Hey heather, thanks for your podcast, I find it incredibly useful because it's UK specific and everything else I find seems to be geared towards the US.

Anyhow, my name's Dee, I'm in my 50s and have been a military stay-at-home mum all my adult life although I went to university. Being a military wife has exposed me to so many countries and cultures which I love but you do sometimes encounter traumatic things so it's nice to settle in the UK.

My family currently rents and all our adult children live at home including one that is dependent.

We'd like to get on the property ladder but have been struggling with when and whether to do it. In the past I've left all the money stuff to my husband but now that the children are older I'd also like to start earning an income and I've been considering investment property. I want to gain some financial independence and I'd love to be able to help the children out financially.

I am so ready to make up for the time I spent raising children. I don't know if it was stupid not to use my degree sooner but I guess better late than never.

Keep helping with your posts! Thanks.

Hi D,
 
Thank you for this question that covers a very wide range of things. I am also very sorry that you have experienced something traumatic. Your life choices are not stupid, many women find themselves in circumstances that mean they have to stay at home with the kids for whatever reason so your question may well resonate with lots of other mums.
 
Being in my mid to late 30s, you will forgive me for providing what might sound like a slightly optimistic review of your situation.
 
Your question as it is framed requires me to speak to:
1.Providing for your children particularly the dependent child with medical needs;
2.Buying property as a home;
3.Buying property as an investment;
4.Earning an income for yourself;
 
PROVIDING FOR YOUR CHILDREN
By letting your adult children to stay at home rent free you are doing plenty. That alone should allow them to save for their own property deposits and is a financial boost many people including myself did not have. If I could have lived at home rent, free, that would have had me on the property ladder a lot sooner.
 
The other thing you could do is direct them to read the type of personal finance books that will give them ideas for how they can be financially responsible so that you don’t need to worry about them. I recommend The Richest Man in Babylon and The Millionaire Next Door as good starting points.
 
Does your child with medical needs financial support from you as well as general support for all their living? I won’t touch too much upon this except to say that make sure that you are accessing all the state benefits you can for the child’s support including the carer’s allowance if it is applicable.
 
BUYING A HOME
 
Firstly, as far as the UK is concerned I always advise that, if you get nothing else right, at least buy your own home.
 
From your message, it’s not clear whether or not you and your husband discuss finances but I am guessing that this may not be the case. Firstly, I would try to get the two of you on the same page. Working as a team when it comes to building wealth can really supercharge your financial health.
 
The UK property market is completely different to the US property market in so many ways so I’d be a little careful before taking advice on property from US authors and podcasters (lots of property advice on the internet tends to be US-focused that’s why I bring this up). To begin with the population density of the UK is 281 per Km2 (727 people per mi2); population density in the United States is 36 per Km2 (94 people per mi2). What does this mean? It means that UK property in many areas doesn’t see price crashes (too many people, too little land) and there is a propensity for house prices to be sticky upwards.
 
In addition, because US mortgages are fixed for the full term of 25 years whereas UK fixed terms are only for 3, 5, 7 or 10 years, interest rates are much lower in the UK compared to the US (almost half). The result of this is that very often the interest you pay on your mortgage is much much lower than rent. As an example, I live on a street where the rents range from £1,200 to £1,500, however, the interest we pay on our mortgage is just £350 (it was a 25% deposit mortgage). The full monthly mortgage payment is almost £1,000 but everything above the interest of £350 is money that will come back to us if we sell our home.
 
So, provided you can get a good deposit together, you will save a lot of money by buying a home rather than renting. In the long run owning where you live will give you a lot of security including the psychological comfort it provides.
 
At 50-something, you are not too old to get a mortgage and may even be able to get a mortgage of 20+ years, however, if you owned property abroad and sold it when you left then it’s worth buying the home outright.
 
State pension
 
Another thing to consider with regard to your financial security is that even the full UK state pension only pays £175/week per person (about £759/month) this would be double for a couple. If you live in a home that’s been completely paid off, no mortgage, then you can survive on the state pension relatively comfortably.
 
However, as you have lived abroad for many years you need to contact HMRC to see how many qualifying years you have. Your UK State Pension will be based on your UK National Insurance record. You need 10 years of UK National Insurance contributions to be eligible for any amount of the new State Pension and for people my age 35 years of credit are needed to get the full entitlement, you may be in the generation that only needs 30 years of credit.
 
You may be able to use time spent abroad to make up the 10 qualifying years. This is most likely if you’ve lived or worked in:

• The European Economic Area;
• Gibraltar;
• Switzerland; and
• certain countries that have a social security agreement with the UK.

 
I would contact HMRC as soon as possible (link above) and ask what you need to do or pay to increase your entitlement to the UK state pension.
 
You may get National Insurance credits if you cannot work - for example because of illness or disability, or if you’re a carer or you’re unemployed.
 
You might also be able to pay voluntary National Insurance contributions if you’re not in one of these groups but want to increase your State Pension amount.
 
