if you’re 40% or 45% tax rate payer and are paying substantial amount into your pension.

 
Cons of investing through a pension

• Money gets taxed on the way out. A tax free lump sum can be paid up to a maximum value of £250,000. After that, all money is taxable as it is drawn according to the prevailing income tax rates of the day.
• You don’t have access to the money until age 55 so if genuinely need it for something important, e.g. a dream house you’re willing to sacrifice pension savings for, it’s not available. It’s worth noting that if you have a terminal illness you can get early access to pension savings but this is beyond the scope of this post so I won’t talk about the details on this.

 
Rules on how much you can invest in a pension…
 
There are limits on how much you can invest via pension each year and over your whole lifetime.
 
Firstly, the annual allowance is the maximum you can put into your pension each year and still get a tax benefit. This is currently £40,000 gross (i.e. before tax) or your full annual income, whichever is lower. So, if you earn £30,000 a year the maximum you can put into a pension is £30,000.
 
I am sorry that this is getting complicated already but the UK tax system is mad – so a little detail is essential.
 
A key thing to note is that not all income qualifies towards this pension contribution limit. Earnings from property aren’t allowed. So if all your earnings are from a buy-to-let property portfolio that is in your name, the maximum you can put into a pension is £2,880 and with the government tax benefit this is grossed up to £3,600. So, you’d only invest £2,880 into the pension and it would be grossed up to £3,600.
 
If your BTL properties are in a company, then you could pay yourself a salary (and you’d need to follow rules on national insurance contributions too) and whatever your salary is – up to the £40k annual allowance limit – would be the maximum you could pay into a pension and still get a tax benefit.
 
The second limit is the pension lifetime allowance which is just over £1m at the moment. This may sound like a high limit but it includes capital gains not just contributions so you can easily breach the limit.
 
For instance, if you had £250k in your pension at the age of 35, a 7% growth rate in your portfolio would mean the money doubles every 10 years, so even if you didn’t invest anything else, that £250k would grow to £1m by the age of 55.
 
Ideally, the lifetime pension allowance should grow with inflation but it’s frequently frozen and was even slashed from £1.8m in 2012 to £1m in 2017.
 
This post is not about pensions but they are one of the primary vehicles you can invest through so hopefully what I’ve said so far will help you understand whether is this is the best vehicle for you.
 
Depending on how much money you have to invest, I would look at putting some money in both a pension and an ISA and if you have more besides then you can put some into a taxable investment account.
 
ISAs
 
I love ISAs because once the money goes in, you don’t have to think about making tax declarations any more – it’s all tax free from that point.
 
Pros of investing through a stocks and shares ISA
 
I won’t cover cash ISAs here as this post is specifically on getting started with investing in stocks and shares.

• Tax advantages. The key benefit of investing in an ISA is that all capital gains and dividends grow tax free and can be withdrawn tax free.
• Large limit. The annual limit is £20,000 nowadays which is huge for most people and it can allow you to take a fair amount of money out of the tax man’s reach.
• Easy access. If you need the money from your stocks and shares ISA you can usually take it out whenever you want. Usually instantly, in some cases you may need to wait up to 30 days.

 
Cons of investing in an ISA

• Post-tax investing. You invest money that has been taxed unlike with a pension where the contribution is pre-tax.
• Easy access. If you find it hard not to spend then the fact that funds in an ISA are easily accessible could prove to be a problem for you

 
Whether you plan to invest in a SIPP or ISA depends on your financial position and future plans, e.g. retirement goals, goals for your children if you have any etc. As tax advisor to my friends and family I recommend different things depending on what I know about the person including their propensity to choose spending over saving or investing, there is no blanket rule.
 
Taxable brokerage account
 
If you have maxed out your £20,000 ISA allowance and your spouse’s £20,000 ISA allowance and your £40,000 pension allowance then the next place you would look to invest is via a taxable brokerage account.
 
If you are saving that much though, you may want to just spend more…better holidays, more life experiences etc.

So, you’ve figured out whether to put your money in a pension, an ISA or even taxable account, you now need to decide where to open your pension, ISA or taxable account. The way to think about this is, if you had money to save, one of the questions you would want to answer is ‘which bank should I keep my money with’, that’s the decision we are trying to make in part 2.
 
If you have a workplace defined contribution pension, that decision is usually made for you although in some cases you’re offered limited options. You are allowed to have a personal pension outside your workplace in addition to the work one but I personally I’m happy with the options provided by the provider of my DC pension at work so I don’t contribute more to another SIPP.
 
