The last few months have had a significant impact on people’s lifestyles and finances, with wide fluctuations – both up and down – in investment markets.
And while we are now emerging from lockdown and beginning to adapt to the “new normal,” this hasn’t changed the fundamentals of financial planning, and will stress the importance to many more people of the need to have a tailored plan which evolves to fulfil your needs and give you better protection when times are tough.
There are three basic stages, or building blocks, towards financial independence which anyone can work towards.
Keep some cash in instant access accounts, build this up where possible and aim for at least six to 12 months’ income. This will help with the cost of unplanned expenditure such as car repairs.
It can be tempting to think that by opting out of paying into a pension you will have a larger pay packet at the end of the month. However, it’s likely your employer is required to pay into your pension, which they are unlikely to pay if you opt out. The government may also be paying in the form of tax relief on your personal payments.
If you are worried about finances at the end of the month, before reducing your pension, consider your spending and whether you are receiving all the necessary help.
A simple review of your expenditure will involve:
- Reviewing your standing orders and direct debits - most banking apps or online banking allows you to monitor your regular payments.
- Do you have debts or credit cards with high interest rates? Charities such as StepChange (stepchange.org) can help with this.
- Are you receiving the state benefits to which you are entitled? You can check this via Entitledto at entitledto.co.uk.
This stage involves protecting the essentials:
- Should you have life cover to pay off your mortgage if something unexpected happens?
- Have you considered how long your sick pay would continue to be paid for (or do you have any, especially if you are self-employed)? Income protection can top up your state benefits in the event of being unable to work.
Can your family afford to go without your income for a long period or indefinitely? What would happen to your family members and yourself if a series of unfortunate events were to unfold?
Around one in twenty school age children with either lose a parent or both parents by the age of 161. Do you really want to run the gauntlet if you are a parent?
The Department of Work & Pensions and the Department of Health & Social Care estimate over 100,000 every year leave the work force after a period of long-term sick leave.2
Ensuring you have such protection in place is all a part of the financial planning process.
You may be entitled to some life cover and income protection insurance as well as other benefits from your employer.
Once you’ve completed steps 1 and 2, you can start to think about longer-term goals such as:
- Are you saving towards a house? If so, how much do you need and when do you want to do this? This can affect whether you should hold mainly cash or consider investing.
- Are you approaching retirement? If so, in addition to your pensions, what else do you have saved/invested to help?
- Could you change where you are saving or use existing savings to invest over the long term?
- In terms of your existing pensions and investments, do you know how much you are paying and does this represent value for money?
- Have you checked your state pension age and the amount due?
- What are you investing in? Is it too risky or appropriate for your circumstances?
- Are you in the fortunate position that you can help your children/family or a charity and want to know how inheritance tax can affect you?
- Are you looking to sell your business and want to plan what to do next? Should you look at investing and what is the impact on selling your company?
Stage 3 of the process is where my colleagues and I can add most add clarity, value and peace of mind. Generally, people at this stage are “time poor” and may need help with their finances, in terms of understanding what they have and what they need to do to ensure they are on track to meet their financial goals and be better prepared for negative events which might strike us or our family.
We can also help with inter-generational planning and if you are concerned about the estate of an elderly relative to whom you are heir or co-heir to their estate, we can help mitigate inheritance tax and potentially increase the amount the heirs receive.
While there is no road map for the current crisis and many people are facing unprecedented challenges, we believe that timely and targeted advice can make a real difference.
There are a number of ways we can help but Smith & Williamson’s Covid-19 Hub, which is updated regularly, is designed as a starting point to answer your key questions.
Smith and Williamson Financial Services has a wide range of expertise that can help both individuals and businesses with financial planning and tax planning. If you would like to have more detailed conversation, please contact Tim Blowers on 0117 376 2241.
- https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/ file/817124/health-in-the-workplace-statistics.pdf
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of publication.
Notes to editors
Smith & Williamson is a leading financial and professional services firm providing a comprehensive range of investment management, tax, financial advisory and accountancy services to private clients and their business interests. The firm’s c1,800 people operate from a network of 12 offices: London, Belfast, Birmingham, Bristol, Cheltenham, Dublin (City and Sandyford), Glasgow, Guildford, Jersey, Salisbury and Southampton. Smith & Williamson is part of The Tilney Smith & Williamson Group.
Smith & Williamson Financial Services Limited
Authorised and regulated by the Financial Conduct Authority