During the Christmas break, I watched a great movie called “All Is Lost”. Now bear with me, I know the title sounds ominous to say the least, and yes, it was a disaster movie but there were many morals I’d like to share.
The story is about a man played by Robert Redford who is at sea on his sailboat in the middle of the Pacific Ocean. One afternoon, he is blissfully relaxing down below deck reading a book when all of a sudden, wallop! His boat crashes into a shipping container that’s floating and adrift. This rips a hole into the side of his boat the size of a microwave oven. This happens in the first few minutes of the movie and from this point on, the character is in full on crisis management mode.
I’d love to say that he made all the right decisions at the right time, but that simply isn’t true. What I can say is that he never stopped “making decisions”. For better or worse, he kept moving forward. Paralysis or over analysing was not an option, there simply was no time for any of that. As soon as he was presented with a problem or challenge, he’d look at the situation and think of a couple of solutions, then spring into action and do them. Sooner rather than later, he’d have another problem to solve and the process would repeat over and over again. This went on for a total of eight days during which time, he had to solve a myriad of problems ranging from:
His boat sinking
Running out of food
Running out of water
Being thrown overboard
His radio stopped working
and the list went on and on and on.
What I like best about the character, I can’t remember his name, so we’ll call him John for argument’s sake, is that throughout the entire movie, John faces life-and-death situations constantly, yet he rarely lost his temper, got flustered and never panicked. This guy was a legend! He hardly even says two words throughout the whole movie. What made John’s character more believable, was that he was an elderly gentleman. Full of life experience and wisdom.
Whenever presented with a new challenge, he simply stares intensely at the problem, thinks about it for about 10 seconds, then sets about fixing it(or tries to fix it!) as quickly and as efficiently as possible. Whilst he is staring at the problem, you can almost see the gears ticking over in his mind. He is working through the different scenarios and solutions, weighing up the pros and cons etc.
I remember thinking, Wow! That is exactly the kind of temperament you need in a crisis situation, on a boat, with no help in the middle of the ocean. And then I thought, do you really need to be in a crisis situation to benefit from this kind of temperament, calm and control? Of course not! As far as John was concerned, it made no difference whether he screamed, shouted or made a noise of any sort or even bitched and moaned about it. There was no one around him to hear him, console him or comfort him. He never seemed to feel sorry for himself, bury his head in his hands, feel shame and say “how did I get here, or what have I done to deserve this?”.
Stories like this really help to put things in perspective. We all have problems, no doubt about it. Sometimes we feel lost at sea, but I suspect many of our problems and daily dramas pale into insignificance compared to John’s. So how about a little more resilience and perspective for 2016 everybody? What do you say? Why don’t we all learn something from this characters ability to “roll with the punches” and keep his chin up. Have an excellent 2016!
From building circles of support, to embracing your business’s story. Here are the most important lessons I’ve learned from going it alone.
It’s been 1 month since I left my regular job and I’m a little behind schedule. I have a rough idea of what I need to do and when, but perhaps I need a more detailed plan? Actually, I have a one-page document with lots of bullet points which my self employed colleagues assure me is good enough so as far as I’m concerned, I’m good to go.
Why create a business?
I want freedom to work remotely
I want freedom to be the master of my destiny
I love creating stories with data that I believe in and am passionate about
I want the opportunity to help people simplify their understanding of their data
I want the ability to have some control over my taxes
Incorporating my business My business is called Datachronicle Ltd, and we are a data visualisation and business intelligence consultancy. We help clients better understand and tell stories with their data. This takes many forms including, analysing it by peeling back the data layers, cleaning and reformatting it to improve quality and usability and finally, using it to tell stories to support and increase impact. Data visualisations can also be used to support a whole host of entities including research, articles, business reports, analytics, marketing and monitoring dashboards.
