Money is an enabler in life, it gives you opportunities and freedom of choice in the decisions you make.
It takes a lot of hard work to earn it so it’s important that you ensure savings and investments work hard to give you financial security throughout your lifetime and beyond.
It’s not simply a matter of putting money away and then leaving it, hoping for the best.
Planning, regular monitoring and keeping on top of developments in the markets, along with reviewing your changing needs and circumstances are all vital for long-term financial success.
1. Set your goals
As discussed in my first column, having clearly defined financial goals will provide you with direction and purpose on your wealth journey. Knowing what you want to achieve will make you feel more confident about your current priorities.
Spending time setting short-term, medium-term and long-term targets, whether that’s saving for a home, holiday or retirement, will help you to stay on track and keep motivated — and be one of the best investments you make.
2. Assess your tax
Now more than ever tax planning has become so important, as we have seen tax allowances being frozen and tax rates increased in October’s budget. The impact being more and more people are being dragged into paying tax, whether it be personal savings tax, capital gains tax and inheritance tax to name a few.
In the fiscal environment that we are in, it is essential to ensure that your money is working tax efficiently for you, to give you the best chance at building your overall wealth for the longer term.
This involves evaluating your income sources, investments, expenses and potential deductions, to ensure you are maximising the benefits and advantages under tax laws.
Ensure that you are maximising your tax-advantaged allowances such as saving into ISAs (advantage they grow tax free, can be withdrawn without any tax implications), consider how you can use your pension as part of your wider tax planning.
Depending on your risk appetite you may wish to consider tax efficient investments such as VCTs (Venture Capital Trusts) and EIS (Enterprise Investment Schemes) which could form a useful tax planning strategy as part of your wider plan. These investments are high risk and therefore should only be used in certain circumstances but can be very effective for those they are appropriate for. Not only providing tax efficiency but also diversifying your investments and giving you exposure to private companies in the UK.
Beyond just your investment strategies and allowances, an area of tax that is very topical, is inheritance tax planning. The current rate of which is 40% for anything above £325,000 nil rate band per person in the UK. For anyone who is a homeowner (and whose total estate is valued under £2million) you may be eligible for an additional £175,000 residence nil rate band. Taking your total allowance to £500,000 anything above this would then be subject to IHT.
As pensions are set to be included within estate calculations from April 2027, more people will find themselves paying higher levels of tax moving forwards -and they don’t like to make things simple for us!
How can you be thinking about your planning, from an IHT perspective the answer is quite simple- get spending! In my opinion the changes from the government have just given you a license to start spending and enjoying the money that you have been building over the years. Other considerations include gifting away assets (that you do not require) and removing these from your estate, investing into structures which are tax efficient.
But remember every person’s situation is different so if you are unsure about the options available to you, please do get in touch, we would love to have a chat.
3. Review your investments
Your investment portfolio is a key driver of your wealth accumulation. But don’t just get started and forget about it. Ensure you regularly review its performance, the diversity of your holdings and check that it continues to align with your risk tolerance and financial goals.
Remember the road ahead isn’t always the road travelled, so make sure your investment strategies are aligned to the current fiscal and economic situation and not that which is from years before.
This is why it is vital to have regular check-ins with your financial adviser to keep on top of investments and to make changes when required.
4. Plan your pension
Planning for retirement is a financial journey that you can never start too early. The earlier you start the more you can accumulate over a lifetime of work, and the more you can benefit from the power of compound interest – earning interest on interest.
Picturing your desired retirement and planning how you can achieve that will put you on the right track.
Understanding your lifestyle goals and financial needs can help with long-term planning and lead to financial security in later life.
5. Review your insurance packages
Having the right cover in place is one of the foundations for financial stability. Regularly review what you have in place to ensure it continues to match your changing needs.
From health to life and property insurance, the right cover will protect you from unexpected money concerns.
6. Keep yourself informed
Invest in developing your financial literacy, so you can be confident in making better informed decisions. The financial landscape is constantly evolving so keeping yourself educated will arm you with the knowledge you need to make those decisions.
Try podcasts, financial apps, books, articles, workshops and networking events to find which work for you.
Keeping up to date with changes to regulations will help ensure you can make your money work as hard for you as you have to earn it.
Next week I’ll be looking at protecting your finances
Frankie Smith runs FSWM (fswm.uk), one of a very few female-run, independent wealth management firms, and Frankie’s, a networking organisation that runs regular events where people can improve their financial know-how.
