Putting your best foot forward: Our seven steps to financial success

Written by Close Brothers Asset Management 

The cost-of-living crisis has impacted us all, but some more than others. 1.3 million people within the UK sit within the ‘Sandwich Generation’1, a growing phenomenon who are caring for elderly parents, as well as their own children. Financially squeezed in all directions, it’s more important than ever that this group stays on top of their money.

However rosy our finances might look, they’re still likely to be a source of worry. Our recent Spotlight on UK Financial Wellbeing research revealed that whilst only 28 per cent of the UK professionals we surveyed are unhappy with their finances, an astounding 96 per cent told us they worry about money.

So, whether you are in, or looking forward to retirement, it’s never too late to look under the bonnet and take control of your finances.

Many of us will use the arrival of the New Year as a chance to adopt healthier eating habits and fitness regimes, but there are also benefits to reviewing and improving our finances.

Whether you manage your money yourself or regularly check in with a financial planner, even the smallest of steps can have a big impact on your pocket, your tax position and your long-term financial health.

After all, the world around us is constantly moving, so staying ahead of social, economic and fiscal dynamics will pay dividends in the long term.

There is no better time to take stock of spending than after the festive period, which can be an expensive time for many. Take a methodical approach in analysing your outgoings, liabilities and other commitments to identify ways to cut costs and make your finances go further.

Here are our seven steps to financial success:

1. Budget review

Take a look back at your bank and credit card statements to gauge spending over the last four months.

Consider whether there are any ongoing costs that can be cut back or eliminated. Do you need all of your apps and online subscriptions, and are you happy with how you are spending your well-earned money?

Some costs such as rent or mortgage repayments, utility bills, food and travel simply can’t be avoided.

But look a little closer at your commitments as you could be surprised at the difference you can make. There are plenty of resources online, such as Moneyhelper’s ‘Budget Planner’, which can help you plot out your spending and see where corners can be cut.

Make the most of aggregators such as Money Saving Expert and Compare the Market as they can do the hard work in pinpointing the best deals on the market for you, and keep an eye on automatic renewals and expiry dates so you can be sure to get the best rates.

Budgeting doesn’t stop with the here and now. Planning is essential to ensure your future finances are on point too.

Take the time to review your financial plan at least one a year to ensure you make the most of tax breaks and other incentives and have reassurance that your finances are on track. If you don’t receive on-going financial advice, ensure you enlist support if there are any aspects of your finances for which you need help.

If you count yourself as part of the ‘Sandwich Generation’, make sure you’re covered for future eventualities: work with your loved ones to plan carefully and realistically for later life adjustments and costs that may be needed and agree contingencies such as lasting powers of attorney.

2. Debt management

Borrowing money is an inevitability for most of us and is a normal part of most people’s financial plans.

But regularly reviewing liabilities such as a mortgage, loans and credit cards could help you better manage these and ensure they match your affordability and wider financial plans.

Seek professional advice if you need help with prioritising key commitments such as mortgage repayments and identifying the cost of liabilities such as high-interest credit cards and finance deals.

Consider consolidating your debts in order to secure lower interest rates and a clearer repayment strategy. And as markets move, it may be tempting to make the most of high interest rates and cash in investments, but seek advice if you can and be aware of any penalties that redemptions will incur.

3. Financial protection

Designed to give you and your family assurance for the future, protection comes in many guises. Income protection aims to provide a monthly sum in the event you are unable to work, while critical illness cover will provide a single lump sum payment on diagnosis of a specific illness, regardless of whether you can still work.

Life insurance is vital cover pre-retirement, as it factors in your dependents, liabilities and the length of time it’s likely to be needed for.

Many policies are integral to employee benefits or pensions, so it’s important to proactively review these and the level of underlying cover to determine and plug any gaps for both you and your family.

A common pitfall with protection is the failure to review this as personal and professional circumstances change. So, whether you get married, have children or lose a loved one, make sure you revisit any policies so they are valid and will be effective if needed in the future.

Retirement is an important milestone – review policies that may no longer be valid, such as income protection. And, regardless of where you are in your professional or personal journey, make sure your will is up to date and that you have designated a lasting power of attorney and estate executors.

It’s also important to take precautions for unforeseen eventualities. Make sure you have an emergency fund that’s easily accessible and can cover between three and six months of your typical monthly expenditure.

4. Property

Home is where the heart is, and for many, it also represents our greatest asset and the lion’s share of our wealth.

Property is also viewed as an attractive investment opportunity, whether in the form of a holiday home, rental property or somewhere for family members to live. As with all investments, however, investing in property can be risky – and these risks may be more acute than with other investments.