BUYING AN INVESTMENT PROPERTY
 
I recently read David Tarn’s “The Complete No-Nonsense Guide to Becoming a UK Property Investor: The 1-2-3 on Property Investing” and found it useful on the topic. The author is based in the North of England where property is much cheaper. He is into buying property and letting out the whole house to a single group like a family – so, standard single let properties.
 
In addition, I would recommend The Inside Property Investing podcast. There are over 300 episodes, if you binge listen to the episodes that appear interesting, you will move up the knowledge curve rapidly. The ‘Inside Property Investing’ podcasters are themselves heavily into High Multiple Occupancy properties (this is when you let a single property out to 3 or more unrelated people like students or professionals). However, the beauty of the podcast is that they regularly interview people on the show that follow a variety of different property investment strategies.
 
Don’t pay for any overly expensive property course before you’ve gained all the knowledge that is available for free or almost free – a friend of mine recently paid £24,000 for a property course, she went 50-50 with her daughter and even had to put some of the cost on a credit card! You’ve been warned.
 
For the basics on property investing I have a course up on Udemy for under £50. This will give you all the basic knowledge you need about the property buying process in the UK.
 
EARNING
 
There are many jobs out there. If you just want to boost your confidence and get some money rolling in there are plenty of jobs out there provided you are not too picky about the pay as long as you get your foot in the door. If you want to build a work life for yourself have a look on jobs boards at what’s going and start applying. If you want to build a career within a specific field related to your field of study consider taking a course to freshen up your skills.
 
I have no idea what your salary expectations are but median UK income for 2020 is 30,800 according to the ONS. After tax that would bring home just over £2,000/month; if due to covid etc you secured a job with a salary of £24,000/year, that’s still £1,600/month which definitely isn’t shabby especially if your husband earns too. A GQ article gives an interesting breakdown on age, occupation and the covid-19 pandemic’s impact on earnings.
 
 
I hope this helps. Far from thinking you are too old. I am feeling soooo excited for you. This is a fresh start and even over a 15 year period you can build an amazing life and financial cushion.
 
Good luck.

Dear Miss Katsonga,

What is your opinion on Critical illness cover? What are the alternatives (for lump sum payout to cover mortgage or other debts) in case one partner is unable to work?

Thanks!
Ronjoy

Very formal, Ronjoy…you can call me Heather.
 
So, you want to know how you can cover yourselves if one person is unable to work.
 
1. Critical illness cover 

The first thing you mention is life insurance with critical illness cover. Typically people will have this on their mortgage insurance.
 
Mortgage insurance is usually decreasing term which means the amount by which you are covered falls over time roughly in line with your mortgage balance. The result is that if the person covered by the insurance falls critically ill near the end of the mortgage term the pay-out may be quite small but at least it would clear whatever mortgage is outstanding, if an appropriate level of cover was taken and updated if the mortgage amount was increased.
 
A problem with critical illness cover is that only specified illnesses are covered and different providers cover different things. This means if you or your partner get ill and can’t work and your specific illness isn’t covered then you don’t get a pay-out from the insurance provider.
 
The cover usually also has a condition that you need to be ill for a specific amount of time before a pay out is due to you, e.g. you need to be ill for 6 months plus or in an intensive care unit for at least 3 months and you’re not due a pay-out if you don’t fulfil those conditions.
 
2. Employment insurance 

You can also buy insurance to cover you if you’re unemployed, e.g. due to redundancy. This type of policy would cover you even if you were not ill but may specify that you need to be unemployed for a given number of months before you are due a pay-out.
 
The key problem here is that unemployment insurance tends to be expensive during turbulent times. When I first started working in 2005 I bought unemployment cover and it was very cheap. When the 2008 crisis hit the cost of the cover increased so exponentially that I cancelled it, it wasn’t worth it.
 
3. Rental insurance 

If you own rental property you can buy insurance to cover tenancy gaps. This could be a good idea so that you never have to worry about both being unemployment and having to support a vacant rental. The policy will likely state that the property needs to be vacant for specific amount of time before payouts are due.
 
I buy my rental protection via RentGuard, however, they did stop writing new policies when the government made it harder to evict non-paying tenants during the covid-19 pandemic so, it is not always available.
 
4. Emergency fund 

A good idea would be to keep an emergency fund of 6 to 9 months of living expenses. This would give you peace of mind that you would survive even if you didn’t have both incomes coming in.
 
If only one person was unemployed, then a 6 month fund would last longer too,
 
5. Live on one income 
​
Last, but certainly not least, if you arrange your finances such that your family can survive on the lower of your two incomes then the loss of one income is never something you need to worry about. This is our personal favourite.
 
Our household saves the equivalent of one income every month either as actually cash saved or as repayments on mortgage debt. Should one of us be unemployed the most we would have to do is call our bank and pay interest only for a limited period. Banks are usually very happy to do this.
 
In the long run, we would also like to build up a cash emergency fund but for now we do invest all disposable income and we have made peace with that risk.
 
Hope this helps.
 
Heather 
p.s. subscribe to my podcast and ask me any money question, HERE - do it now!

Fifi asks about how best to manage her money when her income from month to month fluctuates a lot with some months bringing in just enough for her to get by. She also wonders how best to manage her credit score and to boost her monthly income. 

