MyCompanyPension.co.uk - Helping members of occupational pension schemes to better understand their benefits.

23rd November 2017
:: Scheme Member | Financial DIY: useful tips | 20 financial things to do

Twenty financial things to do
- (which may not require a financial adviser)
 
1 - Work out your debt freedom day
 
If you have unsecured debt (such as credit cards or personal loans), then your financial planning priority needs to be clearing this debt as soon as possible. The cost of servicing unsecured debt out of taxed earnings is very expensive and it is usually counterproductive to try and save or invest money at the same time. Make a list of your unsecured debts and make a written plan. Choose a date in the future and write it on your calendar as your 'debt freedom day'. This gives you a clear target to aim for.
 
2 - Make use of your yearly cash ISA allowance
 
Everyone in the UK over 16 years old can invest up to £3,000 a year into a cash ISA. From 6th April 2008 this annual limit goes up to £3,600. Money within a cash ISA is free of income tax, so the interest is paid by the bank or building society gross of tax. Many cash ISA accounts are more competitive than the equivalent gross interest paid on ordinary bank or building society accounts. If you have money in a deposit account then moving it progressively into a cash ISA can lead to higher long term returns.
 
3 - Find the best interest rates for your cash
 
There is a great deal of difference between the most and least competitive interest rates on cash deposit accounts. At least once a year you should shop around to ensure you are still receiving the most competitive rates. Do not be afraid of being a 'rate tart' and moving your savings to another provider to benefit from a higher rate of interest. Banks and Building Societies love lazy savers who leave their money to languish in uncompetitive accounts. If you are being offered a rate which is much higher than ‘the average bank’ look out for the tie ins if you want access to your money. If there are no tie ins try to work out where that interest rate comes from!
4 - Read the Financial Times on a Saturday
 
Keeping up to date with changes to the world of personal finance is simple when you read a quality newspaper every week. The Weekend FT contains invaluable information that you can absorb. When it comes to your money; the more you know, the faster it will grow. It’s a small investment in knowledge.
 
5 - Make a budget (and stick to it)
 
Not having a budget is one of the biggest potential downfalls in terms of personal financial planning. Your budget should be a written document that is regularly reviewed. It does not need to be complicated, but it should provide you with enough detail to be able to compare your monthly spending and keep things on track. Once you have a budget in place you need to stick to it. If you find yourself changing the details in your budget on a frequent basis then you should start it again from scratch and make some decision about your financial priorities.
 
6 - Buy some Premium Bonds
 
Playing the National Lottery is a mug's game. If you buy Premium Bonds from National Savings & Investments your money is entered to win tax-free prizes (including a million pound jackpot twice monthly) and you get to keep your stake. The main drawback of Premium Bonds is that they do not pay interest so, over the long term, the impact of price inflation will reduce the purchasing power of your money if you do not win any prizes.
7 - Take control of your children's Child Trust Funds
 
Every child born in the UK since 1st September 2002 receives a £250 voucher to invest in a Child Trust Fund. The parents then get to decide where this money is invested. If you do not make a decision, the voucher is allocated at random to a Child Trust Fund on your behalf. You should make an active decision about where the money is invested for your child to ensure it stands the best chance of a good long-term return.
 
8 - Monitor your investments
 
It rarely makes sense to invest money and then forget about it. You should review your investments on at least an annual basis to ensure that they remain suitable for you. A lot can change in twelve months; in terms of the level of investment risk you feel comfortable taking and the direction of your investments. If you have a larger investment portfolio then you may want to review things more frequently. Unless you are a very active investor, you should not need to review things more frequently than quarterly. DON’T panic if the FTSE index drops sharply. The daily stock market values are not important if you are investing for the long term.
 
9 - Make sure your NI contribution record is complete
 
Your National Insurance contribution record is used to calculate your entitlement to State Pension benefits when you retire. If you have had periods of unemployment, self-employment or full-time study then you should check with The Pension Service to ensure that your contribution record is fully up to date. It is possible to make voluntary contributions to bring this record up to date if any gaps are found. If you reach state pension age after 2010, the number of years contributions you need to get a full benefit reduces, so don’t just pay any shortfall requested by DWP without getting confirmation that your state pension will be improved.
10 - Join your employer's pension scheme
 
If your employer has a pension scheme and they are offering a contribution (either on a non-contributory or matched basis) then you should seriously consider joining. Their contributions will boost your progress towards funding a financially secure retirement and they may even cover the cost of financial advice about joining the pension scheme.
 
