10 for 2010: Personal Financial Resolutions

Thursday, 17th December 2009 12:58 - by Resident IFA

It is the time of you to review our successes, challenges, and progress made. It is perfect timing, then, to suggest my top 10 points of ‘Best Practice’ to ensure that you have a good 2010 in Personal Financial Planning terms. 1. Life Insurance: Do you have financial dependents? If yes, do you have enough life cover for them to get by in the event of your untimely and premature demise? Do you have existing policies? Can they be topped-up? Are you paying too much? (As premiums have decreased in the last few years) Were you a Smoker when you took the policy out and have now given up for over a year? (You may attract non-Smoker rates if you let the insurer know) Etc., etc. 2. Critical Illness & Income Protection Insurances: You are statistically a lot more likely to suffer a Critical Illness or prolonged illness than die before, say, 65 years of age. Why, oh why, then do people not insure against these possibilities?! Prohibitive cost is a barrier I come across, but you would be surprised how much cover you can get for a few pounds a month. After all, better to have a few thousand pounds in the event of a negative event such as serious illness, rather none at all? Quality is the by-word in terms of choosing a Critical Illness and/or Income Protection Insurance. An Independent Financial Adviser (IFA) could come in handy here. 3. Check your Mortgage expiry date: A good time to start thinking about your next mortgage is approximately 3 months before your current product ends. If you are currently on the lender’s standard variable interest rate, have a look now. Of course, the variable rate could be the place to be, what with interest rate as they are currently! As it may well cost a bit more to move lenders, always consider what your existing lender can offer in terms of a follow-on product – as well as what else is available in the mortgage marketplace. 4. Be wary of fees: Talking of mortgages, fees are always are a key consideration in assessing products. To this end, it makes me think of the importance of checking fees/cost/charges in all financial contracts you are considering entering into. Look for a figure that compares the total cost of any financial products with other, similar products i.e. the total amount payable over term figure on a mortgage illustration, or projected pension values net of charges at your anticipated retirement date. Oh, and don’t worry about making the person hovering with a pen wait whilst you read all the ‘small print’. 5. Existing Pensions: The same as suggested for existing Life Insurances, above. A lot of us have received ‘advice’ in the past and wound up with a few Personal Pension plans. When was the last time you reviewed these...or sought assistance to review them? A couple of important questions – Does the plan(s) have an ‘old-fashioned’ charging structure i.e. where, each time you contribute, they take a percentage charge (not the Annual Management Charge) in the region of 5%; Are you in a ‘With-Profits’ investment fund which currently is providing a 0% ‘bonus’? 6. Retirement Planning: Do you have a clear idea of the age you are aiming to retirement at, the pension income you require to do so at that point, and what level of pension fund you need to facilitate this? Lse.co.uk has a Pension Pot calculator as a starting point. A lack of targets, goals, and reviews in any area of financial planning can be calamitous. To poorly para-phrase, ‘If you have a target, you have a chance of getting somewhere. Without a target, you will get nowhere’. 7. Use your tax allowances and relief’s: Cash ISAs have had a poor press this year as the rate of interest you could receive after tax from a ‘standard’ savings account was greater. Looking again the other day, this situation seems to be abating. So, if you have money swilling around in normal savings account, have you and your Spouse/Partner shielded as much as you can (£7,200 now and £10,100 from April 6th 2010 – Total of Equity and/or Cash ISA contributions) from Income and Capital Gains Tax (CGT)? Pension contributions attract tax relief i.e. you contribute £80 as a Basic rate taxpayer, HMRC topping-this up by £20…another very tax-efficient move. 8. Budgeting: Have you got a real ‘hold’ over your Income and Expenditure. If you really aren’t on top of the basics of what comes in and what goes out of your Bank account, this can lead to a gradual slide into a marginally-growing overdraft or credit card situation. If you haven’t sat down for a while with a pen & paper, perhaps now is the time to do so. It might confirm have excellent you are at budgeting and allow further financial planning…or shock you where you spend (perhaps fritter) money and even where you might have useless outlays i.e. two home insurances. You will be surprised how often I have seen this! 9. Harking back to #6, you need goals and targets. It is unlikely that you will achieve these targets unless you have a realistic short, medium, and long-term plan. This plan should be easily reviewable. It is no good building a plan that gets put to one side and is never re-visited. Progress needs to be measurable and the plan will undoubtedly be amended and refined as you go along your financial planning road. Finally, as all good coaches will tell you, the plan needs to be compelling…allow yourself to dream and include that Ferrari, holiday home in the South of France, or lifetime season ticket for your favourite sporting team! 10. Take advice: I always put forward the example of a Plumber. I am not a qualified or trained Plumber, so I would not attempt to fit a new bathroom, radiator, or undertake some pipework. It is the same situation for your Personal Financial Planning. Sure, you can find a lot of information on the internet nowadays, but even something as ‘easy’ as arranging Life & Critical Illness Insurance can be hazardous. How do you know/assess the quality and strength of the policy and provider? Is there any or limited advice available – thus being deemed as ‘Execution-only’ and not indemnified (protected)? As always, I champion the use of an Independent Financial Adviser (IFA). This may or may not be the last Blog entry of 2010, so I wish all readers a fantastic and peaceful Christmas holiday and Prosperous New Year! Until next time…