New (tax) year resolutions
I am not one for New Year’s resolutions. January is a gloomy month, even before we make it harder on ourselves by taking up unrealistic exercise regimes or denying ourselves the joys of wine, chocolate and other items deemed damaging enough to have to resolve to give up. However, come April my enthusiasm for turning over a new leaf springs into life (excuse the pun) and that is largely because of the change in season and the chink of sunlight that starts to appear in our waking hours. It is just as well that I work in an industry with an April ‘New Year’ - I am able to emerge from my winter malaise just at the time when people most need a little help in their financial planning, be it racing in March to beat the tax year-end deadline for pension and ISA contributions or, like me, seeing April as a time to spring clean more than their houses.
So, my new tax year suggestions for people are as follows, and I am keeping this fairly straightforward in light of all the news in the world right now:
Work out your budget (see last blog) to set a realistic expectation of what you can save each month.
Actually set that money aside each month! I know, this step seems obvious but there are a surprising number of people who know what they can save but haven’t yet taken the step of setting it aside or finding a suitable home for those savings - another thing stuck in the ‘too difficult’ drawer.
Determine when you might need to access your savings - is it short term (for holidays/Christmas/emergency fund), medium term (needed in the next five years for new cars, home improvements, a planned house move, a new business venture) or is it long term (for retirement, for a rainy day, for the children or grandchildren).
If you need access short term or it is for a planned capital expense, you should consider keeping it as cash. Although the value will not grow, neither will it fall so your planned expense can be met from the cash value. The investment market involves a degree of risk and volatility and returns cannot be guaranteed. If your need is short term and for a set amount, you do not have the option of riding out any downturns in the market before encashing your investment and for that reason, you may wish to retain you short term needs in cash.
If the time horizon is longer, you may want to consider potential investments for the funds. Although cash will not decrease in nominal value, the spending power of that cash will be eroded by inflation, even in the current low interest rate world we live in. The investment market is volatile - at the present time it is displaying higher volatility than has been seen since the financial crisis of 2008/9. I work with you to assess your willingness and ability to take investment risks as well as your ability to bear any potential losses, and this allows us to find the right investments for your particular needs. The future value of investments can fall as well as rise and future growth is not guaranteed. If you cannot afford for your investment to lose any value, the stock market may not be the place for you.
You should consider the tax wrapper (pension, ISA, LISA, investment bond etc) into which you place your funds. There is no point putting all your savings into your pension if you need access to some of them before the age of 55, as your pension will not allow withdrawals any earlier. An ISA will allow you access at any time. However, with cash ISAs linked to the lowest Bank of England base rates seen in the Bank of England’s history (since 1694)*, you may want to check whether these offer the right return opportunities for you or whether a stocks and shares ISA may be a better option to meet your needs. Tax efficiency is important, but you need to pick the right wrapper for you. The benefits regarding the treatment of tax will depend on your individual circumstances and may be subject to change in the future. I work with you long term to keep you up to date with how changes to legislation may impact the structures in place.
Don’t think of financial planning as a ‘done and dusted’ exercise. Your requirements change, the products available to you change, legislation changes and (as we know only too well currently) the stock market values change. Any of these changes may happen quickly, so having an ongoing review system of your finances keeps you in control and up to date - on track to meet your goals, whether that be a house purchase, a comfortable retirement or a legacy for the children.
As ever, if you have any questions finance related, or need a hand making sense of the information you have tipped out your ‘too difficult’ drawer, give me a call or click here to set up a free initial discussion where I can help you make the most of your money.
Ellie
* (https://www.bankofengland.co.uk/monetary-policy/the-interest-rate-bank-rate)