Most of us are experts at putting off our admin tasks! Here’s a handy checklist to run through and tick off to ensure your finances and your future financial planning goals are on track.
1. Contribute To Your ISA
It’s easy to forget to use your annual ISA allowance of £20,000 (per person per tax year). As well as pensions and other investment wrappers, an ISA can be a useful tool in your financial planning armoury, allowing you to withdraw a regular income as well as ad-hoc lump sums tax-free.
If it’s a ‘flexible’ ISA , you can withdraw and then replace up to the full amount taken from the ISA in the same tax-year (without it counting towards the annual ISA allowance) but, to be able to take advantage of this rule, the funds withdrawn from the flexible ISA must go back into the same ISA.
2. Set Up Or Review Your Will
Ensuring you’ve a valid will in place allows you to exercise control over what happens to your estate when you say goodbye to us. This is hugely important as it allows your beneficiaries to know exactly what your wishes are and can help to avoid any disputes over how your assets are distributed.
If you were to die without a will or ‘intestate’ (without a testament), your estate would be subject to the rules of intestacy, which can make matters VERY complicated.
3. Set Up Your Lasting Powers Of Attorney
If you become ill or have an accident and lose capacity, an attorney would be able to step in and manage your affairs on your behalf, provided you’ve registered your powers of attorney with the Office of the Public Guardian.
4. Review Your Insurance Covers
Life insurance, critical illness cover, Income protection, and family income benefit all sound like a lot, but it’s hugely important. We all know someone that has suffered from a serious illness. It can happen to anyone.
What would happen if you fell ill and couldn’t work for a year or two? How would you pay the mortgage? Do you have enough savings to ‘self-insure’? How would you replace these savings? Would you have to sell your house? Would a partner have to work full time instead of part time and not be there for the children?
Putting up a forcefield around your family finances with insurance should, in most cases, be the highest on your list of financial planning priorities. Consider the following order of priority: ‘PIPSI’ – Protection, income protection, pensions, savings, investments.
5. Review Old Shares
Many people have shares that have either been gifted to them or inherited. There may be a sentimental value to holding on to individual shares, however, if the main aim is to retain the value in the shares, it may be worth taking a closer look at how they’ve performed.
Putting individually held shares into context in the world of investments, they are a 10 out of 10 on the risk scale. If a CEO resigns, the share price may go up or down, if a scandal hits an individual company, share prices can plummet; ergo, the volatility can be high.
Diversification of risk and assets has long been viewed as a good way to mitigate against such volatility and holding a basket of funds in a diverse investment portfolio can help. There may also be tax advantages to be had from gradually moving investments out of a taxable environment into something more tax efficient, such as an ISA. Speak to your adviser to organise a review.
6. Nominate A Beneficiary On Your Pension
Make sure you’ve registered an ‘expression of wishes’ to nominate any beneficiaries for any pensions you have, whether ‘defined contribution’ or ‘defined benefit’ in nature.
This important document will let the trustees or administrators of your pension scheme know who you’d like the benefits of your pension to go to should you pass away.
7. Explore Topping Up Your Pension
Establish if you could or should make any additional pension contributions. Do this in well in advance of 6th April if you can as this will allow enough time for any paperwork to be dealt with, signed and for funds to settle.
This can be especially important for those that run their own Ltd company or for those looking to potentially take advantage of tax relief. You may have found that you have had ‘a good year’ and that you have sufficient funds to make a lump sum top-up.
8. 8th Wonder Of The World (Albert Einstein)
It could be a good time to consider increasing your monthly pension contributions. As mentioned earlier, adding big lump sums to your pension is never usually a bad thing but you can’t always afford to do this.
Another, often overlooked, method is incrementally increasing your pension contributions every year. By doing so, you can take greater advantage of compounding, where growth builds on growth, helping your pension pot grow significantly over the long term.
Consider this, would you prefer to receive £1m today, or receive 1p today which will double in value every day for 30 days? What did you go for? Yes, this is a bit of an extreme example, but it’s just to highlight that many of us get caught up in the big numbers as we often want to see results now rather than years down the line.
Receiving £1m today would be great, but in the scenario above if you had waited 30 days you would have received £5,368,708.
I’m not suggesting that by slowly increasing your pension contributions the value of your pot will double in value every day but you see the point, compound interest (the 8th wonder of the world as einstein described it) can provide growth on growth, so it’s worth considering.
9. Put In Place An Easy Access Emergency Fund
Again, this is an often-overlooked area of financial planning. Many people that have insurances, pensions and investments in place and often omit retaining a suitable cash reserve on deposit that they could access at short notice, should the need arise.
An emergency fund is often for mundane things such as replacing a boiler or fixing a roof. However, it happens more often than you would think, and having to dip into your investments is not ideal and often not what the investment or pension was set up for. Access to such investments can take time and any funds withdrawn may miss out on any market growth in the stock markets.
What is a suitable amount to hold in cash as an emergency fund? Well, that depends on your regular income and expenditure, as well as your overall finances.
10. Review Your Financial Objectives
This could be an annual objective for you or for your family, or it may be a bigger, more over-arching objective such as retirement. Have any of the goals you’ve already set changed? Would you like to retire earlier?
Would you like to be able to spend more? Have proposed changes to legislation meant that you may in the future have an inheritance tax issue?
It’s worth getting clear on what your financial objectives are. Without that, how do you know if you’re headed in the right direction?
The End
That’s it for now but I hope you’ve found it useful. You may have all this under control and some things might not be relevant to you but I’m sure there’s something there for everyone. Get in touch if you need to.
See you next time…