daily blog

Unless you’re one of the few people on this planet who enjoy your job and are paid fairly for the work tax mistakes do – you need to read on. You and your family deserve so much more than you spending your time and energy working for someone else – and the government skims a good percentage in income tax anyway – so the more you work, the worse things are at home and the more you pay in tax. Here’s what to do to change that…

*Firstly you should look around and explore your investment options. You should decide on something that suits your personality and what you want to be involved in. For example: you may really enjoy property and decide that’s your thing, or like me you may look at the stock market. *Learn all you can about your chosen strategy of investment. There are tips and tricks to pretty much everything – learn from the mistakes of others and try to emulate their successes. *Practice makes perfect: I’d suggest trying a few practice runs on whatever investment strategy you decide to implement. For example, with stock market investments, try a few paper trades before you go for the real thing. When you’re estimating figures and costs – try and look at the worst case scenario (if you think something may costs between $10 and $12 dollars, estimate it at $12 – that way any savings are an additional bonus.*Reduce the risk you expose yourself to. In any investment strategy you’ll find yourself exposed to risk. The key is to reduce the risk to a level you’re happy with – one that’s manageable. You may have heard of the expression “Don’t keep all your eggs in one basket” – that’s true with investments – diversify where possible. Again, this is an area where educating yourself will serve you well – learn the tips and tricks other make available to you.*Get tax smart – there are tips and tricks to reduce the amount of tax you pay. Depending on your circumstances it may be beneficial to form a company and reduce your tax liability that way. This will be a matter for an accountant, and unless you’re one, I’d recommend having a chat to one about tips and tricks in the tax department.*Choose the time to sack your boss! Once the profits from your investments are at a level where the income taxes generate matches your income, you have the ability to make a decision on whether to keep your day job. I’d suggest when to do that is a choice for you and your family.

These steps aren’t fanciful or a far off dream. They are real steps used by many to establish alternative income sources from smart investing which in time can replace your ‘employment’ income. The time this takes will differ depending on the strategy you choose and the resources you put behind your investment efforts. The first steps can be started today. Learn about your options and choose a strategy that suits you – then read, listen, observe and learn all you can until you become an expert.

LockStockenBarrel.com is a resource for people who want to learn more about investment and finance. It is a constantly evolving and developing site with taxes resources available http://www.lockstockenbarrel.com

A lot of people lose a lot of money by repeating a few basic mistakes. We’ve tried to identify the main culprits here. By recognizing those you make, you can begin to avoid them.

