From Innertrack to Knowing your finances and Making Money Safely

2007 – WHAT A GREAT YEAR IT WAS, Hey? Barry Tyler what did you think


Whilst most people see New Year celebrations as a time to look forward, I seem pre-programmed to see New Year as a time to look back.
Fortunately 2007 was a great year, so please don't feel sorry for me.
Despite the doom and gloom that filled every newspaper over Christmas and the New Year, at the end of the day, it is how well you fared that matters most.
This newsletter promoted some pretty basic ideas over the past 12 months – but ideas that have made you a lot richer if you have followed them. Reduce your debt, avoid the stock market, invest wisely in property and, oh yes, keep any spare cash in gold. Well for anyone who listened it has not been a good year, but a fantastic year.
My property portfolio in Cyprus rose by 14 per cent.
My property portfolio in the UK rose by just over 6 per cent.
All of my rent adjustments this year have been up. (Equally important I only had one void).
Gold rose by a staggering 30 per cent in the last 12 months. Silver also made excellent gains and finished the year up 15 per cent.
My decision to get out of commercial property in late 2006 also proved to be a winning bet as the sector collapsed around my ears.
Meanwhile, the FTSE 100 went nowhere and finished the year up a mere 0.38 per cent, only just in the black. Considering its lows throughout 2007, that was quite a good result. (For those of you who get confused by the spin, the FTSE 100 has only achieved 15 per cent a year over the previous 5 years, 3 per cent a year will not make you rich).
By any standards this newsletter had a phenomenal year.
Whilst the media is obliged to lick its wounds for its inaccuracies over the last 12 months, this newsletter can stand proud. Anyone who bothered to take these newsletters seriously and acted upon them, rather than considering them as entertainment, will have finished the year in much better financial shape than they started. If you paid off your debt, if you invested in "the right property, at the right price, in the right location", if you bought gold or silver, if you kept away from the stock market – then crack open a bottle of champagne and pat yourself on the back.
And there's plenty more where that came from I can assure you! Those who buy wisely in 2008 will be the next property moguls. I predict gold will continue to rise past the $1,000 mark and that property in the right areas will continue to do well, yes, even in the bad times.
What is strangest of all, is the fact that we are the very people who would not be phased, or indeed surprised, by a bad year. Not at all - in fact we expect it.
We know that markets go down as well as up but, and I don't know how many times I have to say it, we take a long-term view. Buying on the dips will always ensure you beat the averages and that is exactly what I intend to do.
We know the media will make out that things are better, or worse, than they really are in order to sell papers, well, to sell advertising space really, but that's all part of the circus.
We also know that a lot of people will get it wrong and lose money.
More fool them - and if they want to sell at a loss, then their loss will be someone else's gain. Hopefully ours.
I don't want to sound superior, but the two big stories of the last two weeks have been:
Shoppers spend 9.9 per cent more this December compared with 2006. UK consumer spending increased to £34.1 billion on credit cards in December alone.
People are worried about debt more than ever. Home repossessions are expected to rise and personal bankruptcies expected to soar. In Liverpool, research by debt agencies shows that the average liability of those seeking help has doubled since 2002 to a whopping £50,000.
How does that work exactly? How can people be spending so much more on their credit cards if they are worried about their debts?
The answer, of course, is that many people simply cannot manage their finances. They have survived the last few years thanks to easy credit – now they are learning a lesson that our parents and grand parents always knew. You cannot spend yourself rich.
You only learn how wide your car is when you scrape it down the side of the garage. The only time that many people learn how to balance their finances is when they lose their house. The only thing they ever bought in their entire existence that ever held its value.
The problem is most people do not have a strategic plan, nor the discipline to stick to it if they had one. Without a plan it's a little like going on a journey without a map. How can you be surprised when you end up in a place you weren't expecting to be when you had no idea where you were going.
But every cloud has a silver lining.
One in four people in the UK live in rented accommodation, and for every tenant - there has to be a landlord.
Of course the biggest idiots of 2007 were the banks who lent money to people who could not afford it. This time last year, the average man in the street had never heard of sub-prime mortgages. Now every one is an expert.
In promoting the benefits of financial freedom I have promoted one thing above all else – pay off your bad debt. If there are any new readers out there who haven't yet got the message, you had better get on board quickly.
Anyway, enough of the crowing - what about the year ahead?
Regular readers will know that I have no crystal ball, but nor does anyone else either.
If you bothered to keep the forecasts from this time last year then you will know this only too well. Who forecast the credit crunch? Exactly! No-one.
Despite all the claims, your guess is as good as the next man's, probably better if he is being paid for his prediction. Never mind what the financial markets will be doing in 12 months time, we can't even tell what the weather will be doing in ten days time.
Yesterday's newspapers informed me that the long-range weather forecaster Weatheraction was predicting the coldest mid- January for 20 years, with temperatures as low as minus 17 degrees centigrade.
Today, I am told by the Met Office that it thinks this year we might have, “an extremely mild winter”. As Billy Connolly said, "If I want to know what the weather's doing I should look out of the window”.
There is no doubt that 2008 will be a bad year for many people. Those who have continued to build up massive debts over the last 12 months will start to feel the pain. What goes round comes round and eventually all debt must be paid back. The big question is who will be paying back that debt? You, or your tenants? – there is a massive difference. Within six months the view on interest rates has changed from two or three rises, to two or three cuts. How quickly the wind changes direction, and what better example of how little the 'experts' understand the financial markets.
It is against this backdrop that you and I must seek financial freedom.
We need a plan.



