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Case study1 - Coggle Diagram
Case study1
Facts
£60,000 savings, £40,000 in investments
3 children, who have all now left home, and have their own homes and families
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Income is solely taken from their company pensions, which increases by by 2% per year
Both retired, live in Cardiff
The 2 bedroom house that they were looking to buy was £150,000, similar houses are now 10% more.
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They have never had to analyse their spending, as they have always maintained a surplus budget in retirement.
Recent increases in inflation are also affecting their current and future plans, they are considering if they need to access their savings and investments to help fund themselves in retirement.
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Research
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Who loses from inflation
Retirees-Retirement funds are usually fixed so won't accomodate inflation so less real value
Savers-Inflation can lead to a negative real return as interest rates may not keep up with inflation
(Vinovest)
In January 2022 the average house price £274,000, up £24,000 from January 2021.
The bank of England’s job is to make sure inflation comes down to 2% .
Raising interest rates is the best way to keep inflation down but means people will face higher borrowing costs
on 3 November 2022 the interest rate was raised by o.75%, since December 2021 the interest rate has increased from 0.1% to 3%
Urgency: Is there a particular need to move house?, do you need to relocate for work?
Next home: is there a property you’ve already got your eye on that ticks all the boxes?
A traditional on-market sale with an estate agent can take up to 4.2 months on average in the uk.
source: Housebuyerbureau
UK House prices have been steadily increasing since way back in 2008. According to the ONS, UK house prices have increased by 9.6% year on year between 2021 and 2022
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Inflation may put you in a stronger position if your house has outperformed, the other house or area in which you're looking to buy but you need to ensure that you have a quick sale of your property lined up. (housebuyerbureau.co.uk)
Factors that effect decisions to sell your house:
Budget: Selling their house to downsize will improve Pam and John's financial situation as it will cut their expenditure on heating and council tax in a time of high inflation.
Urgency: If inflation persists they could end up using their savings and investments to fund themselves which is an opportunity cost of taking too long to move.
Next Home: They found a 2 bedroom house £150K but similar houses are now priced at, at least 10% higher.
Topic 3
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Unlikely to benefit from the triple lock guarantee as most of their income comes from their company pension
They're vulnerable to a change in interest rates as they rely on their savings and investments for income
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An increase in interest rates could reduce the value of their house, which could reduce the amount they receive from selling their house
It's likely that the base interest rates are going to increase because of recent rises in inflation within the case study
The earlier they sell their house, the better because the real value of their money will decrease over time and the price of the house they'd like to buy will increase due to rises in inflation.
There will be additional fees when buying a new house for insurance, estate agents and solicitors etc.
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Topic 1
Setting priorities:
Mandatory expenditure- costs that you have a legal obligation to pay
• income tax, national insurance contributions
• workplace pension contribution
• council tax
Essential expenditure- costs that have to be paid to meet basic needs
• basic foods, drinks
• rent or mortgage
• electricity, gas or water bills
Discretionary Expenditure- spending on items that are neither mandatory nor essential
• snack food
• gym subscriptions
• holidays
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Obstacles to sustainable personal finances:
.make short term, medium term, long term financial plans that are flexible
• compare actual weekly or monthly income and expenditure
• make adequate contingency plans
Spending priorities:
- Pay all mandatory bills
- Meet basic needs
- Pay essential bills
- Divide any surplus between spending and saving.
Topic 4
Envelope Method
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Split your income into separate pots/envelopes with standing orders for Expenditure which stays the same to avoid unnecessary spending
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Steps to making a budget:
1.Accurately list and identify all income sources
2.Accurately list and identify all expenditure
3.Decide on a time period
4.Calculate your cash flow forecast
Topic 7
Factors in house pricing:
-Average earnings vs property price, Slight increase 2020
-Regional differences, average of 5.9 annual earnings spent on a house in Wales
-Rent Prices 1.7% increase in a year
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