A ‘wage’ refers to the monetary compensation paid by an employer to an employee in exchange for the work performed.

In the UK, wages can be paid on an hourly, daily, or weekly basis, and are subject to various regulations to ensure fairness and adequacy.  

National Minimum Wage (NMW) and National Living Wage (NLW): 

• The National Minimum Wage is the minimum pay per hour that most workers are entitled to by law. The rate varies depending on the age of the worker or whether they are an apprentice. 
• The National Living Wage (NLW) is a higher rate that applies to workers aged 23 and over. As of April 2024, the NLW has risen to £11.00 per hour. 

Types of Wages: 

• Hourly Wage: Paid based on the number of hours worked. Common in part-time or casual employment. 
• Salary: A fixed regular payment, typically paid monthly, but often expressed as an annual sum. Salaried workers may not receive extra pay for overtime. 
• Piece Rate: Payment based on the amount of work completed or units produced. 

Overtime Pay: 

• Employees may be entitled to higher rates of pay for working beyond their contracted hours. There are no statutory requirements for overtime pay in the UK, but it must not fall below the NMW or NLW. 

Deductions: 

• Employers may make deductions from wages for taxes, National Insurance contributions, and other reasons such as pension contributions or student loan repayments. Deductions must be lawful and agreed upon in the employment contract. 

More Words of the Week

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Mouthy Money’s regular blogger, Finance Dee, discusses how she improved her financial health before she reached 30.

I believe that as you reach the end of your 20s, you start to become a bit more reflective of where you are in life versus where you want to be – at least that’s been true for me.

Reflecting on my financial health has been no exception! Here are four things I put into place to feel happy, secure and confident about my personal finances before I hit 30.

Determine my spending plan BEFORE payday – This step alone probably makes up about 80% of what I consider ‘good financial standing’. I found for too many years in my early 20s, every time I got paid I had absolutely nothing to show for it by the end of the month – other than a few decent days and nights out etched into my memory.

For the past few years, I have been doing zero-based budgeting every month without fail, deciding exactly where every pound will go before it even hits my account. This avoids me overspending, allows me to save and invest, and ultimately gives me full control over my hard-earned money. 

Asked for a raise – Now I know this may not be relevant to every industry, but if it is a possibility for your line of work, asking for a raise can really make a noticeable difference to your finances. Although it seems a bit nerve-racking to ask for more money, if you have a good track record at work, can articulate why you are an asset to your team/company/organisation, and can confidently relay why you love your job but feel you deserve better compensation, you may find that your employer is willing to give you a raise instead of risk losing you. Marketing one’s own skills – essentially blowing your own trumpet – can feel uncomfortable at the best-of-times, but marketing yourself is an essential skill in getting what you deserve.

Maxed out my employer pension contribution – We all love free money, and free money into pensions is as good as it gets due to its tax benefits. If you work for an employer who contributes a certain amount to your pension based on your own pension contribution, always make sure that your own contribution is as high as it needs to be to get the most out of your employer.

For instance, if your employer will contribute 5% if you contribute 4%, or 10% if you contribute 6%, do your very best to contribute that 6%! That will mean you can benefit from that wonderful 10% of free money into your pension. You may not feel the benefits of it now, but future you surely will!

Reduced liabilities – Liabilities come in the form of debts such as credit cards, loans, car financing, etc. The horrible part of liabilities is that you’re often paying for things that have long been bought, experienced, or perhaps aren’t even around anymore.

It is very easy to look at your financial health in terms of “affordable” monthly payments, but if you can only buy things in instalments, it may be worth questioning whether you can really afford it (with the exception of some larger purchases such as homes).

By reducing your liabilities, it frees up cash for you to make decisions about your present and future and reduces the focus on your past.

Photo by Brooke Cagle on Unsplash

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Approximately 40% of UK employees live payday to payday, and half overspend each month, according to a 2020 study from Willis Towers Watson.

Many people work hard each month, earn money, and then spend it all. Despite their best efforts, they repeat this loop and fail to see that they are trapped. Often when they earn a raise, the cycle just continues.

