Top ten financial tips to start 2011 on the front foot
While we all know Christmas is a time to indulge, the New Year is about starting over and, when it comes to financial planning, what better excuse for consumers to whip their personal finances back into shape.
Unbiased.co.uk's media IFAs have come up with their top financial tips to help consumers prepare for the New Year and get their personal finances in order.
1. Danny Cox, Hargreaves Lansdown - Spring clean early
"Put your plans on the front foot for 2011. Between Christmas and New Year is an ideal time to dust off your old investments and pensions and review how they are doing. Are they up to date and still right for you? How they are performing? Could you consolidate your plans and make them cheaper and easier using a fund supermarket. Is it time to cash in your premium bonds? Are you making the most of your cash savings? Have you made the most of all your tax efficient allowances? Reviewing your financial affairs does not need to be an onerous task and if you need some help arrange an appointment with an independent financial adviser."
2. Peter McGahan, Worldwide Financial Planning - Create a cash buffer
"There is concern in relation to interest rates and the potential that inflation might drive these northwards. If this is the case the normal reaction is sometimes to pay off all debt as quickly as possible. Your first port of call should actually be to create a buffer by having three to four months expenditure available to rely on for cash flow. A bank loan reduced by £2000 may only save you £80 per month but £2000 will give you enough space to pay that loan for 25 months. Cash flow is important. If you have any loans that are on a variable rate be careful to pay off the highest interest rate loans first."
3. Gordon Bowden, Quainton Hills Financial Planning Ltd - Save regularly
"Put aside a regular amount each month to invest for the long term. Do not spend your monthly income and then see what is left over. There will never be enough left over. Instead decide how much you want to save and work out your spending budget from what is left. One day you will be glad you did this."
4. Ian Lowes, Lowes Financial Management - Income from investments
"Income is the want of many clients yet income paying investments in a low interest rate environment are at a premium. Whilst the likes of equity income and fixed interest funds are likely to be the default option for many, there may be a better way - Income from gains.
"Whilst many people want an income from their investments, what they actually need is a regular payment and that's not necessarily the same thing. A growth orientated portfolio can still produce the ‘income' needed by way of automated regular or, ad-hoc withdrawals. Such a strategy means that a more diversified range of investments can be utilised, thereby providing greater opportunity, and potentially lowering the risk. What's more, growth investments should be subject to capital gains tax rather than income or dividend tax and as everyone has an annual capital gains tax allowance, in a lot of circumstances, an investor drawing income from a growth portfolio will have little, or no, tax to pay on an annual basis.
"Obviously, the less tax you have to pay the greater the returns you receive from your portfolio. Larger portfolios may give rise to some tax on final encashment but this should still be less than income tax and for the older investors some solace can be gained from the consequence that CGT also ‘dies' on death."
5. Jason Witcombe, Evolve Financial Planning - Review your pension
"If you are still working one long term aim is likely to be a financially secure retirement. A pension should be a key part of that. To get the most out of your pension between now and then you need to be clever about contribution levels and review this decision each year. If your income is in the 20% tax band, it will cost you £8,000 to get £10,000 into your pension after basic rate tax relief. Higher rate tax currently starts at £43,875. So, if you wait until your income is £53,875, getting £10,000 into your pension only costs you £6,000 as you get 40% relief. Therefore, if you are a 20% taxpayer now but anticipate a promotion in the next few years, maybe you should delay pension contributions? Perhaps your focus could be paying down your mortgage or saving into ISAs in the meantime?
"If your income is in the bracket £100,000 to £112,950 you actually get 60% income tax relief because you lose your income tax Personal Allowance at a rate of £1 for every £2 of income over £100,000. Therefore, a £10,000 pension contribution only costs you £4,000!
"Things get more complicated for very high earners but it is still possible to secure 50% tax relief on a certain level of pension contribution. If you could receive 40%, 50% or even 60% tax relief on money that goes into your pension and only pay basic rate tax on the income that you eventually draw from your pension, that gives you a neat tax planning opportunity."
6. Colin Jackson, Baronworth Investments Limited - Teach your children that money matters
"The announcement that Junior ISAs would be launched, probably, in autumn 2011 should go some way to educating children particularly when it comes to saving. Mums, dads, grandparents, aunts and uncles often give monetary presents to children at Christmas. Perhaps it would be a good idea to put these presents into a Junior ISA and for those children old enough to understand, explain the reason for doing this - to save for their future. The good news is that the children will not be able to get their hands on the money until they turn 18 so, dependent upon the child's age, consideration should be given to a Stocks and Shares ISA that has the facility to accept further investments from time to time."
7. Dan Clayden, Clayden Associates - Identify gaps in cover
"As budgets continue to be stretched by the increased costs of living, a review of existing borrowing and protection arrangements might help by showing how savings could be achieved in these areas, while also identifying gaps in the level of cover you have."
8. Steve Laird, Carrington Wealth Management - Buy before 4 January 2011
"The VAT increase comes in on 4th January but any payments made against it before then will be liable to VAT at the old rate. So, if you've ordered an expensive item for delivery in January it would be worth paying in full before then. In practice this means paying before the end of December. This is particularly useful if you're buying a new car. If you pay for it in December you can get the old VAT rate but the car can still be registered in 2011 which means it's likely to be worth more when you come to sell it - the best of both worlds!"
9. Keith Thomson, Blackadders LLP - Keep track of spending
"Create a detailed household income and expenditure analysis. Most people only have a vague idea of what they spend. Keeping track of all expenditure, especially incidental cash expenditure (newspapers, lunches, drink, snacks etc) will give you a clearer picture of what you spend your money on. It may well surprise you how money can be so easily spent and it should help identify where money can be saved to meet unexpected bills and still enjoy those little luxuries from time to time."
10. Karen Barrett, Chief Executive of unbiased.co.uk
"2011 is going to bring with it a lot of uncertainty and changes to the financial landscape, including an increase in VAT and an impending rise in interest rates. Consumers should make their financial resolutions now and start planning ahead to get their money matters in order, ready for the New Year; making an appointment to see an IFA is a great way to start this off.
"An independent financial adviser can help develop a plan for managing your money and investments. Only an IFA can advise you on the best products for you from across the whole of the market. To find a qualified, local adviser near you search on unbiased.co.uk's free and confidential ‘find an IFA' service. You can also find useful tools to help plan your monthly finances including the unbiased.co.uk financial calendar which can be downloaded from the website."