There are three options open to you when it comes to type of institution:

• Brokerage firm that only offers investments from third parties – e.g. Hargreaves Lansdown or iWeb;
• Financial institutions or banks that offer the chance to invest in individual companies or investments from third parties as well as their own funds – e.g. Fidelity, HSBC;
• Financial institutions or banks that only offer their own funds, e.g. Vanguard.

 
The key driver of which platform to use is:

• User friendliness of the platform – either the app or the website;
• Customer service – when you have an issue, is it easy to resolve via the phone or online?
• Convenience – in the past, I would not have recommended holding an ISA or SIPP via your banks as these tended to have higher fees, poor customer service and were simply not user friendly – their apps were far behind the likes of Hargreaves Lansdown BUT many banks have really stepped up their game so it’s worth seeing if your bank’s investment platform may suit your needs.
• Fees – most platforms charge an annual management charge or fee but I use iWeb because they have no platform fees but charge just £5 to buy and sell investments. However, I never recommend iWeb to beginners because you can’t automate your investing which is essential if you just want to set and forget.

 
Fees – annual management charge
 
Of the platforms I would guide you to research, these are the annual platform fees you can expect to pay as a beginner. In many cases the fee falls as your portfolio grows:

• Hargreaves Lansdown: 0.45%
• Fidelity: 0.35%
• Vanguard: 0.15%
• HSBC: 0.25%
• Halifax: £36/year (i.e. not a % fee) – automating investments is charged at £2/trade so you can keep fees low but you trade manually this is £9.50 per deal, quite pricey.

 
In addition to platform fees, whatever you invest in will have an ongoing annual fee. Ongoing fees usually range from as little as 0.05% to over 1.00% and in some cases as much as 3%. Watch out for the ongoing fees of what you buy as this is what can really harm the growth of your portfolio.
 
There may also be fees for leaving or joining the platform.
 
Look at all chargeable fees before committing to an account – you can always change institutions if you change your mind but it’s better to do your research before you even start. Any institution regulated by the Financial Conduct Authority, FCA, will be transparent about all the fees charged. Don’t invest through any unregulated institutions.
 
As I researched this article I discovered that Junior ISAs at Fidelity are not charged an annual management charge and I immediately transferred all my children’s ISA investments to them from Hargreaves Lansdown. That was £55k in total – their investments of £20k each, have grown well over time so despite the poor stock market returns of 2022, they remain up. If you’re interested in how I invested for my kids see my post, Q&A: How can I save and invest for my children?
 
I won’t spend a lot of time on fees but will link to several articles that discuss fees across a range of platform:

• Interactive Investor – Our guide to the best investment platforms for beginners
• moneysavingexpert.com - Find the best ISA or investment platform
• investorschronicle.co.uk - The cheapest DIY platforms on which to hold your Isa
• comparefundplatforms

s​If you have a lump sum to kick start your investing, that’s great. You can invest it all in one go, however, some people prefer to spread a large investment into smaller chunks spread over 2 or 3 months. There is no real benefit in this if you are investing for the long-term – in fact, data suggests that lump-sum investing beats drip feeding your investment into the stock market 75% of the time. But if it makes a psychological difference to you, you can split a large lump sum over a few months.
 
What’s large? That’s for you to define because if I had a large sum to invest, I would invest however much I plan on investing all in one go.
 
Generally, most people don’t have a large sum and the decision is about how much to invest each month. Investing monthly, over a long period of time, is called ‘dollar cost averaging’ into the market as your shares are cheaper in a bear market and more expensive in a bull market so over time you are paying the average price of the market.
 
If I was working with a specific person, I would want to know how much they want to have at the age of 50 or 55, either as an annual income or in total and I would back calculate the amount they need to invest monthly, today, to achieve that goal. You can do this for yourself using an online calculator - I like the investment calculator on Dave Ramsey's website, you can ignore the fact that it has a $ sign and put in your GBP investments - the sign doesn't matter - I assume a gross return of 7% (that's the return before inflation is taken into account - with average inflation of 3% this is a net return of 4%). You can also ignore links to other resources as they are US-centric.

