Summer shape-up: Steps to financial security

Now is an ideal time to clarify and improve the condition of your personal finance and investments. Follow this plan from Alexander Bignell at Punter Southall Wealth and you should be able to improve your financial fitness in no time at all.

Fail to prepare, prepare to fail

An often overlooked aspect to financial wellbeing is the importance of “budgeting”. As a wealth management firm, we emphasise to clients that it is a vital component to financial security.

Putting together a spreadsheet detailing income/expenditure, and differentiating between “need” and “want”, with savings being a “need” as opposed to a “want”, is key – it is important, vitally so, to understand where you are now, and where you want to be in the future.

Putting together a spreadsheet detailing income/expenditure, and differentiating between “need” and “want”, with savings being a “need” as opposed to a “want”, is key

The other aspect to putting the foundations in place is to determine what you wish to achieve? What are your aims? How much would you like to have in retirement? What income level, in today’s terms do you “need” and “want”? 

Once these questions have been answered, then one can move forward.

Collate and review pension/investments/life assurances

Once step one has been addressed, the second aspect is to review your existing arrangements including pensions, Individual Savings Accounts, (ISAs), general investments, life assurance and critical illness, and also cash.

Knowing and understanding what your current arrangements look like, the costs and performance, is key to determining whether they are “fit for purpose”. Once this information is known, comparison with what is available now can be undertaken.

A simple, and “easy win” as part of this process is to make sure cash you are holding for “emergency funds”, (and we would recommend this to be 12 months expenditure), and any other reasons, is in a place which maximises the returns.

This is particularly pertinent with interest rates being at record lows, and for example, National Savings & Investment’s (NS&I) instant access account is currently paying 1.00% gross/AER (Annual Equivalent Rate), significantly higher than the Bank of England base rate, with a greater degree of protection than “standard” bank accounts offer as well.

Attitude to risk – “eat well or sleep well?”

The risk one is willing to take, and indeed, can afford to take, underpins every financial strategy that is put in place. The importance of ensuring that this is accurately recorded cannot be overstated.

It is important not to be influenced by others, but also, to remember that risk is always evolving, will change from one year to the next, resulting in flexibility and being open-minded as key.

The risk one is willing to take, and indeed, can afford to take, underpins every financial strategy that is put in place. The importance of ensuring that this is accurately recorded cannot be overstated

Risk, linked with an understanding of the current position, alongside the ultimate objective, means the “roadmap” required to achieve the target(s) set out at the beginning of the process, provides clear guidance as to the net returns required to achieve retirement objectives.

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Top Tip

It’s easy to put off reviewing your finances, but inertia can cost you dearly long term – particularly if you are paying high fees or getting lacklustre investment returns with a wealth manager. We can arrange conversations with a shortlist of alternative providers fast, and with no charge or obligation, so why not give our matching service a try?

Lee Goggin - Co-Founder

Lee Goggin

Co-Founder

Tax planning

Tax planning is essentially ensuring that you utilise ways, in keeping with legislative guidelines, that reduce, defer and remove potential tax liabilities.

We would never advocate tax planning be undertaken in isolation and should always be utilised in tandem with the overall goals, however, ensuring that ISAs, pensions and Capital Gains Tax (CGT) allowances are used is vital to providing the best opportunity to reach retirement goals.

Whilst the aforementioned are relatively “common” tax-efficiency routes that are utilised, and rightly so, an approach often overlooked is the holding of cash by the lower taxpayer, tax allowances being transferred between spouses, and holding NS&I investments – all something which should be considered.

Finally, when it comes to intra-generational wealth planning, and using the advantages of tax legislation, rather than leaving pensions to one’s spouse or civil partner, (provided the surviving spouse’s requirements are met), it is to pass onto the next generation, allowing the wealth to cascade down the generations outside of the Inheritance Tax (IHT) regime.

Estate planning

If you have a secure financial plan in place to meet your long-term income and capital needs, you may find that you have surplus funds that you can distribute to loved ones and charities now, in future, and (along with your will) after your death. 

Investigating these arrangements today can be a very satisfying and enjoyable responsibility, which could also relieve you of a potentially stressful financial situation later.

If you have a secure financial plan in place to meet your long-term income and capital needs, you may find that you have surplus funds that you can distribute to loved ones and charities now, in future, and (along with your will) after your death

As well as the above, Alternative Investment Market (“AIM”) portfolios, are also an area which, from an estate planning perspective, provide a tax-efficient way of ensuring assets can pass to future generations in a way that mitigates IHT, and in a more flexible way than other arrangements such as trusts.

However, these are higher-risk vehicles that tend to be suitable for experienced investors. As investors may not receive back their original investment, careful consideration and professional advice should be sought prior to investing in this area.

Beyond this “boot camp”

Following this plan will give you a much firmer handle on where you stand on your financial roadmap (and if this is still aligned to your circumstances and needs). Don’t forget to follow through on any areas that emerge as needing work though.

Improving your financial fitness creates the same positive feelings shaping up physically does. A little work is required, but the rewards more than justify making the effort. See it as making an investment into yourself! 

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