Top 10 Tips – Financial Planning
If you are planning on taking control of your finances and looking for some pointers on how to get started here are our top 10 tips to help you.
1 – Have a plan
It may seem obvious but it does help significantly to actually have a plan! We plan at work, we plan our holidays so why not plan something as important as our finances? You can build your own spreadsheet to look at income versus expenditure and you can look at your projected benefits from your pension and see how this compares to your current income levels.
You could also use online tools or employ a financial planner to help if you aren’t confident using your own spreadsheet.
2 – The sooner you start, the better.
It’s never too soon to start saving, but all too often we see people who have left it too late.
Retirement may seem a long way off, but the sooner you start, the earlier you can stop work and the more comfortable a lifestyle you will have when you come to retire.
The way compound interest works means that the first contribution is the most valuable so if you start a savings plan at age 20 and stop contributing at age 35, you will have more money at 60 than someone who starts at age 35 and contributes double from 35 to 60.
3 – Make saving a habit
Saving is also just a great habit to get into, for example, making a rule to always save 10% of your income is a very useful discipline to live by.
You may be surprised how quickly your savings can accumulate, if you are investing some of your money you may see rises and falls in the value of your investments, this is all part of the investing journey.
Having a cash reserve is a good idea and a general rule of thumb is to have 6 months income held as cash as a ‘sleep at night’ fund so that if markets take a tumble, as they inevitably will you can sleep at night knowing that your short term cash needs are taken care of.
Also means that should you lose your job or require a lump sum, you have some breathing space.
4 – Use your tax allowances
Make sure you’re taking full advantage of any tax allowances available to you, e.g. maximising your ISA allowances, using your capital gains tax allowance for any investments you have, and making sure that you are taking advantage of any pension contributions your employer is willing to make into a pension.
With auto-enrolment schemes being introduced to pretty much every business in the Country there is an opportunity to have your employer and even the Government contributing to your retirement.
If you are fortunate enough to be financially comfortable you are able to gift lump sums or excess income each year without necessarily incurring a tax charge.
Knowing and using your allowances is not tax evasion and you are not likely to have your picture plastered all over the front page of the papers with Gary Barlow and Jimmy Carr for maximising your Isa allowance, but you will more than likely have a more tax efficient investment portfolio than you did before.
5 – Pay down debt
Wherever possible, get rid of debt – the cost of debt on credit cards and personal loans is likely to be far higher than the returns you get on any savings accounts so see if you can pay these off first.
6 – Get help
Get external, professional help on your finances at the outset. When making a plan, you need an honest and objective appraisal of your finances and it’s often easier for someone with a wider perspective than your own to do this.
There are all sorts of help out there and this can be tailored to what you want, if you want some free resources, head to google and put ‘Budgeting help’ in the search bar.
If your circumstances are complex or you just want an objective third party to help you there are financial planners out there that can help.
7 – Set Goals
Set goals and objectives – it’s much easier to save if you know what you’re saving for and it also helps provide you with a proper incentive. It gives you a real sense of achievement when you‘ve reached your goal, and confidence to move on to the next one!
Make sure you write them down and remind yourself of them as often as you can. Also try to envisage what life will be like when you achieve these goals and use that feeling of excitement as motivation. The perceived pain of discipline is likely to be far more palatable than the pain of regret you’ll feel by not taking action.
8 – Budget
Be in control of your income and expenditure so that you budget sensibly. By knowing your numbers, you’re in a better position to make decisions regarding major purchases.
Complete an audit of your current account, look over your Direct Debits and standing orders. If there are some in there you can do without, cancel them and save half the money, spend the over half!
Take half a day off and call your utility suppliers, TV company, telephone and broadband suppliers and negotiate your deal. I did this recently and saved over £100 per month!
If you get a pay rise or a bonus at work, do the same as with your direct debit audit! Save or invest half and spend half.
Saving half and spending half is a win win, you have more in your savings or investments than you did before and you are also able to treat yourself as a reward for the hard work.
9 – Protect yourself and your family
It’s always tempting to hope the worst will never happen but it is important that you put enough critical illness and life assurance in place to protect your loved ones.
Think about what would happen to your family finances if you were unable to work, if you suffered a critical illness or if you were to die. How would your family cope? The peace of mind that can come from knowing that your family will be OK financially should outweigh the cost of putting some insurance in place.
Also make sure you have a will. If you already have one make sure it is up to date and someone knows where it is. You might also want to write a letter to be kept with your will that details all of the people that can assist your family should the worst happen. This list could include your solicitor or your financial planner. This will avoid your family flicking through pages and pages of filing to find out who your pension plan is held with or who the executors of your will are.
10 – Review, review, review
Don’t just put a plan together and then never look at it again.
You don’t go to the gym once and get fit (although I have tried this on many occasions, usually in the first week of January!)
The markets change and your circumstances will inevitably alter too, so it is important that you look at your finances on a regular basis. Once a year is normally enough, but this should include a review of the current account, a review of your budget, progress against your goals and an honest assessment of what you could have done more or less of that would have got you closer to your goals.
Celebrate your successes as well, life is short and time is our most valuable resource so if you have achieved something special, reward yourself.
Experiences tend to last longer in the memory than ‘stuff’ so take that trip away with a loved one, or see that show you have always wanted to.
As Buddha once said “The trouble is, you think you have time”