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financial planning in your forties

It’s well known life begins at forty. Doesn’t it?

It should be an exciting decade, full of plans and aspirations. It’s also likely to be a time of optimum earning potential.

What’s more, it’s a crucial decade to take a step back and make sure your finances are on track to meet your goals.

There’ll be some decisions you’ll already have taken in your twenties or thirties, which will have had an impact. You may have bought your own home, for example, or put some savings away in cash, investments or pensions.

If things don’t look quite as rosy as you’d hoped, though, your forties are a good time to take stock, as there’s still time to make adjustments and give your investments time to grow.

Don’t forget, whatever savings you can make now will enable you to pursue your dreams later on.

Here are four key tips for shrewd financial planning at this important time of life.

Budget ruthlessly

Just because life may feel comfortable with regular pay rises and bonuses don’t fall into the temptation of spending more than you need. Do you really need that Costa coffee or M&S lunch every day?

Apps like Money Dashboard or Moneyhub can be helpful in showing you where your money’s going. Simple steps like cancelling subscriptions or switching bill providers can make a significant difference.

Historic studies show that investments usually outperform cash savings so any disposable income you can invest will be beneficial. If you can put money aside in a pension you’ll also be taking advantage of the tax relief available. Make sure you use your ISA allowance too for more accessible funds.

Carry out a protection audit

Think about what if the unexpected happened. Your forties are a time of life where you may find yourself part of what’s known as ‘the sandwich generation’ i.e. caring for elderly parents at the same time as looking after young children. This can put extra pressure on you. Make sure you’re protected should the worst happen by ensuring you have a good emergency fund in place. Also think about critical illness cover and life insurance.

Property plans

Your home will be a fundamental part of your financial planning at this time of life. If you feel you need a larger property, these are likely to be your peak earning years so now is the time to secure the best mortgage you can and find your dream home. On the other hand, if you’re quite happy where you are, it may be a good time to remortgage to get a better deal.

Family spending

Everyone’s situation is different. You may have children at university or you may still be having to pay for nursery fees. Whatever your position, make sure you budget accordingly and allow for inflation, especially if you’re paying private school fees. Work out the priorities for your family – the best education now or a house deposit in the future. It’s important not to derail your own life savings for the sake of your children as no one will benefit in the long run.

By doing some sound financial planning now, you’ll have more hope of continuing in the style you want to live, well beyond your forties.

Sources
https://www.telegraph.co.uk/money/smart-life-saving-for-the-future/financial-advice-in-your-forties/?utm_campaign=tmgspk_plr_2144_AqvZbbk8gXHK&plr=1&utm_content=2144&utm_source=tmgspk&WT.mc_id=tmgspk_plr_2144_AqvZbbk8gXHK&utm_medi

Quick tips on financial planning for thirty-something professionals

After age 30 it is probable that financial planning will be upped one or two gears and become a far more intense matter.

It is worth reflecting how things have changed over the past few generations; more and more people are going to universities, families are having children later, are buying property (and by definition therefore taking on mortgages) at later ages and everyone is facing up to a longer life and a (much) later retirement. All at the same time as an explosion in the number of people working for themselves and a rapid disintegration in occupational pensions.

Overall, this leads to one conclusion; having a structured financial planning approach to navigating through these “mid-years” (roughly defined as from 30 to 50) is more important than ever before, arguably even critical.

What are the main aspects?

One: have a plan. It may seem obvious, but many people don’t!

Two: assume that the future will be different to today and plan accordingly. There is no guarantee that interest rates will remain so low, that property will always go up, that the government lifeboat (for example universal healthcare and pensions) will always be there, to name but a few. It is only one generation since interest rates of around 13% were commonplace. O.5% seemed inconceivable. Any decent financial plan will cater for different future scenarios.

Three: revert to the tried and tested; save first, borrow second. Only borrow what can be afforded. Any financial plan will have saving as its centre point.

Four: maximise everything. Ensure (as much as one can) that there is the right provision in place to protect the family in the event of the unforeseen (death, serious illness, loss of income); that any investments (including, and maybe especially, pensions) are invested to get the best growth. Again, it may sound obvious but many people leave their invested monies in under-performing areas for decades at a time; structure plans and investments to minimise tax, particularly into the long term (for example, is there a better ‘tax haven’ than ISAs?) and then with borrowing make sure that the costs of the borrowing are low and that they can be afforded even if these costs unexpectedly rise.

Finally, spend time financial planning. Find a plan which works and write it down; work with the best professionals to execute this plan and then constantly keep it under review, adjusting where required to cater for individual circumstantial changes as well as wider economic changes. Most people, historically, have spent more time planning their annual holiday than planning their finances. Spend time on planning the holiday by all means, but more time on the longer term financial plan.