I give a broad answer covering:

• cutting back on expenses;
• increasing revenue;
• thinking about the legacy you want to leave; and 
• creating an exit strategy

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

Hey Heather, my name's Jennifer, I want to start a side hustle but I don't know where to start or how to organise myself. No one that I know has a side hustle; they just do the 9 to 5 then chill...are side hustles just not a British thing? Please help me with some tips, I need some direction...thank you!

I stumbled upon Sylwia when I read her post on The growing trend of side hustles in the UK - this was written before the covid-19 pandemic and seems to be very topical right now as people think about ways to diversify their income.

The most shocking thing about my intial catch-up with Sylwia was that she knew recognised my name because she read my book To Become An Investment Banker which i wrote in 2012. I was shocked and please in equal measure.

I learnt a lot in our discussion in which we covered, among other things:

• Why side hustles are a growing aspect of UK life;
• How much you are allowed to earn from side hustles before paying tax;
• What national insurance contributions you should be paying;
• At what point you need to register for VAT;
• Xero - the accounting software;
• The types of errors people approach her with;
• Whether you should register a company or just declare side-income in your annual self-assessment;
• When a side hustle might conflict with your main job and what you should do about it...

And much more, you can contact Sylwia with any questions:

Sylwia Kotarba-Harris
Accounts and Legal
0207 043 4000
s.kotarba@accountsandlegal.co.uk

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

Hi Heather

My name’s Grace. I’m looking into saving money for my little one so that it can be invested in the same way as government-backed child trust funds. My older one has a child trust fund but I don’t know how to go about opening something similar for my younger child. As I understand it, banks don't offer government-backed child trust funds anymore.

Hi Grace,
 
Thank you for this message.
 
In podcast episode number two, I talked about how you can save and invest for children in today’s world. All that information is still relevant so please have look at that post for ideas on the best saving strategy.
 
A Child Trust Fund (CTF) is a long-term tax-free savings account for children.
 
You cannot apply for a new Child Trust Fund because the scheme is now closed. The alternative available for today’s parents is the Junior Individual Savings Account or junior ISA.
 
What is a junior ISA?
 
A junior ISA like its adult equivalent is a tax-advantaged account that can be used for saving or for investing in the stock market. Once you place money into a junior ISA it cannot be withdrawn until your child is 18 and it legally belongs to your child so you would not have control over how that money is used.
 
This is not necessarily a bad thing but it’s something you will need to consider when you’re making a decision. I know a few people that don’t want to use junior ISAs because they don’t want their children having cash that they as parents can’t fully control. Personally, I think that I would still be able to guide my children about the wise thing to do with the money and if they didn’t want my advice that would still be useful information for me to know.
 
My approach is that because you won’t have full control over the money you might want to limit how much you put into the junior ISA so that your child doesn’t have too much money available at the age of 18.
 
 
The junior cash ISA
 
Saving into a junior cash ISA is like saving into any bank account, it earns a very poor interest rate and is therefore not a great idea at a time when interest rates are so low.
 
A junior stocks and shares ISA
 
The alternative option is a junior stocks and shares ISA.
 
The value of the stock market falls and rises but when money is invested over a long period of time it tends to rise. For example if you are investing for a 10-year period or more you can have a reasonable degree of confidence that your investment pot will produce a good return – certainly a better rate than current savings rates.
 
In podcast episode 2 you will see that my strategy is to invest £4k/year from birth to age 5 and then stop once I have put £20,000 into each child’s ISA.
 
Once I reach that I stop and just watch the money rise and fall. My son’s £20k investment now has a value of £26,000 and he isn’t 6 years old yet. If the stock market enjoys a 10% return on average over the next 14 years he will have just over £100,000 in his stock account from that £20,000 that I invested – that is the miracle of compounding, something Einstein called the 6th wonder of the world.
 
Even if the pot only grows at half that rate, that is at 5%, he’ll still have £50,000 – that’s a princely pot of cash that could be used for university or a deposit on his first home.
 
How to set a Junior ISA up
 
If you want to open a junior stocks and shares ISA there are many brokers you can use. To start off with, I would suggest you look into

• Hargreaves Lansdown or
• Fidelity

 
I have provided you with links to pages that will give you  more information on the junior ISA.
 
Personally I use Hargreaves Lansdown for my children. The fee for using the platform is 0.45% per year versus 0.35% at Fidelity.
 
HL have a user-friendly app and have made setting up direct debits so that investing for my kids is easy.
 
The key difference between HL and Fidelity besides the platform fee is that Fidelity also create investment products and may therefore have an incentive to push some of their own products to you. HL aren’t completely innocent though, they earn more if you invest in actively managed funds so they have an incentive to recommend actively managed funds to you.
 
The best strategy is to know what you want to invest in. As a new investor you might want to keep things simple and put the money in low-cost diversified index funds. These are funds that are invested in many companies so you won’t be putting all your eggs in one basket.
 