Although many people fall into the ‘living from payday-to-payday’ trap, there is a way out. Here are seven things that will help you break this cycle.

1. Acknowledge the problem

Begin by acknowledging that you’re living payday to payday. This is the first step toward improving your financial situation. One of two difficulties (or a combination of both) is most likely to blame for the problem:

• You overspend on frivolities, entertainment, and other non-essentials.
• You don’t earn enough to meet your basic needs.

2. Get a clear picture

Recognise and take stock of your current financial situation:

• How much money do you owe right now?
• How much money do you have stashed away in an emergency fund or savings account?
• How much money do you make each year?
• How much money do you have to spend each month?

Answering these questions will provide you with the clarity you need to understand why you’re living payday-payday.

3. Review and revise spending categories

Look over your bank statements for any discrepancies. Be aware of the things you’re spending your money on. Look at your spending categories:

• Groceries
• Entertainment
• Travel
• Shopping
• Subscriptions
• Lunch
• Miscellaneous, etc

Many people are unaware of how much money is wasted each month on unplanned and impulse expenses. If your miscellaneous expenses are in the hundreds, it’s time to look at how you’re spending your money.

Are you spending money on services that you’re not using? For example, gym membership subscriptions may cost you £50 a month, and you’ve yet to visit the gym in 2022.

4. Create a budget

Having a budget for routine weekly spending, as well as for unexpected expenses in the future, is essential. Having a savings account set aside in case of job losses, illness, or family events can ease the agony of these difficult times.

Do you have an income problem or a spending problem? A budget will help you understand where you are now and the next steps you need to take to break the payday-to-payday cycle.

5. Set financial goals

Having a goal will help you stay motivated. What is most important to you? Understand your priorities and the reasons for those priorities. In the face of temptations to squander your money, this will help you stay on track.

6. Don’t miss payment deadlines

Make sure you are aware of the upcoming due dates for your bills. Set calendar reminders in your diary, and where possible, arrange for direct debits to be paid on the same day each month. You avoid incurring late fees and overdraft charges when you pay your bills on time.

7. Pay off high-interest debt

High-interest debt will make it hard to stop living payday to payday, as you’re using today’s money to pay for yesterday’s expenses. It’s hard to move forward when you’re still looking back.

When creating a budget, prioritise paying down debt. Avoid just minimum repayments, as this will keep you in debt for much longer.

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Senior professional could be in a position to negotiate a raise of up to 25% in the first quarter of 2022, after salaries had been “stagnant” for the past 18 months, according to new research.

Experienced workers from finance, law to IT are already enjoying increases of £20,000 a year or more, recruitment firm Robert Walters has found.  

Professional services companies’ budgets show an increase in their worker’s wage bill of between 10% and 15% – potentially the largest increase seen since 2008 and almost three times the current rate of inflation.

Why are wages soaring?

The hunt for talent is real – many employees decided to quit their jobs or change careers altogether in The Great Resignation movement. Many businesses and lobby groups are complaining of the staff shortages as a result..

Careers coach Alison O’Leary, tells Mouthy Money: “Everything has been stagnant for the last 18 months or so, as most companies, depending on the size of the company and the sector, have done their best to keep business as usual and keep the wheels on the bus.

“I think employees have had to roll with the workarounds, get used to working from home, a lot of people took cuts in time if not salary to help their organisations out. And now, finally, we’ve got to a point where things are picking up as restrictions are lessened and hopefully continue to go that way.

“Employees, particularly senior professionals are thinking about, well, okay, I’ve put up with this, and I’ve lived through this for the last couple of years now, what do I get in return?”

How to negotiate a pay rise

Now could be a better time than ever to negotiate your salary. The key for professionals is to be clear about what they’re looking for, and why, plus  “have demonstrable proof points to back it up, says O’Leary.

She adds: “It’s a simple process but one that people don’t often think to follow because; a) the topic is emotive and easy to avoid, and; b) often senior professionals think their contribution should be obvious to their business leaders and organisation. When in fact the business can find it easy to take for granted if the senior professional doesn’t make a clear case.”

