Article by Phil
If everyone had a money advisor when they were younger, what would they have been told?
Hindsight is a wonderful thing. A gift I’m sure we all wish that we had. So, in terms of personal finances what tips would a money advisor give to the younger generation. Well, according to Aviva, the top tips are:
- Don’t run up debts. Or if you do, clear them off as soon as you can.
- Build up an emergency fund to protect you from unforeseen expenses.
- Pay as much as you can afford into your pension and do it as soon as you can.
- Don’t over spend on expensive weddings.
- Set yourself a spending budget and stick to it. If you can’t afford it don’t buy it until you can.
- Make sure you make a Will.
All very sensible advice and we would agree with all of these tips.
Plan for Inheritance Tax
On the back of making a Will, its good advice to take some Inheritance Tax Planning advice.
With Inheritance Tax set to rise from £8.4 billion this year to over £14 billion by 2030, protecting your assets needs to be a priority.
90% of advisers have reported an increase in demand for advice and most think that demand will continue throughout the year, as the government works out the details of the changes announced which will include pensions in the tax.
Shop around for savings.
With interest rates having been relatively low, so have savings rates. That makes it even more important to shop around for the best rates. ISAs are a good place to hold savings because they have a tax-free allowance. But even in ISA’s you should still shop around. Over £50 billion is currently held in instant access cash ISA’s paying 2.0% or less. But over £250 billion is held in ordinary non-ISA accounts paying less than 2.0%. You can make your money work harder for you than that!
Although 20% of people have never hear of an Investment ISA. Which is probably why only 16% of people have one.
In the same vein, it’s worth doing your research before making investment decisions. Columbia Threadneedle found that 20% of people who had made investment mistakes said that they hadn’t done enough research. 10% said that they wished they had paid for the services of a money advisor.
Pay into your pension early.
It seems obvious advice, but so many people haven’t saved into their pensions. According to St James Place 20% of 55- to 65-year-olds have no pension savings at all. That means that they are totally reliant on the state pension. For the 65- to 75-year-olds it’s even worse, with nearly 30% solely relying on their state pension. Compare that to only 7% of under 35’s having no pension. That’s a direct result of auto enrolment.
But there’s a long way to go. A £500,000 pension pot is required for a moderate retirement according to the Pension and Lifetime Savings Association. That’s way short of today’s average which is £50,000. 60% of people say that they expect to fall short of that number, with only 15% saying that they are on track to save enough.
Don’t panic.
As the Financial Conduct Authority (FCA) statement says, “the value of your investments can go down as well as up”. It is very important to remember this. Especially when markets appear to be in turmoil as has happened recently on the back of the US tariffs.
Your investments including your pension are long term holdings. You only need to cash them in when you need the money, or in retirement. There is usually no need to withdraw your money when markets are down because that means that you will be realising the loss. If you can hold on long term you should see markets adjust upwards over time.
Be aware if you divorce.
A money advisor tip after a divorce is to make sure you remove your spouse from all your joint policies. Including your Will.
10% of divorcees forget to change their Will and remove their former spouse. Over 25% forget to remove their spouse from their life insurance and protection policies.
Women should be extra vigilant because their income falls by 50% on average after a divorce according to Legal & General. 24% of women say that they struggle after a divorce with the reduced income coupled with the increased costs of living alone.