Here are example of funds that my children are invested in:

• FundSmith Equity, Class I – Accumulation
• Lindsell Train Global Equity, Class D – Income
• L&G Global Tech Index, Class I – Accumulation
• L&G International Index Trust, Class C – Accumulation

 
I have given you a link to each fund’s page so that you can read more about what the funds are invested in and what the fees look like.
 
I hope this helps you kick start investing for your children. Junior ISAs do not have the government boost that the Child Trust Fund did but they are a very similar product and have much more flexibility attached to them because you can invest in a wide range of products.
 
Even if you start of with a small amount, it will give you some confidence and you will begin to learn how the stock market works. Investing for our children is the path that got us investing for ourselves too.
 
Good luck and keep in touch.

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

Hi Heather

I’m really enjoying your podcasts and have already given a 5 star rating.

I am 57 and plan to retire at 60 so love your retirement items.

When talking about 4% draw down for retirement income, it’s never clear if the figures are before or after tax. For example 4% of £1m is £40k, but after tax this could be nearer £30k.

If you then get a state pension of say £9k, the figure before tax is £49k, but after tax it is nearer £35k.

So when you talk about money needed in retirement, do you mean before or after tax?

Thanks,

David

David, thanks so much for the review! I definitely appreciate it.
 
First things first, David I am sorry that it’s taken me ages to get a blog post done on this, however, I did respond to your question directly within 24 hours of you asking it so I hope that will make up for the late blog post response to your question which you asked me roughly 3 months ago and 4 months ago by the time this airs on The Money Spot podcast.
 
Turning to the 4% rule…
 
For those that have not ever heard of it, the 4% rule states that if you don’t want your pot of invested retirement funds to run out before you die, the maximum you can take from that pot each year is 4%.
 
This means that if you want an annual income of 40,000 from your retirement pot, you need to save one million (GBP, USD, EUR) – I believe the study was done using American stock market performance but if you invest in a global portfolio it will be heavily weighted towards the US so you can use the 4% rule as the best proxy we have on what a reasonable withdrawal rate is.
 
To answer, David’s question, the 4% drawdown is gross and you would have to pay tax after that.
 
So, if you have £1,000,000 (for simplicity) in your pension pot in a given year, you would draw £40,000 and pay the tax on that.
 
If you are based in the UK, you cannot throw the gross amount drawn from your SIPP or other taxable investment account into listentotaxman.com to get a calculation of your after-tax income because your drawings from your investments are chargeable to capital gains tax so you don’t pay income tax on them but capital gains tax. Capital gains tax rates are different. In 2020, assuming 50% of the £40,000 you draw is capital gains, then your net income after tax would be calculated as follows:

 
Not taxable:                                  £20,000 (this is the portion you actually saved)
Taxable:                                          £20,000 (the capital gain)
Deduct capital gains tax allowance:               (12,300)
Taxable:                                            £7,700
 
This taxable amount all falls into the basic rate band for 2020/21 so you’d pay tax of 10% on it, i.e. £770. If you had a portion in the higher rate tax band even that is only taxable at a rate of 20%.
 
So, out of the £40,000 the net amount received would be £39,230.
 
This is a huge different to what you would have paid if this was income of £40,000 as the net income would have amounted to £30,841. That’s a difference of £8,389 – wow! People on work place pension will be taxed in that way because the DB pension counts as income, you can’t separate it into capital and capital gain.
 
 
If you are UK based and have reached your state retirement age then you would have an annual state pension. This is taxable to income tax and you can throw the total annual state pension amount that you receive into listentotaxman.com to figure out how much you will receive after tax.
 
State pension is taxable if all your sources of income sum exceed the threshold needed to pay tax.
 
That annual state pension is just over £9,000 so if that’s your only source of retirement income you wouldn’t pay any tax because it’s below the personal allowance of £12,500 – however, if this is you, you probably wouldn’t be the type of person that listens to personal finance podcasts - #JustSaying.
 
A few BIG things to remember though:
 
ISAs
 
If your retirement income is all in your ISA then it is all tax free; not tax needs to be paid.
 
Capital gains tax allowance
 
Current tax rules allow you to have a tax free allowance on capital gains in addition to the tax-free personal allowance SO your tax bill may be much less than you think because your state pension and any other pension income may fall into the regular income bucket and this enjoy a separate tax free allowance.
 
For 2020 the Capital Gains tax-free allowance is £12,300. I don’t know if this will be available when I retire, there’s talk of eradicating it to raise more tax…
 
Early retirement
 
Those that retire very early, and I’d classify anything before 55 as early may be overdrawing if they draw 4% because the study of the 4% rule was based on a 30-year retirement.
 
David, you’re probably okay given you’re 57.
 
Sequence of returns risk
 
Sequence of returns risk analyses the order in which your investment returns occur.
 
If a high proportion of negative returns occur in the beginning years of your retirement, these negative returns will have a lasting negative effect  on the balance of your investment portfolio and the amount of income you can withdraw over your lifetime is reduced. This is sequence of returns risk. However, if you have a few years of good returns when you retire and negative returns only occur later, say in the middle of retirement, then there’s a lasting positive impact.
 