​Equities / shares

​Investing in the shares of companies is called investing in equities. Equities pay dividends if they have money left over after paying all costs including interest on their debt. Some companies, especially fast growing companies, choose not to pay dividends and instead re-invest the money. If you buy the shares in a company, you’re known as a shareholder and you also make a return or loss from any increase or fall in the price of shares. So, if you buy shares for 10 and they grow to 12, that’s a 20% return; if their price falls to 8, that’s a 20% loss (the profit or loss is only realised if you sell, i.e. a loss is only a loss on paper - not a real loss - unless you sell, so, if share prices fall they can be left invested so that they recover in price).
 
Debt / bonds
 
Investing in the debt that companies issue is called investing in bonds. Bonds earn a fixed and known return.
 
There are a few options you can choose from, here I’ll suggest 3 for you to look into:
 
Option 1: 100% stocks in a diversified fund
 
If you’re starting out in investing, you should be satisfied to earn the average stock market return by investing in a low cost diversified index fund. It requires a lot of time to identify specific companies that are undervalued or those with great growth potential and you don't need to do this to do well with investing - in fact, the evidence suggests just putting money in one or two diversified passive funds gives better returns than stock picking yourself and trying to beat the market.
 
I personally prefer stock indices that track the S&P500 (these are the 500 largest companies in the US) – these funds usually cost 0.10% or less. Large US companies usually have global sales and source materials internationally so I feel it is adequate diversification that implicitly includes Europe and exposure to many emerging markets without having to worry about corporate governance issues.
 
The historical average yearly return of the S&P 500 is 9.645% over the last 20 years, as of the end of November 2022. This assumes dividends are reinvested. Adjusted for inflation, the 20-year average return (including dividends) is 6.932%. (source: tradethatswing.com)
 
If you prefer to invest in the UK stock market, you can choose fund that tracks the FTSE-100 in the UK.
 
In the 20 years leading up to 31 December 2019, the FTSE 100 had an average annual return of 0.4% if dividends were not re-invested but this rose to a not insubstantial return of 4% a year if dividends were reinvested.
 
Option 2: Target date funds
 
Target date funds are funds that invest based on the assumption that you will retire in a given year. These funds have a higher proportion of riskier equity investments and a lower proportion of bonds which give a fixed and known return. As the retirement date approaches, more and more money is invested in bonds and less and less is invested in equities.
 
Some in the investment community consider that target date funds get too conservative too quickly because no one retires and needs all their invested money straight away.
 
So, if you want to have some money in equities and a portion in bonds, you could start with a target date fund with the retirement date set further in the future than you plan to retire - perhaps set it 20 years further than you plan to retire especially if you're partly saving to pass on an inheritance rather than just for your retirement needs.
 
Option 3: Ready-made funds
 
Many institutions offer ‘ready-made funds’ to get you started with investing and if you choose to go with that, as I did when I first started investing, take that as a learning opportunity.
 
Seek to understand what is in those funds, what the fee structure is and if you don’t like the underlying investments or see that the relative fees are high, either don’t buy them in the first place or seek to move away to other investments.
 
I do not recommend investing in single stocks, e.g. buying specific companies as this exposes one to a lot more risk than tracking a whole market so I won’t cover single stock investing here. I used to trade in single stocks myself but I no longer do.

I know all this information might seem confusing so I thought I’d give you an example of all this in action.
 
So, as an example, about 3 years ago, unprompted, I told a 30-year old couple I know and like that if they wanted to have £300,000 or so when they are 55, in addition to their work place pensions, they should put £100 into a SIPP every month.
 
With a lump sum like that they would have the option to retire early and as DINKies (double income no kids) I knew they wouldn’t feel that kind of investment even if it fell to zero – and with the government match they would be 25% up from the outset due to the tax saving.
 
As I knew they were first time investors and quite risk-averse I got them to put almost all of the invested money in S&P 500 trackers with about 10% in an actively invested fund.
 
They use Hargreaves Lansdown – I chose this for them because their customer service is great and you can easily get a person on the phone – but as their funds grow I might get them to move to a cheaper provider. I’ll review this when they have £50,000 or so.
 
Three years later, they have about £20k between them (they invest a little more than I suggested). As I wasn’t happy with the performance of the actively managed fund, I got them to sell all of that and stick to low cost diversified funds.
 
They’re happy with this set and forget strategy and aren’t much interested in overthinking it and unlike most of their friends have savings. In about four years, they will also be mortgage free to boot – based on a repayment plan I’ve advised them to stick to. Financially they’re on a great track and are also enjoying life…
 
So, investing doesn't need to be complicated or big. You can start small and increase your investment as you learn more, develop confidence, and start to understand how different investments work...OVER TO YOU!