I’ve always been a passionate chartist. By that I mean I’ve always loved working with and looking at charts. For a time, I practiced currency trading online with my own capital. This was both exciting & stressful but through it I learned how to read charts as well as query them intensely for information. I also had to construct and test hypotheses for validity. I love to visually discern the hidden gems of information buried within large amounts of data. I believe that data is always trying to tell us something, we just need to be patient, attentive and meticulous, to find and highlight what it is.
Vision for my business Firstly, I want to help clients (e.g. researchers/academics/journalists etc) tell better stories with their data to support their research or articles. I also want to help businesses better understand their data through analysing it as well as make better sense of it by creating reports and/or visual dashboards to help them grasp a lot of information quickly and visually.
Where am I with my business?
I knew that running my own business was going to be different to what I’d expected, but no matter how much you prepare yourself, it’s always a surprise when you begin. Actually setting up my limited liability company (Ltd) wasn’t that difficult. It was a little tedious (1 hr of online form filling on the Companies House website) and relatively cheap, £15. One of the more difficult parts of setting up a company that I’ve found has been creating ‘content’ to describe what my company does. This content is being used for my ‘elevator pitch’ whilst meeting and talking to people at networking events as well as being a collective well of ideas for my companies strapline and website content.
Don’t underestimate how difficult and valuable this process is. Concepts and phrases that seem obvious to you, won’t necessarily seem obvious to others. I attended a ‘start-up writing’ workshop run by Stranger Collective to help me with this. Not only did I get help with my words and content but I also met like-minded entrepreneurs in the same boat.
Networking and marketing When you attend a networking event and you‘re excited and ready to meet some new people, you get into a conversation, beer or glass of wine in hand and they say,
“So what does your business do?”
If you’ve prepared, ie. you’ve gone through the process of documenting how to talk about your business, this is an exciting conversation, filled with information flowing back and forth between you and your new found acquaintance. However if you haven’t, this can be a slightly awkward and deflating conversation to have.
I knew there would be marketing and networking involved, however I underestimated the sheer amount that needs to happen on a daily basis. This lesson I’ve learned very quickly. However ‘learning’ and then ‘executing’ are two separate skills and I’m constantly working to develop and improve. I’m beginning to engage more on social media though I’m not naturally inclined to shout about my achievements or capabilities. Self-promotion/brand promotion is extremely important when starting you own business so I’m stepping up my efforts. I’m sure I’ll make mistakes, may even get a little egg on my face at times but it’s all part of the growing process.
Creating an online portfolio of work is proving more difficult than I thought as much of the work I’ve done in the past can’t be shared online due to client data privacy reasons. An obvious solution to this problem would have been for me to create and display my own separate work online prior to starting my own business. Alas, hindsight is a great thing, however it seldom helps solve your immediate problems. As a result, I’m having to create my online portfolio while simultaneously creating my company website. Not ideal and could have been avoided but lesson learned! I will also focus on writing a few case studies to help communicate projects I’ve worked on as well as what I can do to help clients.
“We are social creatures, so go out there and meet people, start conversations, listen, learn, explore and experiment. We only get one life so live it to the full!”
Support circles When you first start out on your own, It can be a bit isolating. Which is why it’s a good idea to have some circles of support. People who share your beliefs or who you have something in common with. Before I left regular employment, I attended a few networking events that were aimed at bringing people together who all believed in happiness in the workplace and designing your life by doing what you want to do the way you want to do it. This has helped me out enormously. They’re called the Happy startup school. It’s there I’ve found some great people, founders such as myself who are either running their own start-up businesses or just starting them. I’ve also made some great friends and contacts. We all help each other through an online community as well as meet as workshops, training or just for drinks after the day’s work is done.
Marching on In fairness I’m only slightly behind schedule with my plans. Probably about 2 weeks. As I’m currently working on my own, I’ve also realised it’s important to occasionally work in the library or in collaborative workspaces such as the Impact hub where you can meet other like-minded entrepreneurs. Being able to bounce ideas of people as well as engage in the occasional watercooler chatter is great. We are social creatures, well most of us are so go out there and meet people, start conversations, listen, learn, explore and experiment. We only get one life so live it to the full!
