10 Personal Finance tips for 2009

Wednesday, 7th January 2009 16:38 - by Resident IFA

A Happy and Prosperous New Year to you all! If ever financial matters were in any way unimportant, trivial, or out of the headlines, 2009 will undoubtedly see them more prominent in our lives than ever. I hope that I am not ‘teaching granny to suck eggs’, believing these Personal Finance tips will be of use: 1. Cash beats plastic, Cash is King, etc. If you can leave the plastic at home and use cash, you are far less likely to succumb to any impulse purchases and live within your means. When you look at a decent credit card interest rate being in the teens, this is quite a persuasive way to spend. Spending on the ‘Never, never’ always, always has the potential to get out of hand. 2. Life insurance - Boring, un-sexy, disinteresting... Yes, possibly, however this is the foundation of financial planning, especially for those with financial dependents. It might be cheaper and easier than you think to sort this out. Don’t forget Critical Illness too... 3. Income replacement insurance - What happens if you are sick, ill, or disabled? (redundancy an issue too) Who pays your bills? If you have a very sturdy and solvent employer you may well have a cast-iron sickness payment scheme. If not, perhaps being self-employed, sickness could ruin all your hard work in a very short space of time. Income Protection, otherwise known as Permanent Health Insurance (PHI), could guard against this. 4. Mortgage interest rates - Do you know exactly the rate you are paying? Do you know your exact surrender penalties if you should choose to leave your lender? Interest rates are moving rapidly downwards. Assuming the lenders begin to thaw and mortgage lending resumes a ‘normal’ pattern, there could be some excellent interest rates to snaffle in the near-future. If you are coming towards the end of an existing deal, it could be a good time for you to shop around and prepare. In some, albeit rarer circumstances, those on higher rates with reasonably substantial mortgages could even benefit from paying redemption penalties to leave their lender and secure a far better rate. Be careful, though... 5. Spotless credit record - You won’t be able to use tip no.4 if your credit record is impaired, however. As a rule of thumb, try desperately to pay your mortgage on time, if nothing else. This said, lenders are far fussier - understandably - than they were. Any credit misdemeanours, i.e. missed or late credit card or personal loan payments, can hinder an application for credit. 6. Think long-term. Pensions are almost seen as a luxury nowadays and viewed with mistrust by many. Don’t miss a trick here, though. Apart from the obvious problem of financial penury in retirement, pension contributions gain tax relief. So, a basic-rate taxpayer puts £80 into their pension, £100 reaching the plan after tax relief (20%) has been applied. A good head-start... 7. Save where possible. Most Financial Advisers recommend having 3 to 6 months bills saved into an account for unforeseen events, the proverbial ‘rainy day’. It is sometimes easier said than done to have these reserves, but it is a good target to aim for. Small savings, even £10-£20 per week, quickly build up. 8. Utilise your tax allowances. Make sure that you are using any allowances open to you. These range from your basic personal tax allowance to Capital Gains Tax (CGT) allowance to Individual Savings Account (ISA) allowance. The ISA allowance might even help provide tax-free interest for the person trying to implement point 7... 9. Review your existing arrangements. Existing plans can be excellent. Take Critical Illness policies for example. The definitions for claiming have recently become far harsher, thus it likely to be ill-advised to cancel existing plans of a certain age. On the other hand, there are life changes you might have had which might warrant you having more or longer-term life insurance, or simply the fact that life insurance has become cheaper over the years. Those pensions arranged in the 80’s and 90’s could well be worth a review in case they have historic, higher charging structures and lack of investment choice too... 10. Take advice. Don’t be afraid to seek help and professional guidance. There may well be a local Independent Financial Adviser (IFA) a friend, colleague, or family member can recommend. It could be the case that you simply use this as a double-check facility, but it could prove invaluable. I think the questions to ask are “Can I do everything? Would I plumb a sink in? Would I perform an operation on my sickly pet?”. Unless you have an adventurous nature or high intellect, I guess you would answer “No. No, hire a Plumber. No, take the pet to the Vet.”...so an IFA might be handy for your key financial decisions. Helpful? Food for thought? A basis for some New Year resolutions? Until next time...