One of the hardest concepts that I see my clients deal with is the need to spend less and save more. As their incomes have grown so has their lifestyle and spending habits, and therefore increasing their savings can be seen as having to sacrifice part of their lifestyle.
For some, saving more money on a monthly basis is going to be the only way they can ensure they can maintain their lifestyle indefinitely, rather than a rude awakening when something changes - like retirement, or losing their job.
So if you think you can't save more money as you are worried about the impact to your lifestyle, I'd like you to take a moment to reflect on how fortunate you are when comparing yourself to the rest of the UK. If you can be humble enough to do this, then you can start from an objective base on which to build long lasting wealth that will outlive you and possibly future generations.
Just how well paid are you really?
I’m sure most of us have at one point or another wondered how our annual income compares to those around us and the rest of the nation. But where we fall on the income scale is not something we tend to discuss openly.
It’s human nature to compare ourselves to people around us but more often than not we will look upwards, rather than downwards.
No matter what our level of income, many of us will feel we can do with a bit more in our pocket by the end of the month. According to Lloyds Bank, just 2% of the UK population across all income bands feel that they are wealthy.
The truth is that people on high salaries are only in the top few percentile of wealth in the UK and your position might come as a surprise to you.
So where do you sit on the income scale?
Earlier this year, Labour’s shadow Chancellor John McDonnell said that annual earnings of £70,000 and above are the threshold to be classified as “rich” in the UK. But being rich and feeling wealthy are two very different things.
People living in the centre of London in a one-bedroom flat will almost certainly not call themselves rich on £70,000 a year, while people in other areas of the country will be able to stretch £70,000 much further and feel better-off.
Being 'rich' is therefore a very subjective term. But hard numbers can make it easier to determine where you stand compared to the rest of the nation.
HMRC has stated that only 5% of taxpayers in the UK earn £70,000 or more per year, which makes you an elite majority if you are one of them. On a global scale, that would put you in the top 0.09 percentile of the world’s population.
To put things into perspective, according to statistics compiled by the Office for National Statistics (ONS), the average household disposable income in the UK for the 2017 financial year is £32,247. That’s less than the half of the stated £70,000 that would get you classified as rich. For retired households, this figure goes down to £26,357.
To be part of the top 1% in Britain, you need to earn £162,000 before tax.
Moving further down the scale the percentages get a bit bigger. Around one-fifth (20%) of UK taxpayers earn between £15,000 and £20,000. 25% of Britons earn between £20,000 and £30,000 a year while another 22% earn between £30,000 and £50,000.
And while the UK has one of the strongest economies in the world, it is still relatively unequal when it comes to the divide between the rich and those classified as poor.
According to research done by YouGov, the poorest 10% of people in the UK earn on average £8,600 per year. This is below the minimum wage of £14,040. On the other hand, the richest 10% of Britons earn on average £60,500 per year. If you fall into this category, more than two-thirds of your fellow countrymen (68%) will think you are rich.
When we think about our annual income, many of us have either no idea or the wrong idea of how we compare to the rest of the nation. What is clear though from the above data is that people who earn a high annual income fall in the very top few percentile of the population.
If you earn more than £70k you are in the top 5%, and if you earn more than £162k you are in the top 1%. Whilst it can feel great to have large disposable incomes, and feel proud of your career achievements, make sure you're aren't spending it all and you are making appropriate provisions for the future.
If you aren't sure what steps you should be taking, send me a private email.