 

building your financial future

Ten New Year’s Resolutions for your Financial Planning

Around 50% of us make New Year’s Resolutions and ‘sort the finances out’ must be one of the most popular: but that’s a little vague – it’s more a wish than a firm commitment to take action.

Here are the topics that we have been discussing most often. If you’re determined to sort out your finances, these may give you some food for thought.  Remember actions speak louder than words.

1. Sort out the mortgage

The mortgage is the biggest monthly expense for the vast majority of people, and making sure that the rate you’re paying is competitive is basic common sense. Many people are paying a higher rate than they need to and half an hour with an IFA or independent mortgage broker can be time very well spent. Yes, there are costs involved in moving your mortgage, but these can often be outweighed by the savings to be made.

2. Sort out our life cover

This is an absolute priority, especially if you have children. Many people don’t know the answer to questions like ‘how much life cover do I need?’ ‘How much do I have?’ ‘Does it include critical illness cover?’ No-one likes to think about the possibility of being seriously ill or dying, and therefore we tend to neglect our protection policies. Life cover can be surprisingly inexpensive: and even if you do have cover in place, make sure you have it checked on a regular basis. In many cases the cost of protection is continuing to fall and it may be possible to replace old policies and increase the amount of protection you have, without increasing your premiums.

3. Start saving for the children

However much you’ve just spent on Christmas presents, your children are going to cost you a lot more in the future. Whether it’s university tuition fees, a first car, your daughter’s wedding or the deposit on a house, the numbers are only going to go one way. Even if you only save a small amount, doing it on a regular basis over a long period can make a significant difference – and with the ability to save tax efficiently through an ISA, at least the taxman will be on your side.

4. Start saving for ourselves

What’s true for the children is equally true for yourself; if there’s a specific savings target you have in mind, or whether you simply need to save for the proverbial ‘rainy day,’ the earlier you start to save the easier it is to achieve your goal.

5. Sort out my pensions from previous employment

Many people have pensions left over from previous jobs, and despite various Government initiatives aimed at simplifying the system they still don’t have an accurate idea of how much is in their pension ‘pot.’ Good pension planning is impossible without knowing the position you’re starting from, so it’s a sensible idea to talk to an IFA and find out the position with any old pension policies. For example, can they can be brought together and simplified?

6. It’s time I understood the company pension scheme

Just as importantly, far too many people don’t understand their existing company pension scheme. Is it final salary? Money purchase? Eightieths? Sixtieths? Can I make additional contributions? Buy extra years? Again, half an hour with a knowledgeable independent financial adviser will be time well spent. He’ll be able to summarise the main benefits of the scheme for you, tell you the sort of pension you’re likely to receive and advise you of the best course of action if you want to improve your pension benefits.

7. Investigate Inheritance Tax and Long Term Care

If it’s the case that your parents are elderly, then it may be worth thinking about Long Term Care planning. Similarly if their – or your – estate is likely to be subject to Inheritance Tax, then action taken now could pay significant dividends in the future. Again, an IFA will be able to tell you what’s possible, and the steps that could be taken now to prevent an unpleasant surprise in the future.

8. Look at Private Medical Insurance

With tales of woe from the NHS continuing – and more economies seemingly still to be made – many people are starting to look at the option of private medical insurance. This may be an investment worth making, particularly if you run your own business and would need treatment at a time to suit you.

9. We need to sort out the partnership insurance

Many businesses are run as a partnership (whether it’s a straightforward partnership or through equal shares in a limited company). The death or serious illness of one of the partners could have catastrophic consequences for the business – and serious implications for the other partner. And yet very few businesses have addressed the simple question of partnership assurance. Your IFA will be able to explain the basic rules to you and give you an idea of what protection might cost: you may well be pleasantly surprised!

10. We need to make a will

Last – but by no means least – make sure that you have an up to date will. The consequences of dying ‘intestate’ (that is, without a will) can be severe, and with a simple will being relatively inexpensive it’s sensible to make sure that this area of your financial planning is kept up to date.

 

So there’s plenty to think about…

If you would like to discuss any of the above points – or any other aspect of your financial planning – then as always, please don’t hesitate to contact us on 01737 225665 or advice@conceptfp.com

building your financial future

The Gender Directive is coming

After a legal challenge, the European Court of Justice (ECJ) ruled that ‘gender discrimination’ is illegal when deciding how much people pay for their insurance and the income they receive from their pensions when they retire. There are now changes to the UK Equality Act to implement the judgement – the Gender Directive, by the European Court of Justice (ECJ), which removes the ability of insurers to use gender as a factor in pricing policies and determining benefits.