If this happened to me, I would probably stop drawing income from my retirement pot for 2 or 3 years and live off non-stock market income, e.g. if you have  cash pot set aside, I’d deplete that first; or I’d consider getting a part-time job; or for those fortunate enough to have rental income, you can live on that and give your investment portfolio time to recover.
 
I think that’s all the main stuff. To summarise:

1. The 4% rule is gross so tax needs to be deducted after you draw 4% from your investment portfolio.
2. No tax is due if all your investments are held in an ISA;
3. Even if the retirement investments are in taxable brokerage account, you have a healthy Capital Gains tax-free allowance of £12,300.
4. The 4% rule may not work if you retire early because it wasn’t tested on long retirements.
5. Finally, sequence of returns risk means that if stock market returns are poor in the first few years of your retirement, the value of the income you can draw during your retirement years is reduced.

 
I hope this answers all your questions and I additionally hope that I threw in a few thoughts that you hadn’t considered.


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

Hi Heather, my name's Kimberley. My husband and I have worked hard to build a financial safety net for our family. 
 
We both come from modest backgrounds and weren’t taught much about money so we’ve had to figure everything out on our own and made quite a few mistakes along the way. Do you have any tips we can use to teach our children about managing money so that they make far fewer mistakes than we did?
 
Thank you!

Thanks Kimberley, this is a brilliant question. As a mum myself, setting my children up for a healthy financial future is something I think about periodically. While every child is unique, from my personal experience and my experience of observing others these are the 9 things that I think help children grow up into good money managers.
 
1. Explain where money comes from early
 
By the time a child is two, or even earlier, they have created an image in their own minds of what money is and where t comes from.
 
Your child might think it comes from your wallet or from a wall in the machine or perhaps even that the plastic thing in your wallet has unlimited purchasing power.
 
What you want your children to believe and know from an early age is that money comes from work.
 
Whether you are employed, self-employed or an entrepreneur in order to earn money some kind of effort has to take place and that effort, be it pleasant or unpleasant, is called work.
 
When I was growing up, my father was a business person and my mother was employed and they showed me two different types of work. Although they both went to work physically every day – one, my mum, was generally free to enjoy weekends although many nights were occupied by trauling through her in-tray which she brought home from work; the other, my dad, generally enjoyed free evenings but spent weekends overseeing his business ventures. These were my examples and your children will observe the type of work their immediate family engages in.
 
2. Explain that you have had to save for things that you buy
 
When you bring a new expensive purchase home like a TV or a sofa your child might, in their own mind think that these purchases just happen, that they don’t involve much effort on your part.
 
To take away any such thinking, I always tell my son that mummy and daddy had to save for the thing and I explain how long we had to save for it. In reality, sometimes I stretch the truth for example, if we are working ahead of our saving plan I might just save less in a given month and get what I was planning to get later.
 
For example, two months into covid-19 lockdown our 13-inch TV broke so we replaced it with a 65-inch TV – very extravagant, I know – and I told my son that mummy and daddy had to save for a whole year to get the TV.
 
He may not understand fully what the whole saving process entails but that information is sitting in his head and is setting an expectation for himself; that expectation being, when he wants something he needs to save for it appropriately.
 
 
3. Make your children practice delayed gratification
 
Delayed gratification is difficult even for adults but I believe that the more it is practiced the less painful it gets.
 
Because things were very expensive in Malawi when I was growing up, my parents only bought us things, including some basic necessities, when they went abroad which was not very often, perhaps every 4 to 6 months, sometimes longer so I often had to wait many, many months to get what I want.
 
Living in England, everything is so much more accessible but I tell my children that they can get what they want on their birthday or Christmas, whatever comes first.
 
This means whenever they want something in shops I can just say, “add it to your birthday list” or “Christmas list” – it helps. As I am writing this article my 5 year old son is watching a YouTube video that’s marketing Paw Patrol toys to him. He has asked for a dozen or so things and because of my usual “add it to your Christmas list” he is writing a very long list for Santa and getting some much needed writing and spelling practice in the process – win-win.
 
4. Don’t give your children more money than they need
 
I remember when I was in boarding school my father made me write a list of all the things I needed for the coming term, then I’d get money to go and buy those things – snacks, feminine hygiene products, stationery, that sort of thing. On top of this, he gave me a very basic allowance for buying the odd donut from the tuck shop.
 
This taught me two things: how to plan for my needs in three-month chunks at a time and how to resist the temptation to buy too many things from the tuck shop too early in the term for fear my money would run out.
 
I hate to say it but I also became an expert at getting people to “treat me” at the tuck shop and when I say people I mean the guys. Fortunately, they were genuine friends and nothing other than my friendship was expected in return. My negotiation skills probably got a lot of flex in the process – how does one ask without sounding like you are begging…? I could do a course on that.
 
There were peers in high school receiving five times the pocket money I did and I will admit, I was jealous at the time but with hindsight I can see my father’s wisdom in giving us no more pocket money than we needed, he didn’t want to set unrealistic expectations for me and my sisters.
 
5. Don’t give your children an expectation that you will bail them out
 
If you rescue a child financially that robs of them of a lesson and also robs of them of any incentive to behave responsibly next time.
 
