Here are a number of means and avenues to allow those without large disposable incomes to make meaningful investments, ensuring financial security.
The average income in the UK is estimated to be around £27,271 per year. Considering that just about half of all earners in Britain earn less than this, it is easy to see why many people do not feel that they have enough money to consider investment. One of the key advantages of investments is to diversify one’s income stream so that not only does one have more money coming in via absolute terms, but also that one’s income is more robust, should something unexpected happen. There can be no doubt that it is easier to invest if you have a large amount of capital at your disposal, but there is a surprising number of smart, hassle-free and interesting ways to invest that everyone can implement to expand their income.
The first, rather unglamorously, is simply a case of paying one’s debts. Whilst it may seem counter intuitive to try to get rich by paying someone else money, debts, even in small amounts are constantly driving your earnings down. Of course, there are many cases where borrowing money is absolutely the right thing to do, such as to buy a house or to start a business, when you want to do something big but simply do not have the capital. However, lending money is only profitable because money is made off the borrower as a function of time. The longer money is owed to someone who lent it professionally, the more interest rates do their magic and the more money you are putting into someone else’s pocket. That’s not to say that one should cripple their savings and live a life devoid of basic pleasures to pay off a mortgage in an unrealistic time frame. But borrowing money should always be part of a long-term plan and, if hard work or good luck suddenly pays off, clearing debt is a good thing to have at the top of one’s priorities.
Another effective but not particularly exciting way to invest is to drive down the cost of one’s living. Estimates for the average energy bill in the UK is around £1300. On top of tax and other costs of living, it an excruciating amount to see coming out of that £27,000 salary. Yet this cost can be driven down considerably by being more fuel-efficient. With a few sensible investments, this spending can be cut by about 22%. Some fuel-efficient changes, like replacing a boiler can be extremely expensive, in the region of £2000, and it can be a long time until the benefits materialise, but other measures are cheap and easy. Installing a hot water tank for as little as £10-£15 can save about £50 in a year. Little things such as sealing doors and windows properly through items like draft excluders can add up to around £50 according to the Energy Saving Trust. Although the biggest savings can require extravagant changes, such as insulating the walls which account for a third of household heat loss, and installing doubling glazing as windows account for nearly 20% of overall expenditure, this money spent can pay off surprisingly quickly.
Low risk investment methods in which other people use your money to expand and pass a share of the profit onto you range from Individual Savings Accounts (ISAs), which provide a safe way to invest money and receive tax free interest, to Index Funds which make stock investment a little easier. Whilst ISAs do not provide great rates against inflation, there is virtually no risk of losing the original investment. Index Funds are a good way of ensuring some profit while also minimising the risk and complexity of such investments. Considering the relative difficulty of stock investment, the main advantage of Index Funds is that they require little time to manage as most of the work is done by someone else.
Crypto currencies, such as Bitcoin and Ethereum, provide a somewhat riskier investment strategy. Their market is unpredictable as the technology is entirely new, but the potential for their value is very exciting. They have recently gained momentum thanks to media coverage and new technologies being developed with the use of their platforms. Singapore has tokenised its currency on the Ethereum platform, while Australian investors have created a system which distributes electricity from solar panel farms to registered households using blockchain technology. A friend who makes a considerable living by advising people on investment, told me “Do not invest more in crypto currency than you can afford to lose”. However, despite predictions of the ‘bubble bursting’, bitcoin has gained value at an alarming rate, cryptocurrency is no joke.
Even if you haven’t inherited swathes of land or vast quantities of money, most people can build a solid portfolio through smart investments for just under £1,000. Naturally, massive returns will not happen overnight, but clever, careful investments will pay off.