The date of implementation of the ECJ judgement is 21st December 2012. An interesting time for the insurance industry, when you consider that the impact of the Gender Directive is swiftly followed by the implementation of the Financial Services Authorities Retail Distribution Review (RDR) within the financial services industry on 31st December 2012; two major pieces of legislation over Christmas and the New Year!

HM Treasury has been consulting with the industry and the EU Commission, and has confirmed that the ECJ judgement only applies to new contracts entered into after 21 December 2012. The Commission has also provided specific examples of what is considered a ‘new contract’, and examples of gender-related insurance practices which are compatible with the principle of unisex premiums and benefits. These practices range from the calculation of technical provisions to reinsurance pricing, medical underwriting and targeted marketing.

One of the positive outcomes of the changes could be that insurers become more sophisticated in the ways they assess insurance risks so that rather than making generalisations about how men and women pose differing risks, each person is treated as an individual risk. Until now most consumers have seemed to be generally happy with how insurance is priced but falling into line with the Gender Directive means men and women will now have to be treated equally.

The two areas of insurance cover most frequently identified by commentators, where the impact of the Gender Directive could be significant, are in relation to a decrease in the amount paid by men for life insurance and an increase in car insurance for women as prices are equalised. However the full impact on the price of insurance by the Gender Directive on 21st December 2012, is still not clear as insurance companies are still working out how to deal with the changes, remain profitable and keep their customers.

 


Sources: www.hm-treasury.gov.uk; www.nextlevelportal.co.uk

Ten New Year’s Resolutions for your Financial Planning

Around 50% of us make New Year’s Resolutions and ‘sort the finances out’ must be one of the most popular: but that’s a little vague – it’s more a wish than a firm commitment to take action. Looking at the January appointments we’ve had with new and existing clients, here are the topics that we’ve discussed most often. If you’re determined to sort out your finances, these may give you some food for thought.

1. Sort out the mortgage

The mortgage is the biggest monthly expense for the vast majority of people, and making sure that the rate you’re paying is competitive is basic common sense. Many people are paying a higher rate than they need to and half an hour with an IFA or independent mortgage broker can be time very well spent. Yes, there are costs involved in moving your mortgage, but these can often be outweighed by the savings to be made.

2. Sort out our life cover

This is an absolute priority, especially if you have children. Many people don’t know the answer to questions like ‘how much life cover do I need?’ ‘How much do I have?’ ‘Does it include critical illness cover?’ No-one likes to think about the possibility of being seriously ill or dying, and therefore we tend to neglect our protection policies. Life cover can be surprisingly inexpensive: and even if you do have cover in place, make sure you have it checked on a regular basis. In many cases the cost of protection is continuing to fall and it may be possible to replace old policies and increase the amount of protection you have, without increasing your premiums.

3. Start saving for the children

However much you’ve just spent on Christmas presents, your children are going to cost you a lot more in the future. Whether it’s university tuition fees, a first car, your daughter’s wedding or the deposit on a house, the numbers are only going to go one way. Even if you only save a small amount, doing it on a regular basis over a long period can make a significant difference – and with the ability to save tax efficiently through an ISA, at least the taxman will be on your side.

4. Start saving for ourselves

What’s true for the children is equally true for yourself; if there’s a specific savings target you have in mind, or whether you simply need to save for the proverbial ‘rainy day,’ the earlier you start to save the easier it is to achieve your goal.

5. Sort out my pensions from previous employment

Many people have pensions left over from previous jobs, and despite various Government initiatives aimed at simplifying the system they still don’t have an accurate idea of how much is in their pension ‘pot.’ Good pension planning is impossible without knowing the position you’re starting from, so it’s a sensible idea to talk to an IFA and find out the position with any old pension policies. For example, can they can be brought together and simplified?

6. It’s time I understood the company pension scheme

Just as importantly, far too many people don’t understand their existing company pension scheme. Is it final salary? Money purchase? Eightieths? Sixtieths? Can I make additional contributions? Buy extra years? Again, half an hour with a knowledgeable independent financial adviser will be time well spent. He’ll be able to summarise the main benefits of the scheme for you, tell you the sort of pension you’re likely to receive and advise you of the best course of action if you want to improve your pension benefits.

7. Investigate Inheritance Tax and Long Term Care

If it’s the case that your parents are elderly, then it may be worth thinking about Long Term Care planning. Similarly if their – or your – estate is likely to be subject to Inheritance Tax, then action taken now could pay significant dividends in the future. Again, an IFA will be able to tell you what’s possible, and the steps that could be taken now to prevent an unpleasant surprise in the future.

