At the end of advertisements for financial products and services you will find a large chunk of small print with statements such as:
the value of investments can go down as well as up, representative Apr. of xxx% or your home is at risk if you do not keep up payments secured on it.
The problem with small print is
a. it’s rather small,
b. overly complicated and
c. most of us don’t read it!
The Dutch financial authorities have taken a different approach with the strapline, “Borrowing Money Costs Money” – don’t you just love the simplicity?
It’s along the lines of the straight to the point health warning “Smoking Kills” or “Don’t Drive Drunk”.
Considering that stress is a major cause of death and disease and money worries are a major cause of stress maybe the time is right for a health warning on loans and credit – “Borrowing Money Costs Money”
Take a look at the highest yielding UK FTSE 100 stocks right now and you’ll quickly see that the top spots are dominated by the country’s biggest insurers.
Companies like RSA Insurance Group, Aviva Insurance and Resolution top the list with very healthy dividend yields not all that far short of double figures.
In other words, these are crazily high yields for the low interest rate environment we’re all living in. And this at a time when savers and investors everywhere are desperately seeking higher yields.
So what’s the problem? Well maybe there isn’t one, but there’s no such thing as a free lunch as the saying goes – and no investment is ever without risk. And the way these insurance giants make a lot of their money is by investing the premiums we pay them after we’ve received our house insurance quotes, or car insurance deals etc.
And where do the insurers invest this money to try and make greater profits? Well that’s up to them of course and it’s all part of the business of running a big insurance company. But if they can’t get much of a return, and the insurance market itself is fairly competitive, then maybe they won’t be able to maintain these mega dividend yields without going back cap in hand to their investors for more money via a fundraising of some kind. And whenever the big insurers do this, their share price takes something of a hammering.
In other words, it’s all a bit of weighted gamble and depends just how conservative and sensible they’re being in investing their money in such troubled and uncertain times.
So next time you get your home contents insurance quote and you decide to shop around a little, you may decide to invest the savings you’ve made in one of these insurance giants for the dividend yield which could save you even more money. Then again, you may not and that, of course, is what makes the market!
With many banks tightening their purse strings and grants or other start up incentives becoming much harder to find, many entrepreneurs may need to find alternative sources of funding to get their start-up off the ground or fund their expansion. Indeed, 65% of entrepreneurs planned to seek alternative finance in 2012, according to a survey by Huddlebuy.
With this in mind, in December 2011 Business Secretary, Vince Cable MP launched a taskforce to open fresh funding channels for small UK businesses – putting particular emphasis on the opportunities of Crowdfunding.
What is Crowdfunding and how does it work?
Crowdfunding is an alternative method of raising finance for a business, project or idea, popularised by Kickstarter.com in the United States.
Unlike angel investment, in which one person typically takes a significant stake in a small business, with Crowdfunding an entrepreneur can attract a ‘crowd’ of people – each of whom takes a small stake in a business idea, by contributing towards an online funding target.
It is believed that, in many cases, this model is more successful than attempting to source the full investment required from a single individual or organisation. Furthermore, while some investors may be hesitant to invest in an unproven idea, Crowdfunding provides an alternative way to source seed capital from a number of backers.
How much does it cost?
The majority of Crowdfunding platforms won’t charge you for publishing a pitch, however they typically take around 5% commission when you reach your target – so you need to factor this into your investment total. If you don’t meet your target, you don’t pay a penny.
Sites such as Crowdcube.com maintain the quality of pitches on their site by validating each one by financial scrutiny. They also only accept pitches from Limited Companies. These challenges are not insurmountable however, especially for the committed entrepreneur.
To encourage people to invest in your start-up, most websites ask you to offer staggered rewards (such as exclusive access to your first product or a five-year discount on your services) according to how much people invest.
The HMRC can also offer tax incentives through the Enterprise Investment Scheme (EIS), where investors can claim 30% tax relief on qualifying investment opportunities.
Is Crowdfunding for me?
Some questions to ask before you embark on a Crowdfunding campaign.
