Are you making the most of your extra money?


disposable incomeIt may not feel like, it, but according to figures from the Office of National Statistics (ONS) we may all have a little extra money in our pockets.

Inflation is running high and wage increases remain the exception rather than the rule, but the latest figures from the ONS showed median household disposable income is up 2.3% from last year in real terms.*

What is that in real money?

That surprising fact arrived in the latest set of ONS figures. The ONS defines disposable household income as the money left from net earnings after direct taxes, such as income tax, NI and council tax have all been deducted. It’s the money we have to live on.

A percentage such as 2.3% does not mean a great deal to most of us, so another way of looking at the figures is to understand that the median household disposable income in 2017 was £27,300, again according to the ONS. For this idealised household the increase equates to £600 more than they had the year before. Remember, this is after inflation has been taken into the calculations.

What is surprising is that this figure is slightly above the annual growth rate of 2.1% that has averaged over the past 40 years and far higher than the 0.7% annual growth average since the world economy collapsed in 2008.

It looks as though we may have finally recovered from the effects of the financial crisis.

Why doesn’t it feel like we are getting richer?

But although the numbers are not actually lying, they may not be telling the whole truth. We do not all have an extra £600 in our pockets.

The figures are the average across the UK. Some income bands have benefitted more from the recovery than others. In particular, lower earners have done better than high earners.

The lowest 20% of earners have seen their disposable income increase by 15%, or £1,800. The top 20% are merely back to where they were in 2008, with a tiny increase in household income of 0.5% on 2008 and a £200 rise.

Even these figures are hard to apply on an individual basis, as both the top and bottom 20% groups in 2018 will not be made up of the same individuals as in 2008. The one thing that is clear is that the increases will provide a very welcome boost for low income households.

What can you do now?

Whatever bracket you find yourself in, the rise in disposable income is good news, even if many of us will only have enough extra cash for a really good night out. We can, of course, hope that the cash in our pockets will continue to grow as the recovery continues. We can also hope that the recovery will gather pace as the economic logjam that is currently the result of Brexit finally gives way.

But if we want to grow our wealth, we can do much more than just hope.

The first step may be to look at our tax position, and ensure that we are taking full advantage of all the allowances available, to maximise what we can retain of our income. The second is to look at our investments.

If there are signs that the UK is following the rest of the world into recovery and economic growth, it could certainly be time to look at investing any extra cash this possible recovery may have brought you.

For the professional advice you need about making the most of your money, talk to us at Continuum. Call us now on 0345 643 0770, or email us at info@mycontinuum.co.uk

The value of investments can fall as well as rise. You may get back less than you invested.

Sources:

Office for National Statistics – Nowcasting household income in the UK: financial year ending 2017 – July 2018*

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