Words from the Budget (Wordle.net)

What a week for the UK! England are through to the last sixteen; although now facing Germany on Sunday! This should make for an entertaining and sentimental game!  C’mon England!

And of course, we had Cameron and Clegg announce the details of the emergency budget on Tuesday.  The cuts announced aren’t only warranted but desperately required in order to slim down our horrendous economic deficit which currently stands at about £160 billion.

So what were the key changes: -

• VAT – to go up from 17.5% to 20% from January  4^th 20100 on all taxable products (cigarettes, alcohol, goods, etc) children’s clothes and food are exempt.
• National Insurance  - to increase by 1%
• Personal Allowance – (the amount non-taxable by income tax) will go up from £6,475 to £7,475 for the 2011-12 tax year, for those under 65, thus an increase of £1000.
• Child Tax Credit – will be cut from families earning over £40k a year from April 2011
• Capital Gains Tax – CGT will increase from 18 per cent to 28 per cent for higher rate taxpayers
• Council Tax – the government will work with local authorities to freeze Council Tax in 2011-2012
• Corporation Tax  - cut by 2%
• State pension age for men is to rise to 66 in 2016, eight years earlier than Labour had planned it, with women joining that bracket a few years later.  There are discussions currently underway to raise it further to age 70.

For further details on the budget and how it will affect you click here for the Direct Gov website.     You can also watch Cameron and Clegg talk about the announcement in the BBC2 Programme ‘Face the Audience…’ by clicking on the link below.

Face the Audience…with Cameron and Clegg (23/06/2010)

Ultimately, those were the key changes with more cuts to come, in particularly 25% of job cuts in the public sector, which the government has sent out letters to over 6 million civil servants asking for their opinion on what job roles should be cut or saved.  However, irrelevant of which jobs go, these cuts will impact on the slow growing job market, and of course raising unemployment. It has already been announced that most quangos will go, as well as other non-essential or underused government bodies, which I agree with.

So what does this mean for the average Joe and Jayne? Generically, it means a number of things like less money in your pocket; more competition for jobs; longer hours and stress working a job which instead of being for two or three people, will now be squeezed into one. Not only that but with the increase of the state pension age to 66, and maybe 70 in the next several years, individuals will fundamentally be living to work rather than working to live.

Most individuals will have less money because even though we are receiving an extra £1000 before tax, we are will lose a part of it to the VAT and NI increase; the ineligibility of relevant tax benefits – such as child tax credit depending on your household income; the cost of inflation and pay freeze for many.  An email sent into the BBC by an aggrieved fireman and his teacher wife, have worked out with all off the above they will be £7-10k worse off! This equals £583 – £833 a month worse off!

In addition, the Con-Dem have accelerated the rise of the state pension age from 65 to 66 for men, by eight years, coming into effect by 2016 instead of 2024 as the Labour party had planned. Women will follow that rise a few years later. There are even talks of employees having to compulsory sign up to company pension schemes, as well as the pension age being raised again to age 70..

The increase in the state pension age isn’t overly surprising. People are living longer and the money to pay for our current pensioners has to come from somewhere.  Not only that income tax and pension savings are where the government get a part of their government income from; so it to their benefit for us to work longer thus pay more taxes, as well as ‘park’ our money into a pension, which we are taxed on and generally have to pay a premium on in order to take out before our retirement age.

It is quite evident in society that retirees are working past their pension age to top up their pension, as it is obviously not enough. The old rules of money: go to school, get a safe and secure job with a pension and retire, are obsolete! Ultimately this not the future I want for my mother or myself. What about you? How do you plan to avoid the very possible outcome of working up until the age of 66/70?

Robert Kiyosaki, author of Rich Dad, Poor Dad, says in the audio CD to his new book ‘The Business of the 21^st Century –  ‘most of us allow our circumstances/problems to become bigger than ourselves, when in actuality we have to become bigger than our circumstances and problems in order to resolve them and move on from them. And the best way to do that is through personal development’. Develop one’s skill, aptitude and mindset! Something I advocate constantly here on Becoming Financially Savvy, and via my Butterfly Wealth Creation email newsletters:  - attend events, read books, listen to audios, and network with like-minded individuals, etc, etc.

The rise of VAT was also inevitable; again money has to come from somewhere to pay for the enormous black hole our economy is in, however I thought it interesting that the corporation tax or entrepreneurial tax, as it is sometimes referred to,  has decreased. Why, because the government has to give some sort of incentive to entrepreneurs and more importantly wannabe entrepreneurs to start a business.  Right now is the best time to become entrepreneurial, yes even during this economic downturn/slow growth – Microsoft, Ford, and other such great companies all started off during a recession.  The government realises that most jobs are going to come from small to medium size businesses not the global conglomerates; thus one of the aims of the Budget is to create a new generation of entrepreneurs.  Two ways they are assisting in this is exempting all businesses outside of the Greater South East area from up to £5,000 of employer National Insurance Contribution payments for first ten employees hired. Not only that but the EFG (Enterprise Finance Guarantee) – a body that supports lending to small businesses that find it difficult to get normal commercial loans – has been increased by £200 million to support £700 million of additional lending until 31 March 2011. 

So, for those of you who have a business idea you can go to your local Business Link for advice as well as your local council for funding advice.

For those of you who like the idea of starting your own business but don’t know in what or don’t want to leave the security of your job, then why not consider a home based business in either, Network Marketing, Affiliate Marketing and/or Internet Marketing?  There is also a free business workshop being run by Business Success System, which you can attend in the central London area from July 13 – July17. Click here for further details stating ‘Butterfly’ as your reference.

And for those who are worried about your pension and would like some FREE financial advice from a FSA financial advisor please go here – Life UK Financial

Ultimately, with the current and future government implementations and the impact it will have on our pockets, we have the choice of being either bitter and broke, or better! As well as acknowledge that creative inspiration – be it for a business, acquiring a new job or skill, etc, is often born from desperate situations. So lets us get inspired and creative because these are desperate times, and create a better future for ourselves and family.

Please note that these words I write are not just pertinent to the people of the UK but to all my international readers; you have to create your own economy, be self reliant from your employer and the economy.

I leave you with this long but brilliant video of J.K.Rowlings talking about the The Fringe Benefits of Failure, and the Importance of Imagination. I hope it encourages you in your endeavours to get creative in order to become (more) financially savvy -  i.e. debt free and financially independent!

J.K. Rowling Speaks at Harvard Commencement from Harvard Magazine on Vimeo.

To Your Success…

Butterfly Wealth Creation

P.S. Please share how the budget cuts are going to affect you (and your family) and what creative plan (Plan B) are you putting in place, especially if you are an employee, in order to cushion the blow of all the above.  By sharing your thoughts and ideas it may inspire another reader!

Furthermore, if you are open to the idea of creating an additional and more importantly, passive income, then please send me a private message to info@ButterflyWealthCreation.com in order to discuss!

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