Here is a step-by-step process you can go through when asking for a raise:

• Take the time to consider your value and the specific results you have delivered against your job specialisation, objectives or key performance indicators.
• Write a list of the factual examples, proof points or figures that support your request for a salary increase.
• Draft an email to your line manager, HR representative or relevant stakeholders who can influence or make a decision on your salary level. Ask them for a meeting to discuss your development, future goals and salary level.
• In that email, explain that you would like to specifically discuss a salary increase as part of the conversation, clearly stating the salary you are looking for and that you feel is a fair reflection of your contribution and value. Then make a short case for this salary increase using the best of your factual examples, proof points or figures.
• Ensure your email is non-emotional in tone or language. Stick purely to the facts, outlining your request and why in non-emotive terms. If you find this hard, have someone you trust look at your email and help you remove any emotion from it.
• Do your prep work before the meeting so that you have clear examples to hand on your case for a salary increase. Also take in information on industry/role salary benchmarks, if you feel you are being paid less than the industry average for your role or level. Again, keep the meeting conversation factual and non-emotional.

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We all know it’s a good idea to save into a pension while we work so that we have enough money to enjoy retirement.

But how much do you need to save exactly? And how do you know if you’re on track?

Although there isn’t a one-size-fits all answer to that question, there are various theories about how much you need for a comfortable retirement.

Here are just three to give you a rough idea.  

Save your age

One theory, from investment company Fidelity, is that you should hit certain savings milestones, based on your starting salary, as you go through your career.

Fidelity believes you should have saved at least:

• 1 x your starting salary by the time you hit age 30
• 3 x your starting salary by the time you hit 40  
• 6 x your starting salary by the time you hit 50  
• 8 x your starting salary by the time you hit 60  
• 10 x your starting salary by the time you hit 67 

Let’s assume you’re 25 and just about to start your first proper job, paying £32,000 a year. According to this theory you should aim to have saved £32,000 into a pension by the time you reach 30.

After that, Fidelity believes you should save multiples of your starting salary by certain milestones.

Find out more: If you’re 18 – 29, we want to hear from you! By taking our quick survey, you’ll be in with a chance of winning a £100 shopping voucher from your choice of Amazon, John Lewis or M&S – plus four £20 vouchers up for grabs too.

So, for example, it says you should aim to have saved at least £96,000 by age 40 (3x starting salary), £192,000 by age 50 (6x starting salary), £256,000 by age 60 (8x starting salary), and £320,000 by age 67 (10x starting salary).

Of course, this is merely the minimum recommended. The more you are able to save, the more money you will have in retirement.

Two-thirds of your final salary

Another school of thought is that you will need roughly half to two-thirds of your final salary a year to live on in retirement.

So, if you retired on £30,000 a year, then you’ll need a pension able to pay you around £15,000-20,000 a year in retirement.

That’s fine, but when you are in your twenties or thirties, however, it will be very difficult to guess what your income may be by the time you’re in your late 50s or early 60s.

According to a recent Which? study, the average couple needs an income of £18,000 a year to cover the essentials, £26,000 a year for a comfortable retirement and £41,000 for a luxurious retirement.

Combined, most couples will receive £16,300 in state pension if they qualify for the full amount. So you need to save into a workplace or private pension — or both — to make up the difference.

According to Which?, to achieve an annual salary of £26,000 you would need to have saved a total of £154,700 if you were to draw an income from your pot in retirement or £265,420 if you plan on buying an annuity, which pays a guaranteed income for life.

To achieve an annual salary of £41,000, according to Which?, you would need a total pot of £442,020 to draw from your pot or £757,000 if you plan on buying an annuity.

Aim for £266k

Digital wealth manager Moneyfarm has a simpler theory. To get a retirement income of £19,000 a year, it says, you’ll need to hit retirement with £266,000 in savings.

To achieve that by age 66 (the current retirement age), you’ll need to save £300 a month for 31 years (starting at age 35) and earn at least 5% on your pension investments.

However, of course, the earlier you start, the less you would have to save each month to hit £266,000 by the time you hit age 66.

For example, a person who started saving when they were 23 would only need to save £150 a month to hit £266,000 by the time they retired, assuming they earned the same 5% a year on their pension investments.