Real estate is expensive, and the need to take on debt to fund this gives rise to other variables: as finance costs, taxes and interest rates fluctuate, so too can the returns of the underlying investment.

And property investment naturally incurs more concentrated levels of risk than with a more balanced portfolio that is not solely exposed to real estate fluctuations.

If you’re going to invest in real estate, consider the level of borrowing you’ll need to take on, the cost of transacting and how quickly you may need to access the money you’re investing.

Also bear in mind that you will need to pay tax on any income, and you may also be liable to pay tax on any increase in the underlying property value when you do sell. Remember to look at property as just part of your portfolio that fits with your financial plan, and in the context of your wider capital, savings and investment picture.

Finally, mark your mortgage renewal firmly in your diary, leaving at least six months before it expires to secure the right terms for your requirements.

5. Savings and investments

According to an old adage, the only certainties in life are death and taxes – and this has never been more evident than over the last few years. Plans change, and it’s vital that our finances can flex to accommodate these. Whether you have a financial planner or an investment manager, or manage your finances yourself, taking time periodically to ensure your savings and investments align with your financial plan will pay you back in peace of mind and improved financial health.

So, what’s a reasonable amount to save? This depends on your financial goals, and what you need, when. Budget is also a driving factor – if you have to make choices and save selectively, you’ll need to prioritise your goals.

And if you’ve got investments as well as cash, review their performance and how they hold up against your financial plan and attitude to risk. If you don’t have an on-going financial planner, consider a one-off consultation to make sure everything is on track.

6. Retirement planning

Whether you’ve retired or not, it’s important to understand the value of your pensions, as well as any other savings or investments you have in place for your retirement. If you do one thing this new year, make sure

you know their worth so you can identify any shortfall that needs addressing. If you haven’t reached retirement, remember there’s still time to make a difference. And when it does come around, it will be one of the most pivotal times of your life, so it’s worth seeking advice to ensure you understand all your choices, and can make the best decisions about when you want to retire and how you will fund your lifestyle in your retirement.

Financial modelling will help you understand the budget you will need to achieve this, and whether you have sufficient pensions, savings and investments in place to fund this.

If you have more than one pension, look at consolidation. Enlist a pension tracing service to ensure you have every pot covered and seek professional advice so that any potential consolidation does not jeopardise any protected benefits.

7. Tax

A key tenet of good money management is ensuring your tax position is on point. Get this wrong, and you could pay a heavy price as HMRC claws back any underpayments. Log onto the HMRC portal to see your current tax code and why it’s been assigned to you. If you have the wrong code, you may be paying too much or too little tax – fix any errors promptly so you stay on top of your finances and your monthly income.

Make sure you understand your personal allowances and that you make the most of these each year. If you need to complete a self assessment tax return, mark key dates in your diary so you can factor returns into your planning and budget for any liabilities – paper returns should be submitted by 31 October and online submissions by 31 January.

Consider professional tax advice as this could save you money in the long term – from assigning the ownership of your assets to accounting for share transactions and any capital losses. And keep an eye on the future – ensuring your will or any death in service documentation are up to date and that life cover is written into trust will save your loved ones undue stress in the future.

Contrary to common belief, Inheritance Tax (IHT) is not reserved for the wealthy. Increased property prices can easily hike up the value of an estate so it is liable to IHT, so both will and estate planning are vital for saving your loved ones unnecessary time and distress. Take the time to work out the total value of your estate so your will reflects this, and take professional advice to determine your IHT liability and ways in which you can reduce the impact on your estate.

Finally, be mindful of Capital Gains Tax (CGT) which you could be liable for on any profit you make when you sell, transfer, exchange or gift certain assets, in certain circumstances. If you give assets away to someone who isn’t your spouse or civil partner, you could become liable for CGT.

You may also be expected to pay CGT on ‘exchanges’ such as an insurance pay out for a property that has been destroyed, should there be any gains in market value.

You may also have to pay CGT if you sell, exchange or give away properties that aren’t your main home, or shares and valuable items such as jewellery or works of art.

In these instances, you have a personal allowance for which you will be exempt, but be aware that from the next tax year, this will halve from £12,000 to £6,000 per year. Rates will vary in line with your other taxable income so seek professional advice to make sure you allow for these and can optimise your assets accordingly.

This year, why not pause, take stock and devise a plan that makes the most of your finances. There are a breadth of tools and resources online, and of course, we are on hand to provide either on-going or one-off support so you can evaluate your position and take the steps needed to look forward with confidence to 2024 and beyond.

To find out more or if you have any questions about financial planning, please contact our Managing Director Ben Staniforth.

Email Ben.Staniforth@closebrothersam.com or call +44 (0) 7519 668 120