1. Financial Ignorance It seems almost fashionable for some to plead ignorance over finances with the result that we either make the wrong choices or abdicate responsibility to some kind of adviser who may or may not act in (or even fully understand) your best interests. You don’t have to be Warren Buffett, but acquaintance with the basics is within most people’s grasp. Spend a few hours with an introductory book.
2. Inertia Though money is pretty important to most people we don’t always act like it. By taking a little time and trouble to find the best deal you can save a small fortune on insurance renewals, savings rates, credit cards, mortgage etc etc. And with the Internet, and the many comparison sites, it’s never been easier to find the bargains.
3. Failing to Follow the Fundamental Financial Formula (FFF) ie Money Gained (Lost) = Income – Expenditure Dickens’ Mr Micawber expressed it thus: “Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.” Yet burgeoning credit card debts show many of us continue to spend beyond our means with the inevitable problems tomorrow. A simple but effective exercise is to calculate your total income and expenditure for just one week or month, and if the FFF’s in the red you know you’d better make some changes.
4. Lack of Planning You wouldn’t start a tax without knowing where you’re going and having a (vague idea of a) route. But many people’s financial ‘goal’ is just to have plenty of money some unspecified time in the future. You need to set specific goals, eg a vacation, car, house deposit, school fees, an amount you’d like to retire on… tax you’ve done this, you can work out how much you need to save/invest, at what rates, in order to realize your dream. of course, when you do the math you might find some of the goals need scaling back (or you need to raise the amount you save) at the level of risk you’re willing to assume. But at least you’ll end up with a specific and realistic plan.
5. Mental Accounting This describes the tendency to treat some money differently than the rest. You might, for example, be over-cautious with an inheritance from a loved one, over-reckless with an unexpected lottery win, or maybe you hold large balances on low rate savings while keeping expensive debts on a credit card… Mental accounting can be a good thing if it encourages you to budget better, but beware you don’t lose sight of the big picture.
6. The Sunk Cost Fallacy Or throwing good money after bad. For example, you’ve spent a small fortune fixing up your old car, yet it still keeps breaking. Though logic tells you to buy another one you’re reluctant to do so because of the amount you’ve spent on repairs. The same tendency can make us reluctant to get out of a bad stock. Remember, what’s gone is gone, and shouldn’t sway your analysis in the present.
7. Paying Too Much in Fees Time and again research has shown the average managed mutual fund underperforms the market (index) after fees. Sure, some do come out on top, trouble is you can’t identify them in advance. Low cost index trackers or ETFs are a much wiser choice for most investors.
8. Impatience This manifests itself in taxes buying and selling of stocks, dumping those that don’t provide instant gratification in the ceaseless quest for those elusive winners. The only person this is likely to benefit is your broker as counts your commission fees. Impatience is evident in our spending habits. The desire to have everything now means we often pay twice as much by getting it on credit. You can save a bundle by doing without while you save up to buy cash. Also by spending less on “things” today and instead investing in quality assets we can have a lot more “things” tomorrow.
9. Failure to Diversify Markets fluctuate – fact! We need to protect ourselves from this roller coaster by not putting all our eggs in one basket. Something to particularly guard against is investing too much in your employer’s stock. This is good for employers as stock-holding workers are likely to be more motivated, but could be very bad for you. If your employer goes bust you lose your savings and your livelihood. Other ways to diversify are through different asset classes (cash, stocks, bonds, real estate) and geographically, most people hold most assets in their own country, but these days it’s easy to invest elsewhere (most easily through an appropriate index tracker).
10. Not Understanding Your Risk Tolerance Risk and reward go hand in hand. The higher the returns, the greater the risk. There’s no right answer to the amount of risk you should assume, it’s an individual thing. Generally though, the younger you are the more risk you can take. You can allocate different portions of your funds to different levels of risk, eg keeping most of your money in a broad index tracker with, say, 10% in penny stocks. The choice is yours, just be sure you make it consciously.

Johnny is editor of personalmoneymanagement101.com, a simple and unbiased introduction to finance and investment for ordinary people to make the most of their money. Have your say on our blog

Many parts of the world are in recession or at least facing a downturn in the economy. At these times, redundancies and cutbacks are announced on almost a daily basis. Like all events, the current economic challenges present the opportunity for learning for current and aspiring business leaders. So what are 5 key lessons from the current recession?

Lesson 1: Take a long term view

Businesses exist or are established with a view to growing and existing for a long time. With so much information so freely available about opportunities to make gains now or the constant focus in the media about how bad things are, it is easy to lose sight of the bigger picture. By keeping a focus on the bigger picture and recognising that the economy generally goes in cycles, you can avoid taking short term decisions which are not in the best long term.

Lesson 2: Don’t put all your eggs in one basket

In business it is important not to put all of your eggs in one basket. It is important to have a portfolio of products and/or services so that you can spread risk and reduce the impact of downturns in the economy. This is exactly what we do when it comes to investing or saving. We have a range of options to spread the risk.

Lesson 3: Continually innovate

Successful businesses don’t stand still. They are continually looking for new products or services they can offer or new and innovative ways of offering what they currently have. In large organisations it is easy to become complacent, to stop looking out for ways to address an unmet need or to believe that the good times will stay for ever. Having different products and services at different stages of the life cycle is important and this requires constant innovation.

Lesson 4: Focus on the way forward

Pick up any newspaper, listen to radio or watch TV and chances you will come across lots of negativity about how difficult things are. While without doubt things are challenging at the moment, there is little point in investing time and energy focusing on what has happened. Time and energy focusing on the way forward is much more productive and beneficial than focusing on what has happened. Make a commitment to focus on how you move forward and achieve even more success.

Lesson 5: Expect uncertainty

Uncertainty is part of parcel of being in a leadership role and it is essential to your success that you expect, accept and prepare the best you can for uncertainty. Regularly look at trends in the area which you operate. Consider what might create uncertainty. Develop your ideas on how you will address the uncertainties if they arise.

Bottom line- The economy will always go through periods when it is strong and periods when it is weak. As a leader you need to prepare yourself the best you can to prosper in both good and bad times. I invite you to take the first step by signing up for my free e-course and monthly newsletter at

http://www.goalsandachievements.co.uk

Duncan Brodie- Goals and Achievements