11 - Pay off your mortgage
 
After getting rid of unsecured debt, repaying your mortgage is one of the best uses of your financial resources. Check with your mortgage lender to find out if you can make overpayments without being charged any penalties. If you prefer not to tie up your money in your property then an offset mortgage might be more appealing, where your savings are used to reduce the interest you pay on the mortgage, but you are able to access the savings again in the future without having to remortgage or sell your property.
 
12 - Check your tax code/allowances
 
Mistakes made with tax codes can make a big difference to your net earnings. Whilst tax can be reclaimed in the future (but only going back 6 yrs) this can be complex and time consuming.
13 - Put your life assurance in trust (and your pension plans as well)
 
Putting a policy in trust is about more than just inheritance tax planning. It is also a way of making sure the benefits are paid to the right people at the right time. Putting these policies in trust is a good way to keep your financial affairs tidy in the event of untimely death. This is an area where you probably will require the professional services of an IFA or solicitor.
 
14 - Cut up your credit cards and store cards
 As well as making the repayment of unsecured debt a priority, you need to avoid accumulating more. Store cards are particularly damaging to your financial health because of their typically high interest charges. If the only way you can prevent yourself from using credit and store cards is to cut them up, then get those scissors out and start cutting!
 
Only if you have enough income to pay off your credit card bills in full every month should you use a credit card. They provide free credit if you can pay off all outstanding amounts each and every month but horrendously expensive if you can’t.
 
15 - Pay pension contributions
 
Making pension contributions is a very tax-efficient use of your money and it is a way of building up a fund to partially finance your retirement. For every £100 of pension contribution you make, you receive basic rate income tax relief of £28.21. If you are a higher rate income tax payer, you can reclaim an additional £23.08 in higher rate tax relief on your £100 net contribution. If your partner isn’t earning make a payment on their behalf up to £2,808 to get up to £782 tax credit to your joint pension
 
16 - Understand your attitude towards investment risk
 
Before you invest money you need to have a very clear idea about your views on investment risk, reward and volatility. These three things are closely connected and you cannot get more reward without taking more risk with your money. Spend some time thinking about how you would feel about different investment scenarios and then apply your attitude towards investment risk to every investment decision you make.
17 - Give some money to your spouse/partner
 
Effective tax planning is easier between married couples and civil partners. By transferring assets, such as savings and property, to the partner who has lower earnings it is often possible to save substantial amounts of income tax and capital gains tax each year.
 
18 - Make PETs
 
A Potentially Exempt Transfer (PET) is a way of reducing the value of your estate for inheritance tax purposes. It is a type of gift that gradually reduces the value of your taxable estate over a seven year period. Once seven years have passed, the gift becomes exempt for IHT purposes.
 
19 - Make a Will and Lasting Power of Attorney
 
Dying without a valid will in place could mean financial trauma for your family or other potential beneficiaries. Make it a priority to visit a solicitor and get a will written. At the same time, you should talk to them about a Lasting Power of Attorney (LPA). This is a legal document that is used to appoint somebody else to act on your behalf if you ever become unable to manage your financial affairs. In some respects, it is more important than a will, particularly for people with no close family or financial dependents. Review your will from time to time- the law is constantly changing.
 
20 - Spend some money!
 
Financial planning should be fun so make sure you are enjoying your money today as well as planning for future. It is easy to get disheartened with long-term financial planning when you cannot see any immediate benefits. By having some fun with your money today you can stay focused on your longer-term financial goals and objectives.
 
 
  
Adapted from an article written by Martin Bamford on 20 Nov 2007
 
Martin Bamford is a Certified Financial Planner at Informed Choice IFA and a Personal Finance Author
 
T: 01483 274566
 
 
 
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