I attended the Money week workshop which was part of the world money show. It was held at the Queen Elizabeth II conference centre in central London on the 8th November. There were four presentations but I’m going to focus on the ones given by Merryn Somerset Webb and Ed Bowsher on the following topics:
•The impact of quantitative easing on the economy
• Asset allocation
These two topics affect us all greatly whether we know it or not. ‘Quantitative easing’ (QE) has been hailed by bankers and politicians as the answer to our countries economic problems and asset allocation is an un loved topic that has caused many unsuspecting investors(I mean you and me) a lot of pain due to our ignorance of the subject.
During the sessions, I began to wonder and thought, what’s my financial situation like and where am I heading? What follows is a summary of the topics covered.
The impact of quantitative easing on the economy, Merryn Sommerset Webb
The following chart was taken from the Bank of England’s quarterly bulletin report, 2011 Q3 | Volume 51 No. 3 and is a reflection of their own findings.
In order to understand the above chart, it’s best to focus on one coloured light at a time. The vertical dotted line shows what happens when the Bank of England(BoE) stops its QE programme. So starting with the red line which represents ‘real asset prices’, i.e property, land etc, you can see that during the early impact phase of QE, asset prices rise quickly as the BoE injects liquidity into the economy. This generally makes people who own property and real assets feel good so they in turn go out and borrow or spend more money into the economy. However when the QE stops, real asset prices decline sharply over time.
The dark blue line is ‘Broad money’ which is the total amount of money swishing around in the whole economy. As you can see, it rises sharply during QE and then stays flat. Not much to say here apart from generally speaking lots more money in the economy usually leads to inflation or higher asset or consumer prices.
The Light purple line is ‘nominal demand’ or the demand for money. I.e the demand for investments in the economy held in cash goes up versus other assets like property, precious metals etc. Generally high money demand is good as it increases liquidity in the system which is essential for the normal buying and selling of goods and services in an economy.
The next line is the yellow line, ‘Real GDP’. It’s very telling to see that even with hundreds of billions of pounds pumped into the system through QE, the real GDP of the UK will only go up marginally and eventually tail off quickly after the QE has stopped. Thus, without any real GDP growth, the likelihood of new jobs being created is greatly reduced.
‘Consumer prices’, only go one way over time, up and up ! This happens even after the Bank of England has stopped its QE program.
The green line represents ‘inflation’ which rises and falls in a relatively smooth curve. I’m not sure I agree with this as surely real asset and consumer prices rising would constitute inflation? This does seem contradictory, and the truth is that each country has its own way of calculating inflation. You can find more info on UK inflation at my ‘Beware the inflation thief in your pocket’ post. Needless to say, property price increases are not used when calculating inflation in the UK.
It is apparent that QE in the long term does not really do much good for the UK economy. It Inflates asset prices for a while, thus benefiting a small proportion of the population, but for the majority of the population who do not own property or real assets, consumer prices will rise and an increase in real GDP will be marginal.
Asset Allocation, Ed Bowsher
This is often seen as a boring subject and frankly, it kinda is. However at least a basic grasp of it is essential in helping you avoid investing disaster in the future.
Why should you Asset allocate ?
• To reduce your risk and improve your returns on your investments.
The different types:
Strategic asset allocation
• This is a long term strategy that allows you to ignore market volatility and the day to day price gyrations in the markets.
Tactical asset Allocation
• This is a short/medium term strategy that allocates your assets to reflect the current market conditions.
It’s generally best to begin with a strategic asset allocation and then adjust it as you go along.
Essential questions to ask yourself before you begin:
• Why are you investing and over what time period?
(The general rule is, if you are rich and have more time, take more risk)
• How much cash do you have now?
• Do you own any pensions or other assets?
• What is your attitude to risk?