THE GRAND PLAN FOR 2008


Survival comes easy to mankind – so don't think a plan for your own survival in 2008 will take a great deal of effort – it won't. You just need a basic plan and you need to stick to it. By definition that will exclude a great many people, since most people can't stick to anything they say – I just hope you are not one of them.
Let's kick off with the strategic plan – we'll look at the tactics later.
First of all, take responsibility for your own financial well-being. I don't care whether it is Gordon Brown or the Captain of the Titanic shouting out the orders – I will walk to the beat of my own drum. You must take ownership for your own financial future.
Secondly, prepare to be in the minority. Accept that the lunatics are running the asylum and you will take a totally different view on how you see the world. Following the crowd rarely leads to success in any walk of life.
Do not hide from your personal finances. Just getting by, month to month, is not what success looks like. Sometimes it takes a financial shock to bring people to their senses, but far better if you can do it when you are not under pressure. Pay off all your bad debt.
Do not pretend it will get better – it won't. If it hasn't got better in the last five years why should it get better in the next five years. Take action to change your thinking, to change your habits and the results that you have got used to.
Analyse your habits. Your habits define not only who you are but what you will achieve in life.
Aim to double your personal wealth every seven years. By focussing on the big numbers you will stop wasting valuable thinking time concentrating on Bonus Points and saving 2p on a litre of fuel. Looking after the pennies does not make you rich, it just means you have a jar full of coins at Christmas.
Be all that you can be – above all else, do that - be all that you can be.
Thank your God, or someone else 's god if you haven't got one of your own, for the good things in your life, particularly your health and your family. Money buys a lot of things, but it doesn't buy everything.
Those paying attention will realise that these are the same strategic goals as we had last year. I make no apologies for that. After all, they are the same strategic goals we had the year before as well, and the year before that.
Only the tactical plan will change in order to exploit the prevailing conditions.
Over the next 12 months I will be looking at the tactical plans we can put in action in order to achieve our strategic goals.
I don't know about you, but I plan to have a lot of fun along the way as well.



THE SIMPLE WAY TO AVOID IHT ON YOUR HOME.


OK, we've looked at the strategic plan, but what about the tactical plan?
What can you do to make a difference? Every week I will be exploring different ways in which you can make a real difference to you, and your family's wealth.
You don't have to be a genius to realise that there are only three areas you can work on:
Don't spend so much money.
Make more money.
Don't pay so much tax.
Simple huh? So what's all the fuss about?
Last year I wrote an awful lot of stuff for all you multi-millionaire readers out there, in particular, lawful tax reduction and off-shore planning. This week I want to look at ways of saving tax for those of slightly more modest means.
Say, the house you live in is worth half a million pounds. How can you pass this on to your beneficiaries and avoid paying Inheritance Tax?
It has always been said that IHT is an optional tax, a little bit of planning and you should be able to avoid it without any complex off-shore arrangements or complicated financial structures.
At the moment, if a husband dies (note the bloke always goes first in these examples), leaving a house worth half a million pounds to his wife, there is no IHT to pay simply because transfers between husband and wife are tax free.
But when the wife subsequently dies, she will be taxed at 40% on assets above the current threshold of £300,000. This means there will be a bill to pay of 40% of £200k or £80,000.
However, a simple discretionary will trust will ensure that both the wife's and the husband's allowances are used up ( each party has a £300,000 allowance ), and there would be no tax to pay. The same would be true if the property were worth up to £600,000, making the most of the allowance, but above that tax would be payable on any additional amount.
In order for this to work, the property must be owned as tenants in common rather than joint tenants. This requires very little effort to set up and can be done at the same time as the discretionary will trust is set up.
I have had several emails relating to this question, in particular whether it can be set up retrospectively. You may be surprised to know that the answer is yes, it can. In fact, a discretionary will trust can be set up any time up to two years after the death through a deed of variation. Effectively, the beneficiaries of the estate are re-writing the will. It goes without saying that all of the beneficiaries must agree but it is highly unlikely, bearing in mind the tax-savings, that anyone would object.
If this is of use to you, I would not leave it to my heirs to re-write the will. First of all they may not know about this opportunity and secondly, there is always the chance that the Chancellor will revoke the 2 year rule. Far better to set it up now while you can still remember which way round to put your pants on.
Judging by the emails I get, there is a huge misconception in this country that if you give your home away to your children but continue to live in it, you can avoid inheritance tax. I'm afraid that this is the case of a little knowledge can do a lot of damage. I will be going into this matter in great detail next week when we will look at the rules that apply to such a transfer and whether the tax man will accept it as a lawful way of avoiding IHT. I'm afraid there will be a lot of disappointed readers out there.
That's all for this week. I shan't wish you a happy new year – instead of relying on a few worthless words from me, I expect you to go out there and make it a good year both for you and for your family.
Here's to a fantastic 2008.