Ellis Bates Financial Advisers
In these uncertain times, it’s more important than ever to make sure your finances are in order. We have 10 practical steps to ensure your money is working hard for you.
Whether you are just starting out on your financial journey or an experienced investor, taking professional financial advice is an important step to ensure your plans are on track.
Staying on track to achieving specific financial goalsAll of your financial decisions and activities have an effect on your financial health. To help improve your financial health during this period of rising inflation rates and household costs, we look at three areas that could help keep you on track to achieving your specific financial goals.
The National Insurance rise from April this year has gone ahead for workers and employers despite pressure to reverse the decision to increase this by 1.25%, which is aimed at raising £39 billion for the Treasury. From April 2023, it is set to revert back to its current rate, and a 1.25% health and social care levy will be applied to raise funds for further improvements to care services.
One way to beat the National Insurance increase is by taking advantage of salary sacrifice, which means you and your employer pay less National Insurance contributions. Some employers may decide to maximise the amount of pension contributions by adding the savings they make in lower employer National Insurance contributions (NICs) to the total pension contribution amount they pay. This is also a way to make your pension savings more tax-efficient. If you choose to take up a salary sacrifice scheme option, you and your employer will agree to reduce your salary, and your employer will then pay the difference into your pension, along with their contributions to the scheme. As you are effectively earning a lower salary, both you and your employer pay lower NICs, which could mean your take-home pay will be higher. Better still, your employer might pay part or all of their NICs saving into your pension too (although they don’t have to do this).
Money held in savings accounts hasn’t grown much in recent years due to historically low interest rates. But with inflation running higher, your savings are now at risk of losing value in ‘real’ terms as you will be able to buy less with your money.
In some respects, inflation can be seen as a positive. It’s a sign of strong economic recovery post-COVID, increasing salaries and higher consumer spending. But it’s bad news for your cash savings. Relying solely or overly on cash might prevent you from achieving your long-term financial goals, which may only be possible if you accept some level of investment risk.
In an environment where the cost of living is rising faster than the interest rates received on cash, there is a danger that your savings will slowly become worth less and less, leaving you in a worse position later on. If you have money in savings, it is important to keep an eye on interest rates and where your money is saved. Rates are low and you will lose money in real terms if inflation is higher than the interest rate offered on your savings account or Cash ISA.
During times of high inflation, it’s important to keep your goals in mind. For example, if your investment goals are short term, you may not need to worry much about how inflation is impacting your money. But if you’re investing for the long term, inflation can have a larger impact on your portfolio if it’s sustained – although high inflation that only lasts for a short period may end up just being a blip on your investment journey.
If you have large amounts of money sitting in cash accounts one way to beat inflation is to invest some of your money in a long-term asset that will appreciate with time, thus increasing your buying power over time. There are many ways to invest your money, but most strategies revolve around one of two categories: growth investments and income investments.
Historically, equities have offered an effective way to outperform inflation. Cyclical stocks – like financials, energy and resources companies – are especially well-suited to benefit from rising prices. These sectors typically perform better when the economy is doing well, or recovering from a crisis. Depositing funds into your investment portfolio on a regular basis (such as monthly from salary) can help you invest at different prices, averaging out the overall price at which you get into the market. Known as pound-cost averaging, this can help you smooth out any fluctuations caused by market volatility over the long term. While volatility will always exist, it can be managed and reduced by taking this approach.
Would you like advice on how to improve your financial health? Speak to us to find out how we can help.
How to create a personal financial plan in 8 stepsWhen thinking about your future financial wellbeing, it can be helpful to consider a plan. It is a good idea to have a clear sense of what you want from life and use this as a guide for making important decisions.
A comprehensive financial plan helps you achieve your goals by analysing your current situation, planning for the future and providing continuous monitoring of progress towards those goals. A well-thought out plan can help you protect yourself from unexpected events that could affect your ability to meet long-term financial commitments. What do you want to do in life? Who are the people who matter most to you? What do you worry about at night?
Without them, it’s hard to know what direction you’re headed and even harder to remember where you came from. Critical goals come before needs and wants.
When life changes – and it always does – your goals help guide your financial decisions and focus on what’s important.
So you’ve decided to start keeping track of your income and expenditure, but how do you know where to begin? Creating a budget can seem like a daunting task, especially if you are not familiar with the process.
Not only is it important to know how much money is coming in and going out of your household each month, it’s also vital that you understand where that money is being spent. With a budget, you can align what you make with what you spend. With goals set, you can now organise your money.
