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Financial Planning

Monetary matters

Decoding investment strategies for better financial decisions

Entering the investment world can feel like deciphering an enigma, particularly for beginners. The vast array of options and approaches can often lead to bewilderment. However, the first crucial step on this journey is to identify your financial aspirations.

Are you aiming for long-term wealth accumulation or after more immediate returns? Pinpointing your specific goal will aid in selecting suitable investments and fostering wiser financial decisions.

Harnessing the power of cash flow modelling

Cash flow modelling emerges as a potent tool that assists in navigating your financial ship towards your investment goals. By crafting a model that outlines your earnings and expenditures, you gain a comprehensive view of your financial situation, enabling you to make informed decisions regarding your monetary resources.

Among the many benefits of cash flow modelling are:

  • Achieving a transparent understanding of your financial standing
  • Identifying potential areas of extravagant spending
  • Unearthing opportunities to conserve money
  • Making informed decisions about investments and other fiscal commitments
  • Establishing achievable financial targets

Visualising your financial future

Cash flow modelling offers a picture of your financial future, providing insight into how various life events might impact it. This enables you to plan ahead, ensuring you optimise your money to reach your financial objectives.

The model offers a comparative analysis of your current and desired financial status and goals. It considers your present and projected wealth, along with income inflows and expenditure outflows, painting a vivid picture of your finances now and in the future.

Determining the perfect asset allocation mix

Cash flow modelling lets you ascertain the best course of action and recommendations suited to your unique circumstances, including the ideal asset allocation mix. It calculates the growth rate necessary to meet your investment objectives. It cross-references this with your risk tolerance to ensure your expectations align with the asset allocation required for the desired growth rate.

Regular reviews and reassessments

Keeping your financial plan up-to-date is crucial. Assumptions made in the cash flow model need regular reviews and reassessments to ensure you stay on track. This includes deciding how much to save, spend, invest, and manage funds to achieve the required return.

Specificity is key

As you navigate each financial milestone, it’s vital to ‘run through the numbers.’ Being specific about your needs and goals will help you make the right financial decisions and establish a plan to achieve them. If these needs aren’t accurately defined, the cash flow model may not resonate personally with you, reducing its perceived value.

Remember, your financial plan and cash flow model are only as good as the information provided. They’re based on projected inflation and growth rates, which must be clarified.

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Financial Planning

Are you ready to invest?

Establishing safeguards before embarking on an investment journey

Investing comes with its share of risks, which can sometimes lead to partial or total loss of your savings. Assessing your financial situation and establishing safeguards before embarking on an investment journey is essential.

The decision to invest should hinge on your financial goals. Are you looking to increase your wealth, generate regular income or both? Do you have a specific growth target for your savings or a minimum required income?

Generally, investments require a minimum commitment of five years to overcome market fluctuations. This is especially important if you’re nearing retirement. Clearly defined goals will guide your risk-taking limits to achieve your desired outcomes.

Investment considerations for different life goals

Here are some common life goals and related investment considerations:

Property Purchase: If you intend to buy within the next five years, consider keeping your savings in a Cash Individual Savings Account (ISA) or Lifetime ISA. If you’ve got a longer timeline and it’s your first home, an investment Lifetime ISA might be worth considering for government bonuses.

Marriage Plans: Cash savings might be more suitable unless you’re tying the knot five years from now.

Child’s University Fees: A Junior ISA can be a good option as the money will have up to 18 years to withstand market volatility.

Retirement: Making additional voluntary contributions to your pension could only be beneficial if you’re at risk of exceeding your Annual Allowance.

Assess your debt situation

Before you invest, ensure you are in control of any debts. Aim to reduce any borrowing to manageable levels or clear all debt before investing, especially if the interest payments on your debt will likely outweigh potential investment returns. Mortgages and certain types of student debt might be exceptions if the interest rates are low.

Emergency savings

Do you have a financial safety net? Before taking investment risks, you should have emergency savings in place. A general rule of thumb is to save up at least three to six months’ salary before investing. Consider upcoming expenses, too, as quick withdrawals from investments could result in losses.

Protecting your future

Ensure you’re safeguarded against prolonged work absences. Review your employer’s sick-pay scheme and consider income protection insurance if you’re self-employed. Other insurance, like critical illness cover or life insurance, is essential if you have a mortgage or dependents.

Understanding investment risks

Comprehending the risks involved in investing and deciding your risk tolerance level is key. Even with a long investment horizon and ample cash reserves, high-risk investments may not suit you if market volatility keeps you awake at night. Understanding what you’re investing in is essential to evaluate the associated risks accurately.

While some investments, like corporate and government bonds, are considered less risky, no investment is entirely risk-free. For instance, if a corporate bond issuer goes bankrupt, they won’t be able to pay interest or repay the loan, rendering the bond worthless. The risk level of a bond largely depends on the issuer