February 2019

As financial planners, it might be tempting for you to believe that we think so.

After all, why would we spend all day advising clients on pensions, tax and investments if we did not think to have more money would make you happier?

At Weston Murray & Moore our slogan is: “You have one life, let us help you live it.” So clearly, we believe money has an important role to play in making our clients happier.

However, we also believe that things are more nuanced than the simple equation:

Having more money = a happier person.

Really, we think that sensible money management is an important means to an end. That is, it helps you to achieve the goals in life that are truly important to you.

Let’s unpack the relationship between money and happiness a bit more…

Does having no money equal no happiness?

We all hear stories of terrible poverty in the world. Many people still live on under a dollar a day, for example, and struggle to feed their families. If a medical emergency comes their way, moreover, it can completely wipe them out financially.

Clearly, a base level of money is needed for humans to at least tolerate their existence – paying for essential food, shelter and other vital goods. Few people, we think, would dispute that.

Yet when you look at people on the lower income scales in society, there is usually a mixture of happiness levels across the picture.

For instance, some families have very little in the way of material goods but at the same time, they experience a lot of joy. Perhaps they have lots of children living in a small house, and they struggle to afford food and clothing. Yet in the midst of this, there is lots of fun and laughter. They do not seem too upset that they cannot afford a more lavish lifestyle.

Yet for other lower-income people, their existence is miserable and full of unhappiness. Perhaps they are saddled with crippling debt which they feel unable to escape from, creating a deep sense of entrapment. Maybe a family would like to move out of a high-crime area into a safer one, for instance, but they cannot afford to do so.

Does having more money mean more happiness?

On the other side of the coin (i.e. the wealthiest members of society) the situation seems to be similarly reflected. There are many wealthy people who are perfectly content. They enjoy the finer foods and also the most incredible holiday experiences. They live comfortably in large homes.

With such immense financial resources, how could these people not be happy?

Yet we all know of wealthy people who are deeply miserable! Perhaps they have multiple homes and expensive cars, yet their debts are hanging over them like a dark cloud, threatening to derail them at any moment. Maybe they worry about their precarious financial position due to market threats to their business, which ultimately supports their lifestyle.

Where financial planning fits into the picture

We deal with a wide range of financial matters and clients, and know all too well how complicated the relationship is between money and happiness.

If you are looking for the definitive answer on how people can address all of their inner angst about money, we, unfortunately, cannot provide it here.

Yet we can offer an important piece to start fixing the puzzle – and that’s through meaningful, effective financial planning.

Really, a financial plan starts with asking yourself what is ultimately important to you:

Is your deep desire to one day sell your business and retire early to enjoy a long-time hobby?

Is it to travel the world with your wife of thirty years?

Is it to leave a meaningful inheritance to your grandchildren, giving them the better start in life you wish you could have had?

Once you know the answers to these questions (what really matters to you and will make you happy), then you can then start planning towards making these goals a reality.

Simply having a financial plan can go a long way towards making you happier. Speaking from experience with our own clients, knowing that you are steadily moving towards your goals usually brings a huge sense of satisfaction, purpose and peace of mind.

Sitting down with an experienced financial planner can be immensely valuable when thinking about putting your plan together.

It might be, for instance, that some of your goals are not actually possible in light of your current financial situation. This can be difficult to come to terms with, but it is better to deal with that now and revise your expectations rather than hitting a shocking dead end in years down the road.

In many other cases, however, it is often the case that you can achieve much more than you thought previously was possible. Perhaps we could show you a planning opportunity which means you could actually retire earlier than you thought, for instance.

Or, maybe you find out (through estate planning) that you could leave much more to your grandchildren as an inheritance (tax-free) than you previously believed would be possible.

Summary

How could we round up everything we have talked about above?

In short, we believe that a key part to a happy life is having a clear set of meaningful goals in front of you, and putting a financial plan in place to move towards them.

Quite often, the key to happiness when it comes to money isn’t about having more or less of it. It’s about managing it well and committing it towards the things that matter.

