These are big questions but at the root of both is achieving a feeling of financial security, which can be defined as having enough money to live your life as you wish both now and when you retire. My top ten tips to answer these questions and to help you achieve financial security are:
- Know and love your budget! This is the cornerstone of financial planning. You need to know how much is going out so you can ensure your earnings and income are sufficient to cover your outgoings or reduce your areas of overspending. Include food, leisure, holidays, etc as well as normal household bills. Having it written down or on a spreadsheet will encourage you to review individual areas and see if you make efficiencies and can cut down spending in some areas. Examples might be, can I save money on home or car insurance, can my life insurance be redesigned to make it cheaper, or is it possible to obtain a better mortgage deal? For more information about what to consider when you are looking to re-mortgage your home, read our article to ensure you secure a new mortgage deal that suits your situation.
- Use your budget to estimate spending in retirement. Deduct items that may finish before you retire such as mortgage, and add in items that may increase such as holidays. Doing this every year will also ensure you are allowing for your personal rate of inflation.
- Treat regular savings into a pension or Individual Savings Account (ISA) as a regular expense within your budget rather than an option that you have to action each month. This will make it more likely you will save.
- Know and mitigate your personal risks, for example, what happens to your family if you can’t work, become seriously ill or die? What policies have you got in place already? Are they fit for purposes and cost-effective? Do they need reviewing and optimising from a tax perspective? One always hopes that the money spent on an insurance policy is wasted but sadly that isn’t always the case. And when it isn’t wasted it will be the best money you ever spent. Read more about personal protection here.
- Embrace risk. Understand that all assets fluctuate in value and carry a risk, even cash, (inflation risk). Use an Independent Financial Planner to identify your personal risk attitude and how that translates into an appropriate mix of investment assets. For more information about what to consider when making an investment, read our article.
- Take advantage of tax breaks. Pensions, for example, typically offer at least 20% tax relief and sometimes significantly more. This is a huge ‘free’ hike in investment return. For more information on pension tax efficiency, read our article. Additionally, if you are married or in a civil partnership and both comfortable to do so, take advantage of the tax-efficient opportunities this provides in relation to pension income in retirement. If one person has most of the pension income this will be set against their sole personal allowance, wasting some or all of the other person’s tax-free band.
- Use an Independent Financial Planner regularly to optimise and maximise tax savings, asset allocation and investment returns within your risk tolerance as well as to sense checking you are moving ahead in an optimal way. The difference between good investments and poor ones is much greater than the cost of advice.
- Minimise borrowing, this picks your pocket especially with higher interest rates!
- Sort out the basics – Wills and Power of attorney. Without these in place, your wishes may not be carried out and your estate may pass to others based on a preset formula. Dealing with someone's affairs after they have lost mental capacity is much more expensive if a power of attorney is not put in place. Not having one as you reach retirement is a false economy. Which leads neatly to inheritance tax planning, which some people say can be an optional tax and it is if you are organised well before you die!
- Review your financial position on a three-monthly basis asking yourself have all of the above being taken into account and could I/we be doing more?
How we can help you
Starting with a free phone or video consultation, you will have a dedicated Independent Financial Planner who will meet you to understand your situation. They will determine what your risk appetite and requirements are.
Contact us for a free, no obligation consultation to discuss your initial enquiry by calling 0330 441 2244, completing our enquiry form or email [email protected]
About the Author
Jonathan Cross is a qualified Independent Financial Planner with more than 30 years’ experience in financial services. Jonathan prides himself on providing friendly, professional, and easy-to-understand independent and impartial financial advice.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
Inheritance tax planning is not regulated by the Financial Conduct authority.