8. Look at Private Medical insurance

With tales of woe from the NHS continuing – and more economies seemingly still to be made – many people are starting to look at the option of private medical insurance. This may be an investment worth making, particularly if you run your own business and would need treatment at a time to suit you.

9. We need to sort out the partnership insurance

Many businesses are run as a partnership (whether it’s a straightforward partnership or through equal shares in a limited company). The death or serious illness of one of the partners could have catastrophic consequences for the business – and serious implications for the other partner. And yet very few businesses have addressed the simple question of partnership assurance. Your IFA will be able to explain the basic rules to you and give you an idea of what protection might cost: you may well be pleasantly surprised!

10. We need to make a will

Last – but by no means least – make sure that you have an up to date will. The consequences of dying ‘intestate’ (that is, without a will) can be severe, and with a simple will being relatively inexpensive it’s sensible to make sure that this area of your financial planning is kept up to date.

So there’s plenty to think about… and at Concept we always say ‘make a plan’.  You if do not have a financial plan you will never reach your goals.  We are all working longer and harder – but is your money working for you?

If you would like to discuss any of the above points – or any other aspect of your financial planning – then as always, please don’t hesitate to contact us on 01737 225665 or advice@conceptfp.com

 

Protection Planning – and the lack of it

Homebuyers need to have house insurance and motorists need to have car insurance – despite the fact that the chance of your house suffering significant damage is remote, and that many people never claim on their car insurance. They do of course provide valuable peace of mind. But would we be lining up to buy these products if they weren’t legally required?

Recent research from confused.com suggests that we might not. Life assurance is not legally required for most of us – and as a result, a majority of the UK population doesn’t have any. According to the independent study, only 40 per cent of UK adults have life cover, and 30 per cent consider it too expensive. Not only that, but the research claimed that 10 per cent of people spend more on coffee than they do on life assurance.

On the face of it, this seems surprising. While most houses will never burn down, suffer subsidence, floods or earthquake damage and many cars will survive largely unscathed, all of us are going to die at some stage. If this happens early to someone with a family and dependents, it can cause massive financial hardship on top of the already traumatic emotional stress.

Yet life assurance is basically cheap: indeed, the lowest available rate is around 17p a day – which doesn’t seem much when you consider the security it provides. Even though rates will be higher than that for some people, life assurance still protects the future wellbeing of our loved ones for a remarkably low outlay.

This product can be bought in a range of ways: term assurance covers a set period, and is therefore the cheapest. Whole of life does what it says on the can. Endowment assurance carries an investment element as well as just life cover.

There are also other protection plans, all of which have their uses in certain situations. Critical illness cover pays out after diagnosis of various conditions rather than on death, allowing the money to be used for medical treatment, recuperation, or whatever you wish. Then there are other plans which can offset the risks of being made redundant, being unable to work through illness or accident, and so on.

The precise form and combination of protection planning will depend on your individual circumstances, which are also likely to change over time; so it makes sense to always review and plans you may have in place or, any plans that you need to put in place.

One thing seems undeniable, though: the protection, security and peace of mind these products can offer are surely worth more than the price of a coffee.

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Tough Times Ahead For Families

The above headline could have easily read “Tough Times Ahead for Everyone” but it is likely that the effects of the austerity budget, and the financial deficit it aims to redress, will be felt more acutely by the younger generations and these effects are likely to last for many years.

With inflation out pacing wage growth, tax credits being withdrawn, child benefit frozen and the Child Trust Fund abolished, families are becoming progressively worse off.  Undoubtedly the elderly on low incomes will also be hit by higher inflation but it is worth noting that winter fuel payments, free bus passes and free TV licenses have all been retained and that the basic state pension was the only benefit to be increased.

If this was a case of short term pain for long term gain things wouldn’t be so bad but unfortunately the longer term picture looks even less rosy.

The NHS is the only major department whose Budget has been increased and it is reckoned that around 45% of total spending goes to the 16% of the population who are over 65. This is perhaps not surprising, after all, it is inevitable that people will require more medical care towards the end of their lives but this generation are taking out more than they have put in. 

To redress this the state pension age has increased, and we are likely to see further increases over the coming years as the working population are forced to contribute to the welfare system for many more years.

The counter argument is that money is now passed down the generations, as increased home ownership provides the next generation with a level of inherited wealth not previously enjoyed.  However, inherited wealth cannot be relied upon as increased longevity and rising long-term care costs force more people to sell or borrow against their homes.

So what can be done?  The key issue to recognise is that while there may be less spare money available, saving for the longer term should not be the first victim of household budget cuts.  Because of the effects of compound growth, a pound not saved now will be far more damaging to your longer-term wealth than a pound not saved in later years.