If your child finds themselves in debt, by all means help them write a plan to get themselves out of debt but avoid paying the debt off for them because that will definitely not be the last time you do it.
 
I watched a friend of mine work diligently over 18 months to pay off debts that her mother could have cleared for her at the click of a button. The person that emerged at the end of those 18 months was miraculously different: not only was she debt free but she cut up her credit cards because her experience of paying them off taught her that the pleasure of the purchase was not worth the pain of paying the loan off. She now only buys what she has saved for nowadays.
 
6. Don’t lend your children money interest-free for anything …maybe only for the deposit on a house (but even that is debatable)
 
Each time I have asked my dad to lend me money he has agreed to lend it to me but at a commercial Malawi rate of interest. Interest rates in Malawi have tended to be between 25% and 35% - so I haven’t taken him up on his offer and have instead borrowed money commercially from banks.
 
Although I am annoyed at the time, I am, again in hindsight, grateful for this approach because it’s let me own my property projects and made my successes feel like my own. It’s forced me to plan and to be prudent about how I spend money.
 
I plan to take the same approach with my children, I will make them take full responsibility for their plans and projects and if I do invest with them, it will be on a commercial basis. They should own their successes.
 
7. Don’t create an expectation that there will be a large inheritance
 
The need to make a living gets many people out of bed every morning. Those that know they don’t need to work to earn frequently don’t bother. Why would you go through that pain of forcing yourself up if you don’t have to?
 
I heard an interesting stat from The Money Guy on YouTube: apparently, 68% of Americans expect to receive an inheritance BUT only 40% of parents expect to leave one.
 
And I bet, some of those 40% of parents that will leave an inheritance are leaving it to the 32% of children that aren’t expecting it.
 
Who do you thinking is working hard to set themselves up for a good life and retirement, the 68% that expect an inheritance or the 32% that don’t?
 
My children are too young to talk inheritance but when they are they are going to know full well that I plan on spending my money liberally before my final call!
 
8. Be a good example – this is probably the most important tip
 
The way you handle money will inform your children’s behaviour around money massively.  Your actions normalise money behaviours for children. Do you buy on impulse or plan your purchase, are you frugal or a spendthrift, are you anxious about money or just sensible without making it a thing?
 
If you never talk about money then don’t be surprised if your kids turn out to be the type of adults that don’t deal with their money issues at all, they might just pretend the issues don’t exist.
 
Whatever it is you do, your children are watching and they are learning.
 
Teach them to acknowledge how much they have relative to many others. A healthy sense of gratitude may help with any sense of discontentment, you know, because Peter has more toys, more shoes or a better phone than I do…
 
…I know we adults (myself included) struggle with comparison to the Joneses constantly ourselves.
 
9. Teach your children the basic concepts of money
 
I see the basics of money as come in four categories:

1. The uses of money: giving, spending, saving and investing.
2. Where money comes from (the sources of money): work, business, property and lending.
3. Budgeting concepts;
4. The concept of ‘balance sheets’ – that is, assets, liabilities and equity.

 
If your child leaves home knowing just these things, they are well ahead of their peers and are more than likely to win with money, here is an example of what I mean, If you like what you’re about to hear get workbook – B. School: for money-wise wealth-bound kids. It’s available in 9 languages!
 
Heather x

Hi Heather, 

My name’s Harriet. Thanks for the UK-focused personal finance podcast. I feel slightly worried that I don’t have a will because of the covid-19 pandemic. I have children and some assets and I want to go about getting a will in place in the right way, please tell me what I need to think about so I get my will done correctly from the get-go. 

​Thanks a mil.

When covid-19 hit, I started getting quite a few questions on wills and as luck would have it, I got a brochure through my door from Julia Fleetwood of the Will Writing Partnership so I invited her to the podcast. In our discussion, we covered the following questions:

• What is a will?
• Do you need a will if you don't have children?
• Do you need a will if your wealth is below the inheritance tax threshold?
• What happens if you die without a will?
• There are several ways you can get a will, you can make one yourself using an internet template or just a piece of paper, you can use a solicitor or you can get a will practitioner, how is each of these routes different?
• What are the disadvantages of template wills downloaded from the internet and done without a lawyer?
• What’s the cost difference between each of the different options for producing a will?
• How come some things are set apart in a letter of wishes rather than as provisions in the will? - I asked these because when I got my will done in 2016, I was surprised by having a separate "letter of wishes" attached to the will.
• Have people started adding digital assets to their wills like what they want done with their social media accounts?
• When you die, how can you ensure that your family a) know you have a will and b) know where to find it?
• What is a lasting power of attorney? I’ve got to admit that I don’t have one of these as I see them as something I should only need when I am say 65+...
• If you have wealth above the inheritance tax threshold, how can you set up a trust so, say, the proceeds of a life insurance claim go straight into that trust?