In fact, when creating your budget, it’s important to remember that there will be some things that don’t fit into your monthly spending plan, and emergency savings make a great way to cover these unexpected costs.
Falling ill or having an accident doesn’t have to become a financial burden on you or your family. What if you or your partner got too sick or hurt to work? Or passed away unexpectedly? Could those who depend on you still pay the bills – and save for the future? Planning your financial future isn’t only about savings and investments.
Of equal importance is putting protection in place for you and your family for when you die or if you become ill. Most people have heard of life insurance, but may not know about the different types or about the options for people affected by ill health. No one likes to think of these things. But life can change in an instant. It’s good to hope for the best, but be ready for the unexpected. Insurance helps you do that.
The importance of paying down personal debt cannot be understated. But it can be difficult to prioritise paying down debt while still paying for essential day-to-day living expenses. However, ignoring the significance of personal debt could lead you to major financial trouble in the long run.
Paying off your debts will not only free up cash flow to allow you to save, it will also go towards improving your credit score. The lower your debt-to-income ratio is, the better your credit rating. Your credit rating affects the interest rates that lenders charge you for mortgages, car loans and other types of financing.
Everyone needs to save and plan for retirement. No matter how much you make or whether you have a job, you should always start saving as early as possible. It is important for you to take control of your retirement planning and make decisions regarding your pension. It is often not appreciated that contributing to a pension arrangement can help you build up an extremely valuable asset.
People are living longer and leading more active lives in retirement. As a result, it is more important than ever for you to think about where your income will come from when you retire. Pension saving is one of the few areas where you can still get tax relief.
Saving and investing are important parts of a sound financial plan. Whereas saving provides a safety net for unexpected expenses, investing is a strategy for building wealth. Once you have an emergency savings fund of three to six months’ worth of living expenses, you can develop a strategy to grow your wealth through investing.
Investing gives your money the potential to grow faster than it could in a savings account. If you have a long time until you need to meet your goal, your returns will compound. Basically, this means in addition to a higher rate of return on investments, your investment earnings will also earn money over time.
The importance of estate planning is necessary for all individuals, not just the wealthy. Without proper estate planning in place to protect your assets, you could end up leaving large amounts of money to be fought over by your loved ones and a large Inheritance Tax bill.
Your estate planning should sit alongside making your Will, both key parts of putting your affairs in order later in life. Working out the best ways to leave money in a Will before you pass away can help to make the lives of your loved ones easier when you’re no longer around.
Financial planning may be complex, but it doesn’t have to be difficult. We’re committed to ensuring you feel comfortable, informed and supported at each stage of your financial planning journey. To find out more, or to discuss how we could help you and your family, please contact us.
Are you scared of running out of money in retirement?
It has been well recognised that many are simply not saving enough into their pension pots for retirement. To avoid unwanted stress if you are planning to retire, you need to be absolutely sure your money is going to go the distance. Concerns you may have are:
Firstly, it is never too early to start saving for your future, and the earlier you start the better.
Pensions have a tremendous compound effect so the basic principle is the more you put in, the more you get out. The way you accumulate your retirement money and how you use it during your retirement will have a big impact on how long it will last – and also the amount of tax you pay.
Here are just some of the steps you can take to improve your pension pot size:
The Government encourages you to save for your retirement by giving you tax relief on pension contributions. This means some of the money that you would have paid in tax on your earnings goes into your pension pot rather than to the government. Tax relief has the effect of reducing your tax bill and/or increasing your pension fund. For a more detailed look at pension tax relief visit https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief
The State Pension is a weekly payment from the Government that you can receive once you reach State Pension age (66). The current state pension amount is £179.60 a week (2021-22), but you may get more or less than this.
To qualify for the State Pension you need a minimum of 10 years of National Insurance contributions. To find out more on how much State Pension you could receive and when visit https://www.gov.uk/check-state-pension
When it comes to investing during retirement, it is important not to view your portfolio with an element of finality. Your investment risk profile and strategy will almost certainly need to adjust to look at ways of making your money work as hard as possible, but with a view to generating earnings to boost your retirement income.
This is a time to look at how balanced your investments are and whether you are exposed to more risk than you are comfortable with. It is a time to review all your investments and decide how much you can afford to withdraw each year and whether this balances with your needs.
It is always important to think ahead to retirement and not rush into making life-changing financial decisions. We can help you determine which retirement income approaches may be best for you based on your personal needs and goals. If you are scared of running out of money in retirement and would like to talk to us about your retirement requirements, then please get in touch.