If you would like to start talking to us about how to start putting a financial plan like this together, then we invite you to get in touch. We’d love to talk more with you through a free, no-commitment financial consultation.

Get in touch today!

We are fast approaching the ISA season (i.e. tax year end), and my thoughts turned towards making sure our clients maximise their allowances where possible. With this in mind, I thought I would pen some thoughts on the advantages of putting your money into an ISA, and, as there are lots of different types which one(s) should you chose?

We frequently advise clients on these questions. Simply put, an ISA (individual savings account) allows you to save money and gain interest, without it being liable to income tax.

ISAs are available to UK residents aged over 16 (except in the case of Junior ISAs). In 2018-19 you can put up to £20,000 per year into one ISA or across multiple ISAs. This limit is fixed for the financial year. Although generally, you cannot reset your limit by withdrawing money from your ISA, with some schemes you can, so not all ISA’s are equal!

Different ISAs do exist,  offering certain options to the guidelines described above. So let’s briefly look at each one, with a note on some of their respective pros and cons.

Help to Buy ISA

This ISA is actually set to be phased out by November 2019. However, it is still useful to know about them in case you want to set one up before then.

Help to Buy can be an attractive saving mechanism for first-time buyers looking to save for a mortgage deposit. Under this scheme, you can save £1000 in your first month and £200 per month thereafter, tax-free.

When the time comes to putting down your mortgage deposit, the UK government will then add 25% (tax-free) to the amount in your ISA. This “bonus” is capped at £3,000.

This can be a great option for couples who are both first-time buyers, as you can both open a Help To Buy ISA. This means you could buy a house together and get up to £6,000 extra from the government as a bonus.

One downside is that the property you are looking to purchase must be valued under £250,000 (or £450,000 in London). You also need to use a solicitor when applying for the government bonus, which can be an extra cost of around £60 for an administrative fee.

Cash ISA

If you have an ordinary savings account and you have lots of money sitting in it, then you might have to pay income tax on the interest you have gained (i.e. 20% on any interest over £1,000, assuming you are a Basic Rate taxpayer).

With a Cash ISA, however, if the money was sitting in here then the interest would not be taxed. The features of this type of ISA is very similar to a typical savings account, so you are usually able to withdraw money fairly easily.

You can transfer a cash ISA (e.g. from one bank provider to another one), although this can sometimes incur a transfer penalty. Check with your provider before moving money around.

Stocks & Shares ISA

Some people want to use an ISA to save in a tax-efficient way. However, we frequently talk to people who want to use an ISA to invest – in order to attain higher returns from the interest they generate.

A Stocks & Shares ISA is one way to do this. Here, the money you put into it is invested into certain financial products. These might include funds (i.e. company shares and bonds which have been pooled together), government bonds or other investment assets.

These ISAs are attractive because they can offer a higher return than a Cash ISA, or ordinary savings account. The profits you make will not be taxed. However, your money is usually locked away for at least a few years, which limits your ability to withdraw it. Moreover, the value of your investment could go up or down depending on performance.

Innovative Finance ISA

When it comes to investing, there are different levels of risk. Investing in UK government bonds, for instance, is usually seen as fairly low-risk because the UK government is widely seen as reliable when it comes to paying its debts.

Other investments offer higher potential returns, but are inherently more risky. For instance, peer-to-peer lending (i.e. lending money to other people/companies) is regarded as in this category.

One way you can do this is via an Innovative Finance ISA, which allows you to invest in riskier opportunities without being taxed (e.g. crowdfunding and property). You should think carefully before committing large sums of money to an Innovative ISA, as this should be done within the context of a balanced, well-thought-through investment plan. Speak to one of our Oxford financial advisers if you would like to know more.

Lifetime ISA

The Lifetime ISA (or LISA) is a fairly recent scheme allowing you to save up to £4,000 a year. Whatever you put in, the UK government will add 25%. So if you put in the full £4,000 each year, you actually end up with £5,000.

