Question

I retired three years ago, with half my income coming from my company pension fund and the other half from interest from investments. I am paying tax at a rate of 41%. Is there anything that I can do to reduce this amount?

Answer

In the words of Mr. Micawber “Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness.”

I have helped a number of people achieve happiness by turning their finances around by 180 degrees. The plan is simple, but the implementation will take a lot of discipline from your side. It’s a bit like losing weight – we all know what to do, the challenge is to sticking to the plan when temptation comes your way.

Here is the plan

Draw up a budget
The first step is to get yourself into a situation where you spend less than you earn. This is done by drawing up a budget.

• You need to list all the items that you spend your money on each month. I have created a budget template that I am happy to share, just send me an email.

• Go through a couple of months’ bank and credit card statements and write down the average amounts let you spend on these items.

Now you should find that what you spend will exceed your income. You need to change this.

Reduce your monthly spending
In any budget there will be items which are mission critical for you and your family’s survival as well as those items that are not crucial but do make life fun.

Now, we need to ensure that the bulk of your monthly spending goes onto those items which are crucial to your family’s survival a significantly less on the other items. Go through your budget and identify those items that are crucial to your family’s survival and see if you can reduce what you spend here.

Now look through those items that are not crucial but make life fun and add in a couple to your monthly budget ensuring.

Your total budget should be significantly less than your income. If it is not then you should repeat the process.

Use the monthly surplus to get rid of debt
Now before you can become wealthy, you have to get rid of our debt. To do this, you should:
• List every item of debt other than your home loan.
• Sort these according to interest rate from the highest to the lowest
• Add your monthly surplus that you have from your budget to the debt repayment on the item with the highest interest rate. You will find that this that item will be paid off quickly.
• Now add what you were paying on the last debt item to the next debt on your list
• Repeat till all the debt is paid off. You will find that your debt just disappears once this whole process gets momentum.

Invest in a disciplined way
Now that you have no more debt, you should find that you will have quite a bit more money left over at the end of the month. Remember, this is all the debt repayments that you were making as well as the saving from the budget.

This is the money that will provide you wealth and financial freedom in the future.

Speak to a financial advisor to determine the most effective vehicles for your investments. It is important that you invest these funds at the beginning of the month and not wait till the end of the month to see what is left over. Our lifestyles have a way of stealing from the future and you will find that the amount left over each month will shrink significantly if you do not do this.

As you can see, turning your finances around is very simple in principle. The challenge is to stick to the plan as far as possible. There will be setbacks, however it is important keep your eye on the longer-term goal of spending less and saving more.