(Are you risk averse, or like some excitement in your investing life ?)
The Main asset classes
• Equities (shares, mutual funds, index trackers etc)
• Gold and silver/other commodities
These generally come with higher risk and higher volatility. They do tend to deliver higher returns and if you invest for the long-term you may reduce your risk. Other risk minimising strategies are to invest in funds as opposed to individual shares and diversifying your investments into different sectors.
UK gilts are generally seen as low-risk as it’s not likely that the UK government will default on its obligations. However bonds from other countries, especially the emerging markets can be seen as risky. Corporate bonds have got a wide spread between risky and not. It very much depends on the quality of the company issuing the bond.
Much loved by many investors, especially here in the UK where we seem to be quite property mad! It has delivered some good returns over the last few decades but this is not indicative for the future. New stringent lending criteria by the banks and the possibility of a future increase in interest rates will have an impact on the returns possible with property investment.
Gold and silver
Mostly seen as an insurance investment against disaster in the markets. I.e. if there was a sudden and dramatic drop in the FTSE 100, investors tend to flock to the historic safe haven that is gold and silver.
Ed Bowsher then went on to present some numerical examples to asset allocation. He described these as ‘back of an envelope’ ideas, so take these figures with a pinch of salt and as a general guide. I don’t necessarily agree with these numbers myself but as everyone is different, they could be a good starting point.
Some final thoughts regarding the different asset classes:
• Due to the Federal reserve’s continuous QE programme in the US, US equities are currently looking rather expensive.
• Property prices are currently very high in the UK so maybe not the best time to jump in as far as maximising your returns go.
• Bonds are riskier than normal due to the massive levels of debt we have here in the Uk.
• Due to the historically low interest rates, returns on cash savings are very poor, perhaps peer-to-peer lending i.e. crowdfunding programs such as ‘Zopa’ might be worth a look.
• After continuously rising for a decade, the gold price has fallen a long way to 2010 levels. Perhaps this is a good time to buy as it appears that gold is relatively undervalued presently.
Is it time to ponder where the UK economy is headed and what this means for you and your family? Are your assets well allocated to weather any financial storms or take advantage of any economic miss allocations. If you have any comments, go ahead and share your thoughts in the comment section below.
Inflation is an increase in the money supply which results in rising prices for goods and services. Too much money chasing too few goods debases(makes it worth less) the value of our money and causes prices to rise. That means that the money in your pocket buys less and less stuff during periods of inflation.
Many things in the economy are priced off the current rate of inflation. The Bank of England sets interest rates based on current inflation levels, which in turn affects the amount the government pays to state pensions, benefits etc. The interest amount banks pay to savings accounts as well as the amount of money you need to pay for your mortgage is also affected by the current levels of inflation. Did you know that the Bank of England(BoE) currently has a 2% a year inflation target ? That means that the BoE intends to debase the currency by at least 2% a year.
How is it measured?
The Office of national statistics collects a ‘basket of goods’ and tracks any price changes. There are 700 items in the basket and these items are updated/reviewed regularly to reflect changes in technology as well as their relevance/necessity to the general public.
The most commonly used measures of inflation in the UK are the Consumer prices index (CPI) and the Retail prices index (RPI). Each of these measures looks at the prices of many things we tend to spend our money on. The CPI basket of goods includes things like cinema tickets, bread, alcohol etc, whilst the RPI basket includes things like mortgage interest payments, council tax etc. These indexes represent inflation as a percentage. For example, if the CPI was reported as being 4%, that means that generally speaking, the amount we pay today for goods and services is 4% higher than a year ago.
Both these indexes calculate inflation using different formulae and the RPI is generally larger than the CPI figure. The UK government uses the CPI as the de facto measurement and some employers use either of these measures to set annual pay increases.
