Spring clean your finances

Spring is in the air. We are seeing lambs in the fields, colourful flowers blooming, and the sun if we’re lucky. Spring has also always been associated with having a spring clean. According to Wikipedia, there are a number of different ideas for the origin of spring cleaning.

“Some researchers trace the origin of spring cleaning the Persian New Year, which falls on the first day of spring. Others suggest spring cleaning dates back to an ancient Jewish practice of thoroughly cleansing the home in anticipation of the springtime festival of Passover. The Catholic Church thoroughly cleans the church altar and everything associated with it on Maundy Thursday, in the spring. In North America and northern Europe, March was often the best time for dusting. This is because it was getting warm enough to open windows and doors and the high winds could carry the dust out of the house.”

Whatever the origin, spring is a good time to get organised and spring clean your finances.

Why should I review my finances?

If you have a financial aspiration for the future, it is a good idea to ensure that you are on track to achieve your goal. Many people pay into pensions and collect investments and feel that because they are saving money, they are doing enough to fund their retirement for example. The reality is, that if you do not review the tax wrapper into which you are investing, the product itself, the amount you are paying in and where it is invested on a regular basis, it is possible you will not achieve your financial goals. It is easier to make adjustments to your planning in the early years. Otherwise, if you leave it too late, you could find that you have to work for longer or compromise on the retirement that you desire for example.

When should I review my financial plans?

Changes in legislation/regulation

Pensions freedoms came into effect 3 years ago which enabled people to access their pensions more flexibly from age 55. The reforms also introduced changes to the death benefits. Although a lot of companies have updated their pensions, some older style contracts do not offer these flexibilities. It may not be important if you are a long way off from retirement however, if the company has not updated their contracts, it could impact how the money in your pension is passed onto your loved ones in the event of your death.

Changes in your circumstances

When something changes in your personal circumstances, it is a good idea to review your finances. This is because something that happens in your life could affect your financial plans or how much risk you are willing to take with your investments for example. Even changes such as having a pay rise or changing jobs could impact your financial plans.

At a life event

An obvious life event would be when you are at retirement although 30% of people going into drawdown do not seek financial advice (Professional Adviser, 2018) . I find this very surprising and quite frankly worrying.

I recently met with a client who had received a letter from their pension provider saying that he was approaching retirement and should make a decision about how he wished to draw his pension. He came to see me with a view to take the whole pension as a lump sum so that it was “his”. The client had no intention of stopping working. He was earning £40,000 a year and had a pension valued at £180,000.

If he had taken the pension as a lump sum he would have received 25% tax free and the rest would have been taxed as income. Thus he would have paid £55,250 tax on the withdrawal in the 2018/19 tax year. He was planning on putting the £124,750 of his £180,000 after tax in his bank account. By working this through and reassuring him that the pension remains his and by understanding his objectives, I was able to save him this huge tax bill. Plus potentially more by not taking his money out of a tax free (including inheritance tax free) tax wrapper.

Other life events where you should seek financial advice:

  • Buying a house
  • Changing jobs
  • Receiving an inheritance
  • On divorce
  • Having children

And many more

On a regular basis

If you receive financial advice on an ongoing regular basis, you can build up an ongoing relationship with your adviser. They can really get to know you and your financial plans which can be altered and amended to address any of the circumstances above and many more.

My clients know that they can phone me if something happens in their lives that could affect their financial plans. I would much prefer to know something even if it feels inconsequential as it could impact our planning.

If you review your plans regularly, you can ensure they are on track to achieve your goals and make adjustments accordingly if needed.

If you haven’t reviewed your plans within the last 2 years, now would be a good time to do so.

One for the Ladies

According to recent study by Zurich (Professional Adviser 2018) we are less likely to be engaged in our finances. It could be due to instances such as those experience by the lady in my recent blog which you can read here. By being less engaged than our male counterparts, we could find ourselves less well off in retirement with men having an average pension pot size of £212,000 compared to women’s £132,000 (Read the full article here). There could be many reasons for this but don’t let the fact that you haven’t sought financial advice be one of them.

Other blogs of interest

If you are considering taking financial advice but are unsure of how it can benefit you, read my previous blogs What is the value of Financial Advice? and The value and benefits of financial advice.

If you would like to have a no obligation initial complimentary consultation, please do contact me.

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