Credit cards News | The Twelfth Magpie

How to prepare for a recession

Paul Summers — Wed, 15 Apr 2020 06:00:18 +0000

With whole industries shut down and people confined to their homes, a full-blown recession has been predicted by many economists. How can you prepare your finances and potentially even benefit from the likely tough times ahead? Here are three quick recommendations.

Deal with debt

Assuming essentials are taken care of, tackling any debt should now take priority over everything else. This starts with anything that charges a high rate of interest on the money you’ve borrowed.

If you’re really struggling, it makes sense to take advantage of ‘repayment holidays’ offered by banks. Alternatively, get some breathing space by moving your credit card balance to another provider that charges zero interest for a period.

Now look at your monthly outgoings. Will you really need that gym membership once restrictions are lifted? Did you watch every boxset on every streaming service, or can some subscriptions go?

The point is not to make life unbearable and to retain the things that truly give value.

Cultivate a second income

Many companies aren’t making a penny of revenue during the lockdown and may struggle to recover earnings once things ‘get back to normal’. This has serious implications for their employees.

Although the government has stepped in to provide some protection, the furlough scheme is still a temporary measure. Since we know not every job will be saved, devising a second source of income now might make things more bearable.

The gig economy isn’t perfect. Nevertheless, it can still provide a welcome income boost to those who’ve time to spare. Most of us have a skill or knowledge that we could put to good use, perhaps as a tutor. Why not sell unwanted possessions, or other items, on eBay for extra cash?

Get invested

But there’s another way to generate a second income: buying shares. The idea that a recession could also be seen as an opportunity sounds fanciful. However, I think this is exactly how long-term share investors should regard what we’re about to face.

Sure, markets don’t fare well in recessionary times (just call up a chart of the FTSE 100 from 2007 to 2009 for evidence of this). And this coronavirus-influenced recession will also feel different from those that preceded it. Never before have we been in a position where the earnings outlook for so many companies was murky. The recession may be mercifully short, but it could be very deep.

That said, we’re an optimistic bunch here at Fool UK. History shows that markets always bounce back, regardless of the catalyst for an economic downturn. The old adage that “this too shall pass” has never felt more relevant.

So, unless the world as we know it is ending, putting spare cash to work in shares over the next few months could actually see you emerge significantly better off post-recession.

As always, any purchases should be made with an awareness of how long you plan to hold and whether a particular investment is within your risk tolerance.

Those with little interest in the markets should probably gravitate to having a collection of low-cost funds they add to in regular instalments.

And while there’s potential for better returns from bargain shares, stock pickers should be even pickier than usual, in my opinion. Only high-quality companies with relatively sound finances should make the cut.

The post How to prepare for a recession appeared first on The Twelfth Magpie.

More reading

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Your 4-step plan for what to do with an inheritance

Paul Summers — Sat, 14 Sep 2019 14:00:35 +0000

Those lucky enough to receive a lump sum of money, perhaps as a result of an inheritance, must then work out what to do with all that cash.

Although your ability to take the following steps will depend on just how much money you’ve been handed, I think there are a few actions that most of us should consider.

1. Pay off debts

Rather than squander the cash on shiny new things, I’d start by addressing any lingering debts. These could be in the form of a personal loan or anything on a credit card.

The latter should definitely be considered a priority since rates of interest charged by card issuers are usually high (an APR of around 20% is the norm). This means that those only making the minimum payments each month could be paying back a huge amount of money over the long term, even if what they originally purchased wasn’t all that expensive.

Tackling your debts first might sound dull but it’s good for both your financial and personal health.

2. Pay off your mortgage

Having cut the high-interest debt, your next option might be to wipe out your mortgage (assuming you have one). Whether this is a good idea or not will be based on your circumstances and for how long you think interest rates are likely to remain at historic lows.

Another thing worth considering is whether your lender will charge for paying off your mortgage entirely. In such a situation, it may be best to overpay a little every month and reduce the amount of interest you’re charged over the term instead.

If in doubt, consult a financial adviser.

3. Save a little

Here at the Fool, we think people tend to focus too much on saving (if they save at all) and too little on actually making their money work for them. The former might help you sleep at night but with inflation gradually eroding the value of your cash the longer it sits in your account, that’s a heavy price to pay.

There is, however, a caveat to this. Having a little money to fall back on in times of trouble is perfectly sensible and should help cushion the blow from, say, a temporary period of unemployment. Having opened the savings account with the best interest rate you can find, the only question you need to answer is how much is enough.

4. Invest a lot

Here’s where things get interesting. Yes, it’s time to hit the stock market, especially if you’ve got no need for the money for at least five years.

The market may have a reputation for being a scary place but don’t let that put you off. One relatively low-risk option is to invest the majority of your lump sum into cheap exchange-traded funds that simply track the market return rather than trying to beat it. Many also pay dividends that can then be re-invested (recommended) or spent.

Importantly, try to hold as many investments as you can in a Stocks and Shares ISA or a Self-Invested Personal Pension. When combined, these accounts allow you to deposit up to £60,000 in a single tax year. And if you’ve received anything over this amount, think about transferring some of your new-found wealth into similar accounts for your partner, children, or other family members.

The post Your 4-step plan for what to do with an inheritance appeared first on The Twelfth Magpie.

