July 2015 – Money Matters

Sunita Behl

This month’s issue is a subject many of us feel uncomfortable talking about but perhaps should discuss more – money! Thank you to everyone who wrote in to raise awareness of important finance-related subjects including working at home and why we should write a will to managing your finances for the future.

We are very fortunate to have many inspiring entrepreneurs amongst our Women Empowered community and next month we want to hear from you. If you would like to share your entrepreneurial journey, from the initial big idea to the highs and lows and all those essential business advice tips every start-up should know, please send your article on My Entrepreneur Story (400-700 words) to grit@womenempowered.co.uk before 20th July, 2015.

We look forward to hearing from you.

Finances – What every woman should know – By Jayshree Malde (ACA), Chartered Accountant and Founder of ACCQI

Many women are uncomfortable discussing money. They may feel it’s intrusive, or that they lack knowledge. Yet money is important as a means to achieve some (though not all!) of your goals. In today’s world of gender equality it’s even more important that women understand about money. It’s quite easy to leave finances to others in your family, thinking that you are well taken care of and that everything will tick along happily. But circumstances do change…children, divorce, unemployment, ill health, death. Women need to empower themselves to be able to step in, discuss and organise their finances when required. Moreover, as parents we need to educate our children to be financially astute – it’s a life skill that will always be useful.

Below is a flavour of some financial topics to consider. Beyond this you can delve into the myriad of information out there, consult experts, and strive to empower yourself to make important financial decisions for both yourself and your family’s future.

Income and Expenditure
With a first job comes independence and the ability to choose what you spend your money on. You can decide how much to spend (the fun bit!)… but you also have to learn about paying bills (not so much fun!). How do you budget your spending? Do you have an emergency fund? Do you save? All of this requires discipline but, knowing the difference between ‘need and want’ will help put you in control and provide you with the ability to live comfortably within your means. So start now….dig out those bank statements and credit card bills and analyse your financial position….it’s never too late!

Saving/Investing/ Retirement
Once you have the discipline to put aside some money each month there are many options available to you including savings accounts, investing in shares, funds or property.

Consider the length of time you want to invest for and how much risk you are willing to take. For example investing in shares can be risky as the value can decrease as well as increase. There are many tax efficient ways to save such as ISA’s and pensions. You can also reduce your risk by investing in a diverse portfolio of assets (combination of cash, shares, bonds or property). As you near retirement you may want to transfer your savings into ‘safer’ assets.

Do consult a reputable financial adviser before investing to ensure you fully understand the associated risks and potential returns.

Protecting your Family – Illness and Death


A Will is a legal document that details how your estate should be distributed upon death and how your children will be taken care of. Without a Will the State will distribute your estate which may take a very long time. Once you have made a Will you should review it at least every year to ensure your wishes are still reflected. Please note that if either partner re-marries this makes the original Will invalid. Make sure you use a reputable will-writing service because if your Will does not have the correct terminology it will not be legally binding.

There will be inheritance tax to pay on your estate upon your death. There are legitimate ways to reduce this such as setting up trusts and using various reliefs. You may wish to consider this so that your beneficiaries do not end up with a huge tax bill.

Lasting Powers of Attorney

If your partner became incapacitated, for instance in a coma, you would not be able to act on their behalf or use their assets unless your partner has a signed ‘Lasting Powers of Attorney (LPA’s)’. This is a legal document that allows someone to choose another person to make decisions on their behalf if they lack the mental capacity to make the decisions themselves.

Life Insurance

Would you have enough money to pay off the mortgage and meet day-to-day expenses if the main bread-winner passed away? If not, it’s worth considering your life assurance options. This is where you pay regular premiums into a policy, and in the event of death, a lump-sum is paid out to the dependents. The options you choose will depend on how much you need, premiums payable and what you need cover for instance eg- life assurance or critical illness.

It’s certainly depressing planning for death but it will save a lot of distress and aggravation later if you put legally binding documents such as Wills, LPA’s and life assurance policies in place now.

Final Words

Don’t leave looking into your finances until tomorrow…..act now! Who knows…you may benefit!