My key takeaway from the discussion were:

1. Everyone needs a will. Even if you have no dependents you want a say over how your hard-earned wealth is distributed. Even if all you have to your name is a few hundred pounds, your will would ensure that money goes where YOU want it to go.
2. Getting a will done professionally ensure that there are no errors on the will that could invalidate it. 
3. If you have a complex financial or family situation the probate process can take many weeks and even years before any finances are released to your loved ones. Probate is the legal and financial processes involved in dealing with the the assets of a person who has died.
4. The laws of intestate (that is, when you die without a will) may different to what you expect...

If you would like to get in touch with Julia to learn more about wills, estate planning and getting your affairs in order, these are her details:
          Julia Fleetwood
          julia.fleetwood@twp.co.uk
          Phone: 0121 472 0644
          m.me/Juliathewillwriter (Facebook messenger)
          www.twp.co.uk

I learnt a lot from Julia, I hope you did too.

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

Hey Girl!
 
I’ve been trying to get my cancelled flight to Zimbabwe refunded for a month but haven’t made any progress, do you have any suggestions?

Tsungi

Hi Tsungi
 
This is a great question and highly topical now that flights and holidays are being cancelled left, right and centre.
 
The tips below resulted in Tsungi getting a refund of about £1,500 within a week when she had been struggling for a month to get her money back. I hope you have the same luck…ultimately…
 
There are three paths you need to follow for a refund and you need to follow them in the following order:
 
1. Ask the seller for a refund first. 

So, if you booked via a third-party site, eg. Booking.com, trivago, etc call that third-party company and ask for a refund.
 
If you booked directly, e.g. with easyjet, Kenya Airways or Ryanair ask them for a refund.
 
Some sellers are very good at giving refunds and can turn something around within a matter of days that’s why I would choose this route first. It can be pretty low hassle.
 
If you have nothing back within a week go to step 2.
 
2. If you booked your holiday or whatever product it is using a credit card, the credit card provider is legally obliged to refund you if you make a request, under section 75 of the consumer credit act in the UK. 

If you booked via a debit card banks refund you via a voluntary scheme called a chargeback scheme and sometimes this can result in a faster refund than with the legally required credit card refund, although chargebacks are not enshrined in law.
 
According to moneysavingexpert.com, You can use chargebacks under any of the following circumstances:
 

1. If the company you purchased from goes into administration i.e. they go bust.
2. If the quality of item is not as described or is defective.
3. If the goods or services you’ve paid for were not received as promised and the company refuses to refund you.
4. If there is a technical issue e.g. expired authorisation or a processing error by the bank.
5. If there is a clerical error e.g. being charged multiple times or being billed for the incorrect amount.
6. If you have been the victim of fraud and did not authorise the purchase.

 
I used the chargeback scheme when Monarch airlines went into administration and natwest refunded me within less than one week and before they themselves got the money back from Monarch’s administrators.
 
So, it’s an awesome scheme.
 
As anyone who follows me know, I don’t own a credit card so I have never had the experience of needing to claim something back under section 75 but as it is a legal requirement you would definitely get the money back PROVIDED you spent over £100, i.e. you need to spend at least £100.01 for a single item for you to be able to make a claim under section 75 of the consumer credit act.
 
This is different to the chargeback scheme available for debit cards as you are covered for anything over £10.
 
There is also a difference in timing:
Credit cards allow you upto 6 years to make a claim while chargebacks can be requested up to 120 days from when the service should have been provided. After 120 days you can’t make a chargeback.
 
If you paid via PayPal you have upto 180 days to claim a refund.
 
Although I had a great experience with my chargeback for flights with Monarch Airlines, I have been waiting over 60 days for HSBC to get a chargeback for me from flights booked with Dream World Travel and they are blaming covid for the delay.
 
3. Finally, if the two routes above fail, claim on your travel insurance. Travel insurance won’t pay out until the two routes above have been exhausted.

If you don’t think you have travel insurance check you don’t have via your bank account, e.g. my family gets free travel insurance under my HSBC Premier bank account.
 
In summary, to get money back request a refund:

1. from the supplier of the good or service;
2. from the debit via a chargeback or from the credit card company under section 75 of the consumer credit act
3. from travel insurance.

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

Hi Heather

When is a good time to draw equity from your house: when I retire which is in about 5 years or before?

​Mary

Hi Mary
 
Thanks for this question because it really got me scratching my head.
 
I was initially quite flummoxed when I received the question because as a proponent of the FIRE movement (Financial Independence Retire Early) the whole premise of my money management toolkit is to get out of debt including mortgage debt completely and NEVER go back. However, I am going to park this way of thinking and answer your question in the most unbiased fashion that I can and I will also ask you a few probing questions so you can figure out whether this is what you want to do.
 
FIRSTLY, what do you plan to do with the money? Do you want to use the money for general living or to make a significant purchase or investment?
 
Generally, I think in most cases it is not a good idea to get into debt during retirement as it may cause undue stress if you run into any unexpected financial problems.
 
OPTION 1: Take equity out and pay off the debt or interest during retirement
 
I don’t know the value of your home or any other numbers, however, if you take equity out of your house that money will be charged interest and if you enter into a standard mortgage contract, you will have to pay the interest and possibly repayments from the month after you take that equity out.
 
