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Time to get your financial plan in order

With inflation taking a huge bite out of spending power and a raft of stealth tax changes, there has never been a better time to take a fresh look at your financial plan.

| 8 min read

As we move into 2024, we find the issues that faced us throughout last year continuing. Inflation is still taking a huge bite out of people’s spending power, albeit levels are easing back. A raft of stealth tax rises that have taken effect last year, are increasing tax receipts. There has never been a better time to take a fresh look at your financial plan.

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Why consider a financial plan?

Financial planning allows you to achieve your goals:

  • Buying a family home
  • Saving for children’s educations
  • Having a comfortable retirement
  • Planning your tax position more effectively
  • Estate planning

    The core of financial planning is not just about products, services, or different strategies – but you. Your hopes, dreams, fears, concerns, priorities, goals, values and aspirations. It should be your true resolutions and your outlook.

    Financial planning also prepares you for unforeseen situations and emergencies such as falling sick, losing your job or emergency capital needs. In short, financial planning focuses your outlook on your current needs and your future aspirations – providing a systematic approach that covers budgeting, insurance, investment, taxes, retirement and estate planning. With help from a Financial Planner, you'll also be prepared for potential risk and unforeseen events.

    What does a Financial Planner do?

    There is not a ‘one-size-fits-all’ solution in financial planning. It is a personal process that needs to be bespoke for each individual. Without consideration of someone’s entire financial situation and aspirations, recommendations regarding specific elements of planning are diluted, at best. At worst, they are ineffective. There are several keys to developing a good financial plan.

    1. Setting financial goals

    It is advisable to look at your plans for five, ten and 20 years. What does your life look like over these timeframes? What plans do you have over these periods? Are you on track to achieve these?

    Depending on your stage of life, goals can vary. Short-term focuses could be a house move, university fees or one-off purchases. The medium-term emphasis can encompass tax-efficient investments, retirement planning and larger spending events. Longer-term goals could encompass tax-efficient retirement income, reviewing your estate planning and identifying any inheritance tax issues.

    2. Tracking your cash flow

    The importance of this cannot be stressed enough. It gives you a clear view now of what you have and what is required in the future. Keeping this within your financial planning gives you an accurate position of your short, medium and long-term goals. A cash-flow analysis will remove the uncertainly and guesswork, and factor in current and future lifestyle. The monitoring of this cashflow will then keep you on track as it accounts for financial returns, inflation, planned changes and any unknowns, should they occur. It also enables the creation of ‘what-if’ scenarios, and really empowers you to make the right decisions regarding your finances for both now and the future.

    3. Preparing for emergencies

    Life invariably throws emergency situations at us – and can catch one off guard. Preparing for the possibility of these events can provide security during troubling times. This could be to ensure the household has financial resilience in case of illness, the unexpected death of a partner, financial emergencies or losing your job.

    4. Paying debt

    Debt can be in many forms, but the most common borrowing is the mortgage. Having a plan to pay off debt is crucial for long-term security, whether this is to be mortgage free, or focus on early retirement and reduced expenditure. As interest rates rise, looking to reduce any debt over a quicker term than previously planned could also make financial sense.

    Many tax bands have been frozen until 2028, including the inheritance tax threshold band – this is a big issue for many looking to preserve their assets for the family.

    John Moseley, Financial Planner at Charles Stanley

    5. Assessing and managing risk

    Risk can be in many forms. It could be the risk for the family should illness strike, or a job position changes, but also in investments you hold. Do your investments meet your risk appetite, are you aware of how market volatility can impact on your investments? Times have changed, unfortunately, and we all know that the economy received a huge hit during the last three years. Many tax bands have been frozen until 2028, including the inheritance tax threshold band – this is a big issue for many looking to preserve their assets for the family. Risk has increased with many factors over this time, notably Covid-19, global lockdowns, supply-chain disruption, the war in Ukraine and, more recently, inflation at 40-year highs coupled with rapid increases in interest rates. Assessing and managing your risk on an ongoing basis is crucial to ensure your long-term financial plan remains on track.

    6. Making investment decisions

    Your investment strategy is key to any financial plan. A bespoke investment strategy takes account for your personal outlook and the goals you wish to achieve, balancing the risks you are willing to take with the return you need to meet your objectives. Investment also looks at your tax position and maximises your tax allowances. Investment diversification is also crucial in this area. This means making sure you’re not relying on one type of investment too heavily, protecting your investments to reduce the overall risk of losing money.

    There are four main asset classes - cash, fixed-interest securities, property and equities. Having exposure to them all will help reduce the overall level of risk of your investment portfolio. If one part of your portfolio isn’t doing well, the investments you’ve made elsewhere should compensate for those losses. Your actual proportion of diversification may change at different stages of life. While you are in the stage of building funds for your long-term goal you may opt for a different investment strategy to the one you would have for the stage in life where you are looking more to protecting the funds you have built, as you are relying on these funds for a steady, constant income.

    7. Tax planning

    A financial plan would look at your current tax position and look at tax-efficient investments and savings, it would also look at tax planning around your estate to ensure your legacy is passed on to your loved ones as you would wish. Many tax bands have been frozen until 2028, including the inheritance tax threshold band – this is a big issue for many looking to preserve their assets for the family. HMRC inheritance tax receipts for the 2021/22 tax year were around £6.1bn, this is double the amount HMRC received in 2011/12 of around £3.1bn. With the freeze on tax bands and the future levels of asset values increasing both from property and investments, there will be many more households falling into this tax regime.
    Financial planning looks at this and effectively covers trusts, planned gifting, and investments that hold assets outside of the estate.

    8. Helping you enjoy your life

    After the last three challenging years, your financial plan should include an element of enjoyment. Enjoyment is without doubt a great way to aid healthiness and refocus the mind. It’s always great to fit a break or holiday into your budget, take time to relax and come back refreshed to tackle the world. Indeed, only when you have factored in enjoyment is your financial plan complete.

    Financial planning is a blend of all these applicable elements, as well as others. It includes investment, insurance, tax, estate planning, retirement and cash-flow planning, tailoring these to your specific circumstances. The core of financial planning is not just about products, services, or different strategies – but you. Your hopes, dreams, fears, concerns, priorities, goals, values and aspirations. It should be your true resolutions and your outlook.

    Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

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