Jayshree Malde is a Chartered Accountant with over 20 years of experience in the accounting industry. She is the founder of Accqi, a Chartered Accountancy Practice offering accounting, tax, payroll and company secretarial services.

Website: www.accqi.co.uk Email: info@accqi.co.uk Tel: 020 3667 3647

Make working from home work for you – By Saira Majid, Accountant and Business Advisor

Today, like most days, I woke up and counted my blessings. I am so lucky to run a business from home, to be my own boss and have freedom and flexibility. And I am not unique. In fact, it is estimated that around 10 million people in the UK now work from home!

Many of my clients are like me, and enjoy the benefits of running a business from home and when I talk to them they say they would not want it any other way. However, don’t get me wrong, it’s not all a bed of roses. Working from home can come with its own challenges, such as the distractions of the washing up, laundry or the door bell ringing! However, once you find a bit of discipline, it can be a cost-effective way to run your business. So, if you are a small business, here are my tips for working from home:

1. Establish a work space
Have a set space at home where you work, so you know when you are “at the office.” It’s a simple psychology. This regular place should not be your bed!

2. Avoid distractions
Try to disconnect from the never ending chores that need to be done.

3. Establish a routine
Try to have set times in the day when you work, and learn to be kind to yourself; have breaks, go for walks or get out in the garden and have a lunch break. You don’t have to work 9-5pm. Perhaps, like me, you may choose to work the hours that suit you. For example I work from 10am -2.30pm (during school hours) and then 8pm-9.30pm (after kids go to bed). In the early days, I was known for staying up late and working into the night. Often I would send emails after midnight and get replies from clients at that time too! I try not to do that anymore. Probably because I am older and I get tired, but also because it’s not good for your health! I now only stay up if I have a pressing deadline.

4. Explore meeting venues
You don’t have to have all your meetings at home, especially with a new client or supplier. Think about using a local coffee shop or a hotel coffee lounge. There are other options like hiring meeting rooms or business lounges too.

5. Meet other people
Do not become a recluse who only knows people “virtually.” Find like- minded people. I have a network or friends who all work from home and run businesses. We network both virtually on social media and meet up from time to time. These are “real” friends, not just people you have met in the virtual world.

6. Invest in good office equipment
Your internet service should not be the cheapest. Also get a decent office chair and a reliable computer etc.

7. Have a “To Do” list
This will help you to stay focused, on track and allow you to review your daily and weekly progress.

8. Ensure friends and family know you are “at work”
Learn to say no to phone calls and people dropping over for coffee.

9. Be as professional as you can
You do not have to be a slob and work in your PJ’s (again more psychology). If you take your business seriously, the people around you and your clients will also take you seriously. I don’t wear a business suit when working from home, but at the same time, I am not ashamed to answer the door!

10. Understand how to claim business expenses
If you work from home and have a room that is exclusively used for the business HMRC allow you to offset some of the costs of running your home against your business e.g – electricity and heating. If you need more advice about this and how to claim “Use of Home” come and talk to me. One of my clients runs a catering business and she spent over £17,000 on a fantastic new kitchen. However, this kitchen was also part of her family home. I helped her to do a detailed Time and Motion study and we worked out a way to calculate the “Business Use” of the kitchen.

11. Go out!
Once in a while pick your laptop up, and go “out” to work. I do it all the time. I love the coffee culture in Starbucks and Costa and it’s a welcome change of environment. Look at www.uk-jelly.org.uk. This is a fantastic idea, for homeworkers to work in an office, for free.

12. Don’t forget to switch off
At the end of the day, switch off your phone and turn off that laptop, so that YOU know that you have finished work for the day.

13. Enjoy the flexibility of homeworking
Every once in a while clear your diary and have fun!

14. Count your blessings every day.

Saira Majid , is the owner of Saira Majid Accountants Limited. As an Accountant and Business Advisor she is passionate about helping entrepreneurs. Find out more at www.sairamajid.co.uk

Failing to plan is planning to fail – By Waleed Khan, Associate Partner/Wealth Manager

Life can be very unpredictable and is full of surprises, some are wonderful and some can be rather unpleasant. As a Financial Adviser for over ten years, I have experienced a multitude of circumstances with my clients. I have encountered clients’ with windfalls such as inheritances, lottery wins and bonuses. Conversely, I have advised clients who have had to liquidate their assets and split their investment portfolios due to an unexpected death or breakdown of a marriage.