From my follow up email to you I gathered you have a pension that will come in when you retire. I am assuming this is a “defined benefit” pension so it’ll be paid to you from retirement until you die.
 
By taking on debt you will have a reduced income. So, if your pension is income amount to 2,500 per month and if you take out equity requiring 500 in monthly payments you will lose 20% of your pension straight off the bat to debt payments. How will this affect your standard of living?
 
OPTION 2: Take equity out and pay all the interest off when you die
 
If you are over 55, which I assume you are, you can also get a mortgage that doesn’t require interest payments to be made until you died.

• Equity release through a "lifetime mortgage"

If you’re over 55 you can take equity out of your home at a fixed or capped interest rate. A lifetime mortgage allows you to take money out of your property a bit at a time up to an agreed amount and interest is charged on the total amount you have taken, rather than the whole amount available.
 
Depending on the terms you may be allowed to repay some or all of the amount borrowed. Otherwise, with a lifetime mortgage all the interest would be accumulated and paid on your death.

• Equity release through a "home reversion plan"

Under a home reversion plan you sell a stake in your home at below market value to a bank.
 
So if your home is worth 100,000 you might sell a 40% stake to the bank for a 20,000 lump sum. When you die, the bank gets 40% of whatever the house is worth at the point. So if you die 20 years later and your home is worth 300,000 the bank get 40% of 300,000 which is 120,000 for the 20,000 that they lent to you.
 
If you died the very next year and your house has stayed the same in value then the bank gets 40,000 for the 20,000 that they lent to you. Even if your house falls in value the bank is still likely to come out ahead because they take a huge hair cut off the value of the house.
 
The reason these mortgages are only offered to people over a given age is to minimise the chance of the bank losing its money, for example, because accumulated interest exceeds the value of the house on a lifetime mortgage.
 
To safeguard the bank further, they keep the amount of equity that can be released quite low; the younger you are, the lower the allowed equity release. So, a 55 year old might be restricted to releasing no more than 20% but a 75 year old might be allowed to release 30-40%. I am making numbers up here because the reality is that more conservative banks will have lower limits and banks that are more risk tolerant allow a bigger release of equity.
 
It all sounds great on first inspection but banks have received a lot of bad press regarding equity release schemes because in the fine print they have stuff like, you don’t need to repay the interest PROVIDED you live in the house so if you need to move home, even into a care home or to a more accessible home because you develop mobility issues, all that money comes due and you would be forced to sell your house and pay the bank.
 
There are likely to be other catches too because banks are in this to make money so if you go for an equity release scheme of any nature you should have a lawyer or financial advisor look at the terms and conditions diligently for you so you know exactly what you are getting yourself into.
 
The bank might get a guarantee that you will never owe more than the value of your home but this means that you could owe the full value of your home to the bank. If you release equity at age 55 and live until 95 there is every chance that interest can accumulate to the point of exceeding the home value.
 
It’s nice to get a tax free lump sum via an equity release but in doing so you may reduce your entitlement to means-tested state benefits, now or in the future so you need to think about this angle too.
 
I don’t know how well I am doing with the unbiased view thing here as you can probably tell that I think releasing equity is a high risk game and it frankly, freaks me out.
 
If you don’t have any kids or charities/causes that you’d like to leave an inheritance to and you’re certain you will be physically fit enough to live in your home until the day you die then perhaps the risk of releasing equity could be worth it.
 
Another form of equity release is to downsize your home, i.e. you sell an expensive home and buy a cheaper home and live off the difference, this way you release equity but don’t incur any debt in the process.
 
COST OF EQUITY RELEASE
 
According to moneysaving expert.com, a lifetime mortgage equity release typically has an interest rate of c.5%, but some rates are under 3%.
 
This is a lot higher than rates on regular mortgages. E.g. With a 40% deposit you can now get a 5 year fixed rate mortgage of just under 1.4%, just to give you an idea.
 
If you release equity at a rate of 5% then the amount you owe would double every 14 years (see my article on the rule of 72); so if, say, you borrow 20,000 on a 120,000 home, if you  live until 74 you’d owe around £40,000, live until 88 and you’d owe £80,000 and live until 102 and you’d owe 160,000.
 
As well as the cost of the interest, don’t forget that you'll have to pay arrangement fees when you take out the mortgage and in the UK these range from £1,500-£3,000 depending on the mortgage deal and including things like solicitors and surveys.
 
 
ALTERNATIVE
 
As you have 5 years until retirement, you could try to boost your savings over the five years so that rather than borrow money you’ve saved for it. If you don’t feel you earn enough to save the amount you want you can look at things like renting rooms in your home via AirBnB or by getting a more full time lodger.
 
I would personally find it very scary to go into retirement with debt because the need to keep with payments or even the knowledge that I don’t actually own my home but if you are more comfortable with the idea then this won’t be a consideration for you.
 
My biggest advice would be get professional advice before you take this massive step and do whatever you can to avoid having to do it. A debt-free retirement is a peaceful retirement.
 
Much love and thanks for being a long-time follower. See the linked article on equity release on the moneysavingexpert.com website.
 
Heather x

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