Likewise, if you started when you were 45, then you’d need to save nearly £700 a month to achieve £266,000 by the time you hit 66.

However, these figures are just a guide. You may need a lot more to get by in retirement, in which case you’ll have to save more every month. There is also no guarantee that you will achieve 5% a year on your pension investments.

So what now?

The truth is many people have no idea the amount of money in their pensions and don’t think often about how much money they’ll need in retirement.

However, spending a little bit of time working that out can pay dividends in the long-term.

The best course of action is to start early in your career and to save as much as your finances allow.

If you hit your 40s and 50s and think you haven’t saved enough, don’t panic and bury your head in the sand. Get help. A good financial adviser will be able to help you create a road map that will get you back on track.

If you can’t afford financial advice, then try the Government’s Pension Wise service, which offers free and impartial guidance about pensions.

Be aware though, Pension Wise doesn’t offer full advice where someone will recommend a course of action to you. They simply give you pointers and point you in the direction of useful resources so you can make up your own mind.

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Mouthy Money speaks to young people to get their views on Rishi Sunak’s Autumn Budget, with concern over the minimum wage change and inflation dominant.

Rishi Sunak announced his Autumn Budget with spending and taxation measures for the year ahead. And despite a big spending budget promising a great many things to different areas of life in the UK, taxes are now at a 70-year high. Inflation, which is a key worry for many people, as Mouthy Money’s own research has found was little-mentioned either.

We spoke to two young people to gauge what the next generation of earners are thinking about Sunak’s announcements.

What are their reactions?

Elise Fozzy, a sub-contractor for a security company, has big worries about inflation, as well as her own living wage as employers have not raised her salary at all.

After graduating from her American Studies course at university in 2019, she now feels disappointed by the lack of work opportunities.

She says: “I don’t feel that wages have grown at all. I feel the cost of living is rising and I get less for my money. It’s also really hard to find a job that pays above minimum wage. You can’t live as an independent adult in the South East on minimum wage, especially as a single person.

“I wouldn’t be able to afford a house etc and bills on my own and that’s with two jobs. Jobs might be available at lower paid levels such as HGV roles but the people available to fill them can’t necessarily afford the training!”

Regional minimum wage concerns

Elise also mentions how minimum wage does not apply to sub-contractors in the UK and feels this is unfair to her and her counterparts.

She says: “Either way I don’t think £9.50 is enough. It needs to be a living wage based on the area of the country – £9.50 might be enough for my cousin in Sunderland to live on, but it’s not enough for me in Kent.

“The minimum wage goes up, but salaries don’t, so the gap between salaried roles and minimum wage hourly job narrows.”

Student finance, borrowing and Universal Credit

Young people waited anxiously for an announcement regarding student loans in the Autumn Budget, but it failed to materialise despite recent news of ministers’ discussions on lowering the threshold surfaced in the press.

Sarah Hatchard, a marketing management student at Bournemouth University expressed her concern when rumours of discussions regarding the threshold appeared in the press. However, she described the announcement as “a relief at best”, after student funding for universities has not been discussed.

“Age of optimism”

She says: “While for some it might be an ‘age of optimism,’ it’s certainly not that way across the board. With the rise of National Insurance and inflation without pay rises in many cases, it’s not going to be a great time for regular people and it’s hard to muster great optimism about that.

“The budget didn’t address infinitely rising house prices and rent prices which leaves young people in a position unable to save or be optimistic about their future.

“I am relieved that the budget didn’t include a lower student loan repayment threshold as that would massively impact my household income but I’m still concerned about living costs outside of that.

“I don’t think ‘age of optimism’ is the right way to put it, but I am trying to be positive nonetheless”

Sarah Hatchard

“The borrowing is quite high, which is a concern but based on the summary seems like it’s going on positives. The taper rate dropping is also a positive for working people on Universal Credit.”

With inflation rising fast at the moment, students with Plan 2 loans still face the prospect of paying interest at RPI inflation plus 3%. With some predictions now placing RPI inflation at 7%, university leavers could still see their debt levels rising to astronomically unaffordable levels.

Photo by HM Treasury on Flickr

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