📦What To Make Of All These Tax Tolls & How You Can Make Your Money Stretch A Whole Lot Father

You know what they say, you can count on these two things in life: taxes and death. And it’s these taxes that are causing a right rumpus now! With inflation and interest rates and now these tax hikes, is nothing sacred anymore? 

During covid, governments across the world spent crazy amounts (none crazier than the US) to protect the economy, jobs and so on. To basically prevent things from going into freefall. To stop there being a Great Depression Part II. But all this money-printing (not to mention the actual virus itself) has led to some pretty unwanted consequences: inflation for starters. Read all about that here. Whether it’s a supply-side issue, demand-side issue, or a combo of both, inflation is here. And it’s turning out to be a little more than sticky. Then there’s rising taxes to pay for some of this stuff, mostly the NHS. To stop our healthcare system from going belly-up. And all these taxes mean that our take-home pay will be way smaller. 

The Invisible Tax 

Make no mistake guys, inflation is a tax. Just like any other. Sure, it doesn’t technically get deducted from your salary as other traditional taxes would but it’s the very thing that shrinks your precious salary! Inflation is an invisible tax. It sits there, quietly gobbling up your money. Inflation, to me, seems like a tax on the poor and a gift to the rich. Prices from food to fuel are rising like crazy and it’s the low-income earners that pay the most of their salary on these things. But with inflation, assets rise in price. House prices, rents, watches, whiskey, it all goes up with inflation. Luxury goods’ prices have risen like my mad. It’s all inflation. And the rich (aka those who own assets) benefit. Read here what you can do to protect your money from inflation. 

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House prices tend to rise in line with inflation (hence they’re seen as pretty sound inflation hedges) and they’re on the rise. Prices in the UK have risen by 11.2% last year. This makes it harder and harder to climb onto the property ladder. It’s made us turn to riskier and riskier assets. Read all about that here. Cars have been rising in value, too. And none more than the second-hand car market! It’s been on fire. My friend bought a car last year and it’s already worth 12% more than what she’d paid. That’s taking into account it’s been used and driven in. Madness. Get to grips with this and it’ll be the first step to protecting your money from The Invisible Tax. 

National Insurance 

National Insurance (NI) is a tax that you pay on your earnings and the money goes into a fund, from which some state benefits (state pension, statutory sick pay, maternity leave and so on) are paid. NI is paid by workers and companies but once you reach pension age (now it’s 66 I think but it’ll probably rise) you stop paying this tax. Something to look forward to! But from April 2022, NI is rising by 1.25 percentage points. According to the handy-dandy UK Income Tax Calculator UK, people earning £100,000 will have to pay 7% of their overall salary to NI – the same as those on £20,000! Crazy if you ask me. But those earning between £30,000 and £50,000 will be hit the hardest, by the 1.25 per cent NI hike, meaning they’ll have to pay 9% and 10% of their salary towards NI respectively. Yowch. 

If it isn’t enough that we’ve got rising inflation topped with NI hikes, we’ve also got rail hikes. London tube and bus fares face their biggest price hike in over ten years. During covid hardly anyone was on the tube. It was ghost city. And now, well, TFL kinda need to recoup some of those lost funds. And what better way to do that than to raise fares by a nice 4.8%. Buckle up, folks, you’re commute is about to get a whole lot pricier! All this will leave us with fewer precious £££s in our pocket which means less money to fund our future.

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Higher taxes (NI or inflation) means we’ll have less money in our pockets. Month after month. It’s not a great feeling knowing it gets swallowed up but luckily, investing can help you get outa there. I know that we’re in this crazy environment (what with a war going on in the East) but investing really is better that the alternative: not investing. I know there are so many risks involved but if you look at what’s been going in markets, some (aka Nasdaq) have been pretty sold-off. And look at their bounce-back. Everything recovers. It’s a question of when not if. Some tech stocks (like Zoom and Peloton) are ~80% lower from their all-time highs. Sounds like the bubble has already popped? More air left inside? I have zero idea. But I’ve found that all this talk of bubbles paralyses me. It sounds realistically pessimistic and it gives me a sick feeling in my tummy. Over the long-run, markets outperform. It’s in the sticky short-term that we run into these nasty problems. And since I’m in my early 20s, I’m more than happy to keep on investing. Sure I’m building a cash buffer too (to pounce on these really good bargains) but I’m still investing. My strategy has, and will be, to keep investing. Better to have invested and lost, than to never have invested at all, right?

And being diversified will help you out if you’re feeling stuck. Right now, when much of the West (from the UK to the US) is on a monetary tightening spree, China, for instance, is busy lowering rates to boost their economy. These are two very different economic conditions and could really help diversify your holdings. Giving you some peace of mind. REITs and commodities are also good hiding places. These kinds of stocks usually offer attractive yields and REITs in particular tend to be pretty defensive, along with healthcare and consumer staples. Take soap: we’re gonna need it whether we have a stock market crash or not! So think about all this when you build your portfolio. 

I find the media to be great at fear-mongering. Reading all these headlines can seem like 100 bad, worse-case scenario things are about to happen. Right now. All at once! But this is rarely ever the case. I find that optimism, with a healthy pinch of scepticism, helps me stay focussed and on-track. Try it. 

Over the long-term, investing is the best way to grow your capital. Cash is trash (apart from when you’re using it to pounce on market opportunities) and it’ll only get smaller with inflation. It’s no place to be in. So yes, there are for sure risks with investing and right now seems to be a historically difficult time to invest but guess what? We’re all still investing because it’ll be worth over the long time. Zoom out to see the bigger picture. Block out the noise and do your thing. 

With all these pesky taxes, from NI to inflation, you can be sure of one thing: everyone’s coming after your money. So do yourselves a favour and protect it. Stash it away in your investment account, water it and watch it grow. 

Remember that fear will get you nowhere. Action will get you somewhere. 

Disclaimer: This blog is not investment or financial advice. It is my opinion only. This blog is not a personal recommendation to buy/sell any security, or to adopt any such investment strategy. Always do your own research before you commit to any investment.