With the latter, this can be a very emotional and disengaging process. Capital and assets accumulated over many years are simply reduced to a fraction of the original sum due to the unforeseen circumstance. A very common example of this is Inheritance Tax (IHT) on estate of the deceased. The Government only allow a ‘nil-rate’ exemption of £325,000 per person, which is far less than the average cost of a home in London. Therefore, most Londoners without adequate estate planning will have some form of IHT liability purely due to the value of their home. Many a time the next of kin have had to sell their parents’ home to pay for the IHT bill rather than benefit from the fruits of labour of their parents’ hard work. This could have been avoided by carrying out some sensible inheritance tax planning but unfortunately many leave it too late.

Another instance of where I see my clients failing to make adequate financial arrangements is with their retirement planning. Too often do I see individuals postponing funding into their pension until they reach their latter years. People are living longer and you can spend anything up to 40 years in retirement. The size of the pot that would be required to fund for such a lengthy period of time would have to be rather substantial. Therefore, the earlier that you start then the more manageable the retirement contributions can be. Similarly, the earlier you set-off on a journey the less bumpy the ride will be as opposed to having to speed up and encounter dangers along the way! People often rebuke the suggestion of pension funding because they “do not believe in pensions” or “my property is my pension” and in some very extreme cases “my children are my pension!” but many people don’t realise the huge tax benefits of pension funding coupled with the potential of exponential investment growth.

With many changes on the financial horizon, it is the lack of financial planning within the younger generation that I fear most. Most newly qualified graduates start with an average salary of £27,000 per annum, which would have been enough to buy a home twenty years ago, however the average cost of a London home is now upwards of £500,000. The problem is that wages are not rising as quickly as house prices and is not helped by the London housing bubble, fuelled by huge foreign investment from overseas. So, how does on one purchase a home if it is so unachievably expensive? If you are not lucky enough for your parents to help you then the answer is simple, start early and plan backwards. If you need to generate the deposit to get on the property ladder then calculate how much you need and when you need and simply work it backwards. Many young Londoners now feel that home ownership is beyond them and prefer to live in generation rent or forever with their parents but the key is to start early and work towards achieving your financial goal, unfortunately, there is no magic formula.

Be proactive not reactive, always try to be ahead of the curve. Remember “failing to plan is planning to fail…”

Never enough time to organise your finances? – By Ritu Sethi LL.b (Hons)

“Remember, we are the masters and money is the servant – it’s never the other way around!” John Svalina

Too few people spend any time at all planning their finances. They drift along, earn their pennies and then wonder why they have run out of cash half way through the month. Indeed, I often say, many of my acquaintances spend more time planning a dinner party than their finances. They spend hours refining the guest list, working out a theme, experimenting with menu combinations and, of course, deciding what to wear. But, ask them what they are doing about their finances and they say they ‘just don’t have the time’.

Why don’t these same people behave in the same way with their money as they do with one-off events that excite them? Without a doubt, one’s financial future is far more important. Perhaps it is because with a party the date is set and the deadline looms, whereas with finances there is always the opportunity to put it off until tomorrow. As we all know, tomorrow never comes.

There are no big secrets to better money management. Firstly, if you want to achieve those extra zeros, you need to start thinking about money, where you are and where you want to be. Don’t ignore your situation with a little work you will be able to transform your bank balance. To do this, you need to start by changing your relationship with and attitude to money.

We are given little if no financial training at either school, or university. Speaking to my friends who work in various professions, I gather my experience is not unique. I often hear them say they have more month than money, when they would of course rather more money than month! Yet, they seem ill equipped to do anything about it. I still marvel at the fact that, having spent many years being crammed with law, politics and history, it appears no one thought it was worthwhile to teach the fundamentals of running your own business, managing finances, or even very basic budgeting.

A budget, if done correctly, is the most useful and precise tool for analyzing your financial position. After all, if you don’t know what you have got, how are you going to reach your goal?

Make a list of all your income and outgoings (meticulously and without cheating).

Make a list of unnecessary items in your home that you could sell and release the cash. Next time you go shopping question whether you really need to buy the item or is it “surplus to requirements” Will it lie unused until it is given away or could you save the cash instead?

The most important lesson to remember about finance and wealth is that there is more to being rich than simply money. It is what you do with it that counts.

There is little point accumulating wealth, or just scraping by each month, or even getting further and further into debt, if you have no idea why you are doing it.

The key to planning your financial future is to work out what your goals are and also to plan for a secure future. It is equally important that you also find a way to enjoy your money, every month.

The next step in your financial master plan is to start allocating money into ‘pots’ that will help you towards your goal. So that may mean that 10% of your income is spent on guilt free luxuries to reward your hard work.

Take a good look at what you spend your money on to see if you are paying out money that you are not even aware of? Having got your bank statements and bills out to do your budget, chances are you will have found a regular payment that you may have completely forgotten about. You may have, for example, subscribed to a service a while back and then not given it much thought since. Meanwhile, the fees will be regularly slipping out of your account.

When doing this exercise myself, I was amazed to discover I had subscribed to a website which gives you discount vouchers on your shopping. What was more troubling was that I had done it three years before and had been paying £10 a month for the pleasure but had never even used the service. It felt so good to ring up and cancel it – and now I have an extra £120 a year in my enjoyment fund!

An Extract from “Having it All Now“ by Ritu Sethi LL.b (Hons)

Money Illusion – keeping it ‘real’ – By Sheetal Radia, CFA FRSA, Independent Financial Advisor, Financial Architecture

Money illusion is when we ignore the impact of inflation on our income, profit and investments. All too often we look at our financial well-being in headline or nominal terms rather than in ‘real’ terms (net of inflation) which is what actually matters. Inflation is important because it informs us what we need to do to maintain our living standards. If your income and investments are unable to keep pace with inflation your financial well-being will deteriorate.

I have presented to over 1,200 sixth form students about money and finance and always mention money illusion. I explain why it is important to take into account inflation and also introduce the impact of taxes and national insurance. I use the Retail Price Index (RPI) as my preferred measure of inflation, as it is more aligned with our expenditure, and usually higher than the Consumer Price Index (CPI) that is monitored by the Bank of England.

Chart 1 shows how take home pay, income after taxes and national insurance (green line) has grown between 2007 and 2013. The red line shows where take home pay would have been had it kept pace with inflation. As one can observe, actual take home pay has lagged in inflation adjusted terms. Ironically, while actual take home pay has risen it can create money illusion; the illusion misleads about the deterioration in real take home pay. Hence for people to feel better off after inflation, take home pay needs rise to a level to compensate for the period when real take home pay declined, otherwise the illusion is perpetuated.

Chart 1 – Median take home pay 2007-2013 –real (red line) vs actual (green line)

Chart 1

Source: ONS, Financial Architecture

Business owners/managers also need to be aware of money illusion or rather profit illusion. Chart 2 shows how a large UK retailer’s profits have not kept up with inflation even though it generated £506 M profits after tax in 2014. Large nominal profits are comforting but not as meaningful as large real profits. This large UK retailer’s actual profits are £100Mln below where they should be when taking into account the impact of inflation. Declining profits in real terms reduces the resources available to invest in the business, retain and attract talent and maintain the business’ competitive advantage.

Chart 2 Profit Illusion – a large UK retailer

Chart 2

Source: Large UK retailer, Financial Architecture, ONS

Even with current inflation at low levels, the cumulative effect of inflation cannot be underestimated as it is a relentless factor that erodes the value of your incomes, profits and investments. Hence, whether you are in employment, run your business or investing your savings you need to ensure that you are not succumbing to money illusion. Otherwise, you will always be puzzled as to why you are expending so much effort for very little reward or progress.

In the words of Iris Murdoch:

“We live in a fantasy world, a world of illusion. The great task in life is to find reality.”

Sheetal Radia, CFA FRSA Sheetal runs his own independent financial advice practice, Financial Architecture; Financial Architecture empowers clients as it enables them to meet their financial goals. E: skradia@financialarchitecture.co.uk W: www.financialarchitecture.co.uk