The government bonus is capped at £33,000, which would actually take a long time to build up (e.g. starting your LISA at aged 18, and putting in £4,000 each year until your 50th birthday). You need to be over 18 when you open a LISA, but under the age of 40.

The main condition of a LISA is that the money must either be used for your retirement, or towards the purchase of your first home. Use it for another reason, and there would be a 25% charge – leaving you worse off than before.

Which ISAs do I need?

The answer to this question depend entirely on your own unique financial situation and goals. If you are looking to buy your first property in the next few years, for instance, then the LISA might be an option to consider. If you are over 40 and already have a mortgage, however, then this will not be open to you.

Currently, with the LISA and Help To Buy ISA both still on offer, it is worth considering which one might be better for your needs if you are looking to buy your first home soon. A big consideration here, of course, will be the value of the property you want to purchase. If it is likely to be valued over £250,000 then Help To Buy will not be suitable for you.

Regarding Cash ISA, Stocks & Shares ISAs and Innovative Finance ISAs it can really help to discuss your investment strategy with an experienced financial planner. Due to the different levels of risk and potential returns involved with each ISA, it is important to consider which option (or balance of options) might best suit your risk tolerance and financial goals.

In recent client review meetings, I have been asked about the options for University saving and the impact on the family budget. Having a son currently enjoying his gap year in Japan means this was close to our hearts when originally setting our own plans. With that in mind, I thought this article may be helpful.

With university tuition fees in England now approaching £9,250 per year, many young people are understandably questioning whether higher education is worth the investment.

We have many clients with children asking such questions. Given the importance of education to one’s career prospects (and, therefore, your earning potential) we wanted to offer some practical tips about the financial costs of university:

Is going to university still worth it?

Only you will truly know whether attending university is personally right for you. From a financial point of view, however, we can offer some suggestions to help you decide if it is worth 3+ years of your time.

There is some evidence to suggest that those with an undergraduate degree are paid more than those without one. However, the picture is not completely clear-cut.

The statistics point to certain university degrees offer a higher earning potential than others.

The institution you attend also has a big impact but surely it is more important to find the best university for your child, than just simply the best university

Historical statistics point out that female graduates are also more likely to see a bigger financial benefit from university compared to men. Women with a degree are estimated to earn 28% more than those without. For men with degrees, their earnings are about 8% higher compared to their non-degree counterparts.

Mixed in with all of this, of course, are the costs of going to university. In other words, even if your earning potential is higher with a university degree, is the up-front investment and subsequent debt you need to pay worth it (from a financial perspective)?

You will need to sit down and do some sums for your own particular situation, but here are some suggestions as a general guide.

Firstly, and importantly, remember that you do not start paying back your student loan until you start earning. For instance, if you start a university degree this coming September (2019) then you will only start paying back your loan once you start earning over £25,000 per year. You will then have to pay back 9% of your earnings over this amount.

But do remember that your student debt is wiped after 30 years after you started paying it back. So, if you start repaying it from the age of 25 you will no longer have to do so once you reach age 56.

So, it looks like you should not pay your student loan back early as the debt will eventually be wiped anyway. Try to think of the monthly payments as a kind of “graduate tax” which you pay for having attended university.

In our view, attending university still makes a lot of sense from a financial point of view – despite the student loan repayments you will have to make.

However, this does not mean university is right for everyone. Nor does it mean that there are no other options available to you which could offer even higher earning possibilities or fulfil your life’s ambitions

How much money do I need for university?

There are many factors involved with answering this question, including where in the country you will live whilst you study as well as the length of your course.

You already know that you will be facing tuition fees of up to £9,250 per year if you are a British student studying in England. However, you only start paying that back later – so set this aside in your mind for now. We are concerned with how much/if you need to save beforehand in order to live comfortably whilst at university.

Your main living cost whilst you study will be your rent. When we looked in 2017 it averaged at £125 per week – or £4,875 a year on a 39-week contract. Certain locations such as London, however, present higher rent costs.

Essentially, we are suggesting that parents have honest discussions with their child and more importantly, incorporate it into your family long term financial planning.

If you would like us to help you with this, please do get in touch.