The start of a new year is always a good time to review your finances and plan for the future. In his latest article, Independent Financial Adviser Joe McGovern provides a blueprint of a good financial plan which will aid in achieving your financial goals throughout 2022 and beyond.
“Our lives are continuously changing, and it may be argued that the last two years have sparked the greatest changes seen in some time. The uncertainty of the pandemic has made financial planning challenging, but January is always a good time to contemplate and review your financial plan. Addressing the areas below will help you set strong financial foundations for the future.
- Look in the Mirror
The starting point for any good financial plan is the same as starting point as Michael Jacksons 1988 smash hit “Man in the Mirror”. Take a good, hard, honest look at your finances. If you have any debts, prioritise planning to reduce them. Work out how much you are receiving and spending each month. What assets and liabilities do you already have? Set financial goals and timescales. Ensure that what needs protecting, is protected. Consider the “What if?” scenarios.
Taking some time to get to know your current “Financial-Self” will highlight strengths and weaknesses within your finances, making updating/creating your plan more effective.
- Emergency Fund
A non-negotiable facet to any good financial plan is having a sufficient stash of money which can be easily accessed and not subject to any investment risk. This means that in the event of unforeseen expenses (e.g. boiler break, job loss, dental emergency etc.), you have funds available. Having a good emergency fund will reduce stress at the time of emergency and ensure that you’re not dipping into other savings which maybe earmarked for other important goals (i.e. retirement).
Some say £10,000 is a good emergency fund to have, others 3-6 months of household expenditure. In truth, it’s up to you and how much you feel comfortable with having set aside.
REMEMBER: Too much money in cash savings could be detrimental to your financial plan and inflation will erode the true value over time!
- Protect the Protectable
Another key facet to a sound financial plan is having suitable protection in place. Death, Critical Illness or not being able to work can all be protected ensuring that debts can be paid off or income can still be provided in a time of need.
Consider the financial impact if one of the above were to happen and consider whether your current protection policies (if you have any) would be suitable. Protection policies have many different valuable features, it is vital that policies remain suitable to meet your needs. Please ask your adviser if you want more details or a review of your current protection policies.
- Understanding you Pensions
Whether you’re 30 years off retirement or 5 years off retirement, getting to grips with your pensions are key. Dust off the old paperwork and find out what pensions you have, the types they are and the values of them. This simple task is a great way of organising what you have- the combined value may just shock you! Pensions offer valuable tax reliefs on contributions, ensure that you are making the most of these reliefs.
Pensions are complex, so asking your adviser at MPA to review your policies is a great step forward. Having all the relevant information in one place is a good basis to formulating a plan for retirement.
Once you meet the above points, if you can afford it, investing is a smart way to make your money work harder so you can hope to have more money in the future. There is always the risk of your investment falling in value, which means that you get back less than the amount invested. With this in mind, there are a few basic things to consider which will stand you in good stead when investing:
- Time – The minimum time horizon you should invest for is 5 years but the longer the better. The longer the investment horizon, the greater the ability for the monies to generate growth (compounding).
- Risk and Capacity For Loss – Ensure that you are happy with your chosen risk level and understand the implications should that investment fall below you expectation. Will this be detrimental to your current standard of living? Or will it have little effect?
- Diversification – Don’t put all your eggs in one basket. Spreading the money across different holdings, asset classes and geographies will reduce the overall volatility of the monies over the long term.
- Honourable Mentions
Get a Will – Wills ensure that your needs and wishes are fully catered for in the event of death. Speak to your adviser to get this arranged.
REMEMBER: In England and Wales, when you get married, any legally valid will you made before will automatically become invalid unless it specifically mentions your intended marriage. Divorce does not revoke a Will, the ex-spouse no longer benefits from it- unless specifically stated otherwise.
Power of Attorney – Two types, “Health and Welfare” and “Financial”. Both of these types will ensure that should you lose mental capacity in the future, you have a nominated individual who will act on your behalf to make decisions which are in your best interest. Again, speak to your adviser for more information.
Inheritance Tax Planning – Something everyone should at least consider and discuss with your financial adviser. If you think this is something that will affect you or you want to discuss further, please get in touch.
Savings for Children/Grandchildren – Junior ISAs, Junior SIPPs, Lifetime ISAs are just some of the wrappers available for children. All come with their own tax advantages which can be beneficial to not only the recipient but you as the individual gifting the money.
When creating a sound financial plan, there are a lot of individual elements to consider as highlighted in this article. If you haven’t engaged in any/all of the points above, it’s never too late- start now!
As always, MPA are here to help plan and continue with you on your financial journey. If you wish to have an initial Discovery Meeting with a qualified Independent Financial Adviser to start planning or you simply have some questions, please do not hesitate to contact us.