Am I or can I easily become a limited company?
Can I communicate my idea effectively to strangers?
Am I willing to give up a share of my business to outsiders?
Do I have an existing network of supporters, customers, and suppliers etc who will kick-start my funding campaign? – Not essential but a fast start gives other investors early social proof that your idea is worth looking at.
Am I willing and able to promote my pitch via social media and via online and offline networks? – Finding investors will take work and is not a passive process. Be prepared to live and breathe your pitch for 90 days!
Anyone who is in debt knows that it’s a depressing place to be. Debt can cause sleepless nights, feelings of guilt and stress.
The more you owe, the worse those feelings will be, and the longer you remain in debt the more the interest mounts up on those individual debts – be they credit or store card debts, overdraft debts or other debts such as non-payment of council tax and household bills.
Money worries – dealing with debt
Debt can begin to feel insurmountable, but there is always a way out of debt. Depending on your personal circumstances, there will be different options available to you. You may be able to structure your household budget so that your outgoings stay below your income, and any excess you have left over, you use to gradually pay back the money you owe. But if you feel that you will never get on top of your debt situation, then it may be best to seek expert financial advice from a debt management company.
Depending on the level of debt, it may be suggested that you work to a debt management plan or take out a debt consolidation loan.
A debt management plan is where the debt management company deals with your various creditors and negotiates repayments on your behalf. The company charges you a fee to do this, but it can take a lot of the stress out of your debt situation, as you won’t have to deal with the individual creditors directly and you only need to make one monthly payment to the debt management company which then redistributes that payment among your creditors. Creditors are usually willing to work with debt management companies as it is more likely that they will recover their money this way than by dealing directly with the people who are in debt.
Some people in debt may be wondering what is debt consolidation? A debt management plan is a form of debt consolidation – but it can also be where you take out a new loan to pay off all your existing debts. You end up borrowing more money to pay money you already owe, but the debt consolidation loan is usually at a lower interest rate than the interest you will be being charged for the various credit cards, overdraft facilities and other debts outstanding. Most debt consolidation loans are structured over a longer payback period, so you will probably end up paying more in the end, but you have the peace of mind of knowing that your existing debts are cleared and you only have one monthly payment to make.
The danger for some people with a debt consolidation loan is that they are then tempted to spend again, before they have paid that loan back. Going down the debt consolidation loan route requires self-discipline to avoid making a bad situation worse.
Quite where the ‘want it now’ instant gratification culture came from is difficult to pin-point. Several factors have contributed; the availability of easy credit, TV & Media and low interest rates. The result is that saving has almost become an old fashioned out dated notion. Why delay the gratification, when you can have it now? What suffer the perceived pain of waiting for something when it can be charged to a credit card or other finance plan?
The results of these attitudes however, are now easy to see. With many people struggling with mountains of personal debt and having to sacrifice necessities every month to pay for luxury purchases.
Is it time for saving to become fashionable again?
Teaching children to save at an early age can instil the discipline, habit and decision making process that will last a lifetime. Introducing older children to a range of savings products and methods will help grow their financial IQs and plant the seeds for sensible money choices and despite interest rates being historically low there are a few good deals around on Fixed Rate Savings
An understanding of interest rates and how they can penalise credit purchases is an essential life skill. So too is understanding how savings and investments can grow to provide financial security and independence.
Parents can set an example by opening (and using) their own regular savings account and by sharing the experience with their children.
One provider we like is Birmingham Midshires who were named the Best Direct Savings Account provider for a record 8 years in a row, and for the 3rd year, we were also voted the Best Direct ISA provider at the 2012 Your Money awards.
They have a range of savings products and accounts including fixed rate savings
Action to get started today:
Open a savings account and start a regular contribution
For younger children start the savings habit with a money box, piggy bank or savings jar
For older children progress to a savings account of their own
You may not see the benefits instantly, but often in life taking the long term approach brings higher rewards.
At the end of advertisements for financial products and services you will find a large chunk of small print with statements such as:
