Frugallife

After well over a year I have decided to ressurrect my blog. I did find it useful to put down in writing my thoughts of which way I should be focusing my efforts in reducing expenditure or increasing my income.

It is nice to have this information written down to help assess my goals and to determine whether or not the methods I employ have been a success.

I have logged into my share dealing account today and noticed Lloyds Banking Group are intending to perform a rights issue so that they don’t have to participate in the government asset protection scheme.

I am worried about throwing good money after bad but I also don’t really want my share holding being diluted any further.

At present I am not sure what I will do. Part of the decision has already been made for me as some of my Lloyds Banking Group shares are held within an ISA and I have none of my annual subscription left. I have read somewhere that it maybe possible to Tail Swallow the additional shares. This means in effect selling part of my entitlement to fund the purchase of the remaining shares but I need to look into this further.

I am happy with my other shares that are held within my ISA so this would be the only way I could fund the purchase. But do I really want to buy shares in a company that may not resume dividends for years to come? Well I suppose it depends on whether it is a long term investment or not. I think eventually Lloyds and the remaining banks will resume their generous dividend payments but first they have to mend their balance sheets and reputations!

Explanation of tail swalling here http://www.thisismoney.co.uk/investing/share-tips-and-fund-tips/article.html?in_article_id=442161&in_page_id=23

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Since March (either by good fortune or luck) I have been investing any spare funds into the stock market. I have been doing this via two methods. One is a straighforward index tracker. I have opted for a Legal and General one that tracks the UK market and the other is via individual shares bought inside an stocks and shares ISA.

I have been fortunate that both methods of investment have been good to me and have made promising returns to date. My plan is to continue to invest in either the index tracker or shares in large companies for the foreseeable future. I will start to scale down this investment once the FTSE 100 is starts to creep up towards the 6000 mark.

Warren Buffet once said “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful”

Plus other forms of investment e.g. Property may become more appealing by then.

See previous article http://frugallife.co.uk/?p=27

As mentioned on a previous article I have now remortgaged my main home so that I can take advantage of lower interest rates. My previoud provider didn’t want to reduce the mortgage rate a great deal despite the Bank of England base rate falling to a historical low of 0.5%.

So I have moved on as mentioned in the previous article http://frugallife.co.uk/?p=28 and I am pleased to say it is making a positive difference to our family budget. I am now able to put a little bit to the side for when we eventually move to a bigger home.

As mentioned in a previous post Cavity Wall Insulation can cut down heating bills by significantly as it stops heat escaping through the walls. I have recently installed cavity wall insulation in our home and found the whole process remarkably easy and cheap to get done.

The process involved going to my electricity/gas provider and completing an online form. Within a few days I had got a call asking if I was still interested and to book an appointment. I booked an appointment and got a quote for £150.

The actual installation only took a couple of hours to complete and since I have already noticed I don’t need the heating on as much.

Note – If you are on a low income you maybe eligible for grants.

(UK Only) I have always assumed that because I work full time and my wife works part time we would not be entitled to any benefits. You can be eligible for Working tax credit even if you earn above average wage so it is definitely worth investigating if you haven’t already.

http://www.taxcredits.inlandrevenue.gov.uk/Qualify/WhatAreTaxCredits.aspx

Note - I predict the eligibility criteria will be adjusted over the next 12 months due to credit crunch/recession/public spending problems.

I have been holding off re-mortgaging for a while on the off chance we may move to a bigger house and putting any extra money into an offset account (see below). Due to us not being able to find a house we like in our budget and not finding a buyer for ours we have decided to stay put for the time being.

Knowing this I have been able to focus on getting a better mortage deal. Banks at present only want to lend to people with a good credit rating and a big deposit. The second factor has limited my choice of mortgages as a lot of my money is tied up in investments.

I settled on a 3 yr fix from Natwest at 4.29%. I would have gone for a longer fix except the interest rate would have been higher than the standard variable rate I am currently on and wanted to get some benefit from the interest rate drop.

Fixing for only 3 years may end up being a mistake as we have a real risk of interest rates rising in the future when the Bank of England tries to control inflation. The mortgage is also portable in case our circumstances change and we decide we want to move house again.

For an explanation of an offset mortgage check out www.if.com

Previously on frugallife I have commented on whether to invest in a unit trust or shares. Well due to my inability to decide I am currently investing spare cash in both. I have a unit trust that tracks the FTSE 100. This strategy has paid dividends before when I first tried it out in 2003. I eventually cashed out making a 30% profit.

Now with FTSE currently at 4300 I think now is a good time again. Also I think individual shares are looking good value. It is riskier when buying individual shares than a tracker but the rewards can be greater.

See the following article http://www.fool.co.uk/news/investing/company-comment/2009/05/21/your-best-chance-to-profit-in-2009.aspx

Since writing those earlier articles I have since bought shares in Barclays, BP, Tate & Lyle, Shell, and others.

**As always only invest money you can afford to lose and do your own research.**

An easy way to create wealth but it does requires a lot of patience is the miracle of compunding. When you have money saved with a bank or building society they usually pay you a rate of interest. So after the first year you will have your initial savings plus the interest. In the second year they will then pay you interest on not only the initial savings but interest on the interest. Below are links that will explain the system in more detail with examples.

http://www.fool.co.uk/Your-Money/guides/the-miracle-of-compound-returns.aspx

As you can see from the example in the link it is very powerful and anyone can do it. Combine this with monthly contributions and time and eventually you will get wealthy. It is never too late to start but as you can see the earlier you start the better.

This is the first part of my new section of the website called basics. This section is meant to explain the fundamental lessons I have learned to become more frugal and to live within my means.

Life is one big rollercoaster of ups and downs. Financial emergencies can happen at any time that is why I highly recommend an Emergency fund. This fund should be a instant access account and is available for when something unforeseen happens so you don’t have to rely on credit cards or loans. By having an emergency fund any other money you have can be used for purchasing income producing assets.

The actual amount you should have aside depends on your personal circumstances but many people recommend 3-6 months of living expenses.

If you currently don’t have  an emergency fund start by opening an easy access savings account and regularly save into it. It may be a struggle initially but if you get into the savings habit a sizeable sum can be achieved. If you cannot regularly save a small sum then perhaps it is time to look at Budgeting.