Infographic by Office for National Statistics (ONS)
Difference between consumer and asset prices
There are 2 types of prices you need to bear in mind when thinking of inflation, consumer prices and asset prices. Consumer prices are the cost of items such as tv’s, fridges, food, energy etc. Asset prices are the cost of items such as property, stocks and shares, land, precious metals etc. When the economy is experiencing periods of inflation, it’s important to remember that prices in different sectors of the economy may not rise at the same time or by the same amount. For example, the CPI is currently at 1.6% yet UK house prices increased by 9.1% this year to February 2014.
To easily get a feel for just how much inflation there has been over the years, why not visit the Bank of England’s inflation calculator page. You are able to choose a start and end year as well as a fixed amount of cash to work with. The inflation calculator then works out how much more money you’d need in today’s money to buy the same goods and services.
For instance, I used a ten year period with a start year of 2002 and end year of 2012 as well as an amount of £100. I.e. What would goods and services costing £100 in 2002 have cost me in 2012? The answer is £137.76. That’s a 37.8% increase over the 10 years averaged out at 3.2% a year ! Another way of looking at this is, if you had stuck £100 in your mattress for those 10 years, that same hundred pounds would actually be worth £62.20 in real terms in 2012.
What would you add?
Have you had any noticeable experiences with inflation ? Perhaps you’ve noticed a reduction in the quality or quantity of services yet no reduction or even an increase in price ?
Today, we live in a debt driven economy. Buy now, pay later. 0% interest for 1 year on our credit cards etc. If you allow yourself to be seduced by such schemes, you are likely to accumulate a lot of debt. You need to break the cycle and focus on: Savings, savings, savings. This has been the bedrock of capitalism for centuries and it is what you need to start your money machine.
Pay yourself first
“A part of all you earn is yours to keep”, The richest man in Babylon, George Clason.
If you want to be on the road to wealth, you need to pay yourself 1st. The majority of us pay everyone else first and ourselves last, i.e we pay the rent/mortgage first, we pay transport costs first, we pay our credit cards bills first and only after all of that is done do we look at what is left, and decide what we can save. Wrong, wrong, wrong.
Do not underestimate how important this first step is. What does it really mean to pay yourself 1st? Every month, put as much as you can afford to save into a savings account. This amount must be at least 10% of your take home pay. The best way to do this is to setup an automatic transfer of funds at your bank, why ? So you don’t have to think about it and won’t notice it when the money’s gone !
Congratulations, you have now started your money machine. Every pound you save is an employee working for you. Any interest earned on your savings are more employees working for you. Put your dreams, your financial well-being and that of your families before the needs of your utility companies, your employer and your creditors.
Don’t wait until you have money to save
“If only I earned more money or if taxes weren’t so high, I would have enough money to save.”
These words sadly echo much denial or misunderstanding for if we ever want to be in a position to invest or to get on the road to financial freedom, we must cast such thoughts from your minds and settle down the simple and timeless maxim,
“Spend less than you earn and invest the difference”
That’s it I hear you say? I know it’s not particularly impressive, sexy or exciting but when all is said and done, that is all there is. Let me put it another way, such philosophies can be traced back thousands of years to ancient Babylon and personally, if it was good enough for them, it’s good enough for me .
Most of us know this simple maxim and many of us have practised this at some point or another. But how many of you have practised this consistently for a sustained period of time? I struggled with a lack of investment capital for years until I decided to do this consistently. That means come hell or high water, I have always paid myself first. I had practiced many personal finance strategies for years but never seemed to be making much progress and then one day it hit me. I had been working hard and ‘trying’ to save but had been hopelessly inconsistent with my saving habits.
When you decide to do something you must stick to it and follow through. That’s the only way to see measurable progress in a reasonable amount of time. That in turn will inspire you to ‘keep on keeping on’ with the business of starting your money machine. I know this can be difficult sometimes when money is tight but if you don’t plan to do this, then you are in effect planning not to have the future of your dreams. Sad, harsh maybe but true.