More reading

3 ways to stop spending all you earn

Paul Summers — Sat, 29 Jun 2019 09:30:57 +0000

Here at the Fool, we think it’s a great idea to save as much as you realistically can every month… and then invest it into the stock market for the long term.

Thanks to the power of compounding, doing this vastly increases your chances of becoming financially independent earlier in life and/or securing a more comfortable retirement.

The only catch is, you need to get your spending under control first. So here are four ways of doing just that.

1. Practice patience

Instead of buying something impulsively, why not just make a note to consider purchasing it after a set period instead? This could be a month, a week, or even just 24 hours. If you’re shopping online, set up a wishlist and come back to it later.

This simple action isn’t intended to cut out all the joy in your life. But it does allow you to recognise your spending ‘triggers’ and the breathing space to consider whether you really want, or need, a product.

It also gives you the time to check whether you might be able to get a better price for that ‘special’ something elsewhere. Or perhaps a friend might already have what you want and would be prepared to let you borrow it. They may even want you to take it off their hands for free!

2. Ditch the plastic

Thanks to credit cards and innovations such as Apple Pay, we’re using less cash than we used to. Being able to ‘tap and go’ without having to look through your wallet for notes/change is, of course, very convenient. But it also has the potential of making living below your means that little more difficult, because you’re less likely to track your outgoings. Studies have consistently shown that people become more conservative with their spending when they use real money rather than cards.

The key here is having a plan and sticking to it. Consider your weekly food shop. Why not decide on what meals you will cook in advance, withdraw a set amount from your bank account and then use this (and only this) for your groceries? If you feel comfortable doing so, leave your cards and phone at home.

3. Pay yourself first

One of the best ways to ensure you’ve got money to invest is to transfer said money over to your Stocks and Shares ISA, or SIPP, as soon as your monthly salary hits your bank account. Better still, set up a direct debit so the process is automated.

In addition to now having cash to put to work in the market, this means you’ll have less to spend from the off (although this does involve you also abiding by the points above). Just to make sure, think about ditching any overdraft facility your bank may offer too.

Another option

If you’ve tried all of the above, have cut back where you can, and still have no money left over, a final option is to find ways of earning more, be it through a promotion or a second income stream. The latter could take many forms. Tutoring someone else on a subject you enjoy, or selling things online are just two examples.

The obvious drawback here, however, is that you need to be even more disciplined to refrain from spending this extra income.

The post 3 ways to stop spending all you earn appeared first on The Twelfth Magpie.

More reading

When to use cash versus credit cards

Peter Stephens — Sat, 23 Feb 2019 09:41:57 +0000

With over 32 million credit card holders in the UK, many consumers reach for their credit card rather than cash when making a purchase.

Looking ahead, credit cards are likely to increase in popularity, with improving technology increasing their speed and ease of use compared with cash. However, there are some instances where cash may still hold greater appeal than a credit card. And with personal circumstances dictating which of the two methods is most suitable for an individual, it may be a good idea to have access to both.

Cash allure

While improvements to technology mean that it is easier than ever to keep track of how much has been spent on a credit card, using cash may make budgeting easier. Consumers who use cash for purchases are only able to spend what they have in their purse/wallet and/or current account. As a result, they will not incur interest charges from overspending, which is a possibility when using a credit card.

In fact, studies have shown that individuals who use cash typically spend less than consumers who use credit cards. While this may not be true for everyone, cash could help to reduce expenditure given its direct and instantaneous impact on a current account balance.

Although an increasing number of retailers accept credit cards, some smaller independent stores only accept cash. While such shops may be in the minority, having access to cash could prove useful in some situations.

Furthermore, there is no annual fee to pay when using cash, while some credit cards can charge significant sums each year.

Credit card appeal

Of course, credit cards also have a number of appealing characteristics. They provide an individual with an extended time period in which to pay for a variety of goods and services. This may prove useful in a situation where an individual is unable to afford a necessity, such as a house or car repair, at a particular time, but will be able to afford it in a few weeks’ time, for example following pay day.

Using a credit card is becoming faster thanks to improved technology. Contactless payments are almost instant and provide a degree of convenience for users. Improving technology also means that shopping online is becoming increasingly popular. Clearly, using cash is not a possibility when shopping online, which makes having a credit card more attractive.

Credit cards also help to build an individual’s credit score, which could prove useful when seeking credit such as a mortgage further down the line. They also offer protection for any amount spent over £100 in a single transaction, which is important if a company fails to provide a good or service as specified when purchased.

Using credit cards could also improve consumers’ financial situation. Reward and cashback cards are becoming increasingly popular and could provide consumers with an incentive to use their credit card over cash.

Takeaway

Cash and credit cards both have their pros and cons. As such, it appears to be logical to have access to both when making purchases, with different situations and circumstances likely to dictate which one is the better option. As technology improves, credit cards may become increasingly popular. But, for now, carrying around a small amount of cash seems to be worthwhile.

The post When to use cash versus credit cards appeared first on The Twelfth Magpie.

More reading

The Motley Fool receives compensation from some advertisers who provide products and services that may be covered by our editorial team. It’s one way we make money. But know that our editorial integrity and transparency matters most and our ratings aren’t influenced by compensation. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. The Motley Fool has recommended shares in Lloyds, Tesco and Barclays.