If you want help with setting up your investment account and selecting funds, click the PayPal link below to book me and fill the form in to tell me a little about your situation. Your booking gets you two one-hour phone calls during which we will chat through what you want to achieve with investing then I'll help you set your investment account up in your own name and automate everything for you.

Hi Heather,

Here’s my questions.

I'm a single first time buyer, I have just under £10k deposit and i can borrow up to £200K based on some mortgage brokers.. is there any way I can borrow more money to buy a bigger house? What are your thoughts on the "helping hand mortgage" by Nationwide. Are there any other schemes for first time buyers?

Second question, my plan is to use the house hacking method to save up faster in order to invest in more BTL properties. What’s your advice on house hacking and is it legal, do i need to inform the lender and would that make them more inclined to raise my interest rate?

Third question, do I generally need both council and lender permission to change the structure to the house? Such as extension or loft conversion..etc? And how do I go about it.. where do I start? And are there any zone-ing regulations here in the UK as there is in the US?

Finally, I am a foreign national here in the UK on a skilled worker visa, I've lived here for just over 5 years including a year in university, my credit score is very low due to the fact that I am not eligible to register for voting! I spoke to the council and they said they can't do anything. Is there anything I can do..? That's the only reason why my credit score is low.
​
Thanks, Ahmed

​AND
Hi Heather, I want to get into property investment but have very little capital. Is there any advice other than save to help buy properties with little to no capital? Your help is much appreciated. Shahid

​Amrita owns a buy to let property and is a renter herself. She has been renting for over a year and wants to buy a home to live in. She wonders if she will have to be pay the extra 3 per cent stamp duty tax on the purchase of her new home. In addition, if she is subject to the extra 3% tax, she asks if she can she avoid it by buying her home through a limited company?
 
That’s what we answer in this short podcast.
 
If you need advice for your own situation, please contact a mortgage broker or personal financial advisor.

.I always say that if you get nothing else right in your financial life, at least own where you live outright by the time you hit retirement and ideally much earlier. Well that’s not quite right, the other thing you need to make sure of, is that you qualify for the full UK state pension.
 
Currently, when I am 68, for so long as I have 35 qualifying years, I will get £185/week in state pension until my dying day. That’s about £800/month or £9,620/year. This is not an insignificant amount and if you live with someone, i.e. your partner, a sibling or friend, it’s double that as you would each qualify separately.
 
My calculations suggest that if you’re living on your own, that amount of state pension would at least cover all basic utilities (water, energy, council tax) and food.
 
You can check how many qualifying years you have and whether you can boost them at gov.uk/check-state-pension.
 
If you’re self-employed, to qualify for the full state pension later on, make sure you’re signed up to pay Class 2 national insurance and if there are any gaps in your national insurance record, pay for them asap as you can only fill gaps going back 6 years:
gov.uk/national-insurance/national-insurance-classes
 
As the state pension is unlikely to be enough, it’s helpful to contribute towards a personal pension (aka a self-invested personal pension or SIPP) as pension contributions get tax relief such taht every £240/month contribution equates to £300/month into your pension pot.
 
Based on a 7% gross growth rate of your pension pot (and keeping in mind the historic average return of the S&P 500 is 10%)

• if you contribute £240 into your SIPP from age 20, you would have £1.6m at age 65.
• if you contribute £240 into your SIPP from age 25, you would have £1.1m at age 65.
• if you contribute £240 into your SIPP from age 30, you would have £790k at age 65.
• if you contribute £240 into your SIPP from age 40, you would have £370k at age 65.
• if you contribute £240 into your SIPP from age 50, you would have £155k at age 65.

 
If you want to play around with how much you should expect to spend in retirement, here are a few other helpful blogs:

• Pensioners need £60 a week more to live on, YourMoney.com
• Cost of retirement mapped, FT
• Your average energy bill by house size and usage, British Gas
• How much is the average water bill per month?, MoneyHelper.org
• Tax on your private pension contributions, .Gov

When you’re at one point in your life it’s often nearly impossible to imagine having much more than what you’ve got – or maybe that’s just my lack of imagination – anyhow, in this podcast I recount the steps we went through to move from our £385,000 beautiful terraced home to a £1.1m detached bungalow in the same neighbourhood.
 
We did all this in 2020 but, even as recently as in 2017, when I walked past the homes on the street where we now live, I thought actually living in one of them was pure fantasy for us and at that point, it was.
 
It took getting a proper second income, a stamp-duty holiday and an all-time low 5-year fixed interest rate of 1% to achieve this, oh, and a few consumer loans for a short period.
 
Was it worth it, 100%.
 
One thing I forget to mention in the episode is that one of the key drivers was I saw already expensive properties getting more expensive and mid-priced (like our terrace) to low-priced properties appreciating very little in value or even falling in price – how does that work? I am not sure but I figured there was some kind of bifurcation in the property market with average incomes driving prices on the lower end and something bigger at play with bigger, more expensive properties – they tended to be owned by business people not restricted by average incomes, some people with inheritances and hence large sums to play with and people with much larger incomes…whatever it was, I wanted in.
 
The funny thing is, if we sold our new house right now, we would be in a position to buy our old house mortgage-free AND still have £200,000 to £300,000 in change ALTHOUGH our old house has gone up by about £30-40k!
 
Listen to the episode and let me know if you have questions.
 
Here’s my property course on Udemy.

If you’re looking for ideas on how you and your partner can split the household bills without arguing about it, I have a few ideas for you.
 
Obviously what you ultimately go for depends on your own specific circumstances, e.g. whether you’re married or in a civil partnership or not in either, employment status, differences in income and personal beliefs, however, you can either:
 
1.Split bills fairly – this can mean equally, i.e. 50-50; or in proportion to your incomes.
2.Approach finances with unity – i.e. all money earned belongs to the household regardless of who earned it and is managed in a unified way. This can work whether your salaries are paid into personal accounts or a single joint account.
 
This is all food for thought, not advice, if you want advice based on your own circumstances, speak to a personal financial advisor.

Ask me a question...

If you’re over 55 and own your home outright or have significant equity, banks target you for equity release schemes. There are two types: lifetime mortgages and home reversion schemes.

With a lifetime mortgage you generally get a loan based on the value of your house and your age – the higher your home’s value and the older you are the bigger the loan you can get. Then, rather than pay interest monthly, compound interest is charged and accumulates without payment until your death at which point your house is sold to pay off the borrowed money and accumulated interest. Most lifetime mortgages have a ‘no negative equity’ clause which means you can lose the full value of your home if you live long enough but no more – there’s a sexy deal if I ever saw one!

With home reversion you part-sell your home with a right to stay in it until you die or move to a car home. Typically, the loan is worth far less than the actual value of your home. So, if you own a £100k home you might be offered £30k for half ownership.  Any increase in value is also shared 50-50. 

In this example, if the house doubles in value from £100k to £200k you’re only entitled to half, i.e. £100k.

Most people who enter into these schemes are not fully aware of the risks and I don’t believe financial advisors and banks market them in an appropriate way. 

My personal opinion is that to go from owning your home outright to releasing equity, you introduce a potential stressor to your life that you previously didn’t have. Getting lodgers or letting rooms on AirBnb or even getting a part time job may well be able to address your financial issues more efficiently than releasing equity.

Anyhow, in this episode, I talk about equity release. This is all information and not advice. If you need advice on specifics, speak to a personal financial advisor.

Ask me a question.

,There are a lot of apps out there right now purporting they’re the divine intervention you’ve been waiting for to turn your kids into personal finance ninjas…news flash: you can’t delegate teaching your kids about money to an app.
 
The app may be able to relay some basic knowledge but ultimately the best builders of wealth need to only master one thing: their emotions.
 
And, like as not, all the behaviours around money in your house – and yes, not talking about money at all counts as ‘a behaviour’ are all adding up towards what your children will ultimately believe about money and how it ought to function in their lives.
 
This is what financial psychologist, Brad Klontz, calls money scripts.
 
In addition, we humans are hard wired with certain biases: loss aversion, optimism or confidence bias, the pull of instant gratification, action bias and a bias towards earning rather than saving, to name a few.
 
The money scripts you pass on to your children interact with these biases to determine their future responses, fears, anxities and attitude to their financial affairs.
 
So, now that I have scared the bejesus out  of you, what can you do to pass on a more rational approach to money.
 
Well, before you expose them to cash cards or debit cards give them cash – I’m a supporter of making them earn it – then see what they instinctively want to do with it and capitalise on the teaching moments that will bring, and there will be many.
 
My son’s basic knowledge of money acquired through our going through stage 1 of B.School for Money-wise, Wealth-bound kids means we are now having really good discussions about money and his reactions to it.
 
And having heard Brad Klontz on Paula Pant’s Afford Anything and now on Hidden Brain I have bought Money Mammoth (Amazon USA, Amazon UK) and if I enjoy that I will read more of his books.
 
Are you consciously thinking about how your household’s behaviours around money are impacting your impressionable little ones?

I haven’t written a single blog post in 2021 and I’ll explain why in a future post, in the meantime, I need to offload this issue that’s been gnawing at me for a couple of weeks.
 
Now, I disagree with Martin Lewis (the founder of moneysavingexpert.com) on many issues related to debt but on no issue are we more at logger heads than on student loans!
 
Martin Lewis is of the view that UK student loans are not really loans but a form of tax, a graduate tax, in his view…his reasons for thinking this way are based on the way student loans are currently structured:
 
This is how it works, if one takes out student loans over the course of say, a 3-year degree and ultimately graduate with a balance of £50,000 in student debt (for argument’s sake) – it is possible that you may never have to pay this back if you are a low earner all your life.
 
This is because student loan repayments currently only need to be repaid when you earn £27,295 or more and even then, the repayment is structured such that you only repay at a rate of 9% over that threshold.
 
So, if you earn £30,000 a year,  your student loan repayment is:
            (30,000 – 27,295) x 9%
            = 2,705 x 9%
            = 243.45 or c. £20.30 per month
 
Even if you were on a £60,000 per annum salary the annual repayment would only be £2,945 or £245 a month.
 
Presented this way, it does look like a problem not really worth worrying about BUT viewing the student loan as a tax ignores the following critical issues:

Unlike in New Zealand where student loans are fully interest free, in the UK you start accruing interest as soon as you take the loan out – they don’t even let you graduate first. If it was interest free and the government was solid in its stance on that, I would see where Michael Lewis is coming from but it isn’t.

Student loan interest rates used to be low (c.1%) but are now two to three times higher than mortgage rates having ranged from 4% to 6.6% (currently the best 5-year fixed interest rates on mortgages are just sub-1%).

The repayment threshold can change…and a reduction in that threshold to £23,000 is believed to be in the government’s near-term plans. What this would mean is that many more people would be captured by loan repayments, after all, who goes to university to earn less than £23k, right? The median starting salary for graduates in 2021 is c.£30,000 (Highfliers.co.uk). Indeed, I would hope that all graduates can hope to earn in excess of £27k (the current threshold for student loan repayments) within a few years of graduating. 
​
So, the person on a salary of £30k/year goes from repaying £20.30 per month to £52.50 (that’s £630 per year) and this is really quite substantial at that wage when you’re likely also saving to buy a home.
 
The person on £60k/year goes from repaying £245 per month to £277.50 (that’s £3,330 per year)
 
Basically, everyone already captured by the threshold pays an extra £32.50/month or £390/year.

Currently, after 30 years the loan is forgiven but that could change any time, the government could increase that to 35 years, 40 years or even decide that student loans are never forgiven and any debts owed need to be deducted from the deceased estate. I hope it never comes to this but most other loans aren’t forgiven on death so if the government were cash strapped they could make a case for this.

If you think this is far-fetched, don't - this is how it already works in America.

Finally, this is not a graduate tax because you do not pay it as result of having graduated. You only pay it if you have availed yourself of a student loan. Those graduates that graduate without student loans are able to save and invest at a faster rate including getting onto the property ladder faster. 
​
If the graduate on £30k per annum saved £20/month into an index fund growing at 7% gross per annum they would have c.£24,500 in investment value in 30 years’ time, or £45,600 at a growth rate of 10% gross which is the actual historical growth rate of the stock market.
 
And that £60k per annum highflyer? Well, if they saved £245/month into an index fund growing at 7% gross per annum they would have just shy of £301k in investment value in 30 years’ time, or almost £560k at a growth rate of 10% gross – that’s over half a million pounds. Note that, in reality, this person would have paid the student loan off after 21 years but I have used 30 years to compare to the previous example. At 21 years the figures are £141k (at 7%) and £211k (at 10%) respectively – that extra 9 years of saving and compounding really adds up.
 
Not having a student loan impacts your ability to accumulate wealth. It could make a big difference to how soon you can get on the property ladder.
 
In the ideal world, student loans wouldn’t exist and everyone could get a tertiary education for free. However, student loans do exist and I think it is helpful to view them as loans and to either avoid them or use them wisely. For instance, I had friends put the full value of their student loan into an ISA while their parents cash flowed their university fees – now that was smart and was one way to buy a home sooner.
 
Some people choose to work hard during holidays to cover their living costs.
 
Our own strategy was to plan far in advance. We saved £4k per annum per child until their 5th birthday (and in the first few years this was at the expense of saving for our own retirement) and that £20k is left to grow until it’s needed for university. Our almost 7 year old’s £20k is now worth c.£32k and our 4.5 year old’s £20k is now worth c.£25k – we managed to get to £20k sooner for her and that’s now released us to focus on our own savings. We, of course, have no idea how student fees will evolve over the next decade or so but we hope that this strategy will at least make a huge dent to the cost.
 
See my post: Q&A: How can I save and invest for my children?

To round up 2020, I thought some might like to learn a little more about me as an individual. And, because I prefer not to talk about myself I thought I'd share an interview that I had with ​Alex Sapala who invited me onto his show, the Business, Wealth And Mindset Podcast. Alex is one of the most successful and ambitious Malawians living in Britain today, he's made a massive success of himself in the work place and also with property investing but you would never know because he keeps himself humble. 

Alex with Heather who shares her fascinating journey and discusses why she has chosen to be employed in a role that offers her flexibility and the time to undertake the hobbies she loves.
​
This is a great opportunity to hear from someone who experienced being employed and working for herself before making a conscious choice to be employed. It’s always vital to find out what makes you happy, what is the real you and how to achieve this in life.

KEY TAKEAWAYS

• Self-employment is not all glamour and I was on call to my customers all the time
• Being employed gives me the stability I want.
• I get paid well and have all the flexibility that I expected but didn’t get when I was self-employed.
• The period when I was self-employed was the period where I was least happy.
• My happiness comes from being able to express myself in my own way.
• I have a job that allows me to pursue the hobbies I want to and I enjoy the diversity of the life I have.
• Time freedom is an important aspect to consider in your life.
• Having a job provides you with work experience and stability, both important elements to have in your life.
• Being employed doesn’t preclude exploring working for yourself and employment works for me and offers the flexibility I want
• The stock markets are a good place to put money over longer periods of time
• Never suffer in silence talking to others is the key to changing things.

BEST MOMENTS

• ‘I depend on my siblings for emotional support’
• ‘I worked hard at school so that at some point further on I won’t have to work so hard’
• ‘Life is about people and staying connected to them through positive interactions’

VALUABLE RESOURCES

• Business, Wealth and Mindset podcast series   
• The Money Spot Podcast 

ABOUT THE GUEST
Heather Katsonga-Woodward

Having spent 7 years in investment banking at Goldman Sachs (Corporate Finance) and HSBC (Corporate Derivatives Structuring) and a further 6 years pursuing her own business interests, Heather is currently a civil servant. She describes it as the best job she’s ever had.

Heather is an investor in property, the stock market and as a hobby enjoys creating personal finance digital learning resources that can be found at katsonga.com and on the podcast, The Money Spot™️. Her courses on Udemy (on property and business) had attracted over 10,000 students as at 2020.

Heather graduated with First Class Honours in Economics from the University of Cambridge. She has the CFA Charter, the ACCA accounting qualification and the Certificate in Mortgage Advice and Practice (CeMAP).

She lives in Birmingham (UK) with her husband and two children.

ABOUT THE HOST

Alex is a prize-winning chartered accountant with experience in financial markets from trading finance, capital hedging, structural foreign exchange and interest rates to operational risk from the world’s top financial and advisory institutions including Deloitte, RBS and JPMorgan Chase

Alex has been involved in property development programmes across different types since 2008, building and managing a portfolio that includes standard buy-to-lets, student accommodation and other houses in multiple occupancy (HMOs).

He specialises in raising finance, providing potential investors, investors and joint venture partners with ad hoc (to their specific requirements), hands-free and hassle-free property investments solutions as well as coaching and mentoring

Alex aspires to share business and financial knowledge with upcoming entrepreneurs and experienced business minds to learn and master the concepts and mindsets required to succeed, stand-out, have the edge and make a difference.

Alex is also a keen traveller, cyclist and photographer.

CONTACT METHOD

• Facebook.com/AlexSapalaOfficial
• Twitter - @alex_sapala 
• Alex's YouTube channel

My very best,
Heather 
p.s. subscribe to my podcast and ask me any money question, HERE - do it now!