There will always be bills to pay, there will always be friends and family members who need help financially but you must develop the ability to manage these things ‘after the fact’ that you have paid yourself first. That comes before everything after all, how can you help others if you cannot help yourself ?
Like most people, I wasn’t taught about money at school. I wasn’t taught about money at home either. As money really does make the world go round, it’s baffling that so many of us are not taught about it.
This site aims to simplify and demystify the topic of personal finance and money. How to make it, keep it, and have it work for you. Many people, including myself are striving for the holy grail of financial independence through either being their own boss, or by achieving ways to supplement their cash flow through passive income streams.
When you decide to become financially independent, you embark on a continuous journey of self-discovery and accomplishment. There may be many bumps in the road ahead, but there is also much pleasure and satisfaction in the learning and commitment needed to achieve financial independence and obtain the ultimate prize.
For me that prize is freedom.
“Smart money” represents making better choices with your money. Every time you receive income, you have the power to either spend it, save it, or invest it. The more smart choices you make with your money, the quicker you can get on the path to achieving financial freedom.
“Money tree” represents your personal finance structures. Rooted in savings, the trunk of the tree could be thought of as your day job or main income source. The branches and leaves represent the limitless possibilities of alternative income streams.
We all need a smartMoneytree. Nurturing and growing it will not only improve your financial intelligence, but also improve your confidence and ability to deal with any future money troubles.
My curiosity with personal finance started in my early teens. My family’s circumstances changed and we suddenly went from a comfortable life in the countryside without money worries, to an uncomfortable life in the city full of money worries.
My parents hadn’t particularly done anything wrong, they simply had too much of their cash in the wrong bank at the wrong time and their bank failed. I vowed that would never happen to me and ever since I have been interested in financial literacy and money management.
That being said, my money problems increased greatly when I went university. If you have little financial intelligence and no money, you can only do yourself so much damage. However if you have little financial intelligence and have access to a lot of credit, the damage you can do is massive. Credit cards, overdrafts, store cards, signing contracts for services that I didn’t need — you name it, I did it and I left with an eye watering debt.
I was naive enough to believe that I’d earn so much money as a graduate, I wouldn’t notice the repayments. Wrong! I believed that myth, hook, line and sinker. I was in debt within the first three weeks of university and didn’t pay off my student loans until ten years later.
The worst thing about my spending spree was I didn’t even spend cash on expensive toys or holidays. I spent most of it on taxis, eating out and music concerts. I simply had no idea how to be financially prudent and so I only paid the minimum payments on credit cards whenever I could etc.
That’s all it takes, apathy, Ignorance and time! When the music stopped and my house of cards came falling down after a spell out of work because of illness, I didn’t have that much to show for my 10 year spending spree except a lot of debt, anger and confusion.
Up until that point, I had also been a keen investor and owned many shares. I had to sell my shares to pay the bills and this left a nasty taste in my mouth.
My parents misfortune and my spiralling debts after university forced me to take responsibility for my financial intelligence. I knew I had to make a lot of changes, but at the time, I just didn’t know what to do or how to do it.
I began to read many books on personal finance such as Robert Kiyosaki’s, “Rich dad poor dad ” and “Wealth mechanic” by Max Eames etc. This enabled me to confront my situation and tackle my debt demons head on.
I had always harboured dreams of being an investor and being financially free and so during my debt repayment years, I was able to go on currency trading courses and trade part-time. I wanted to be able to read charts of the different markets and be able to gauge the mood and market sentiment. This skill is invaluable to me today as I habitually look at the markets first thing every morning. I also wanted to be able to analyse risk and improve my money management skills.
After four years, I mastered them well enough to win my first currency trading competition. How could I pay for trading courses if I was in debt and broke I hear you ask? I swapped my IT skills for the training! I’ll write more about that in a later blog but it’s important to remember, even when your bank account balance is low, you always have skills you can call on and exchange.
I started this blog because I want to build a community, share information and help as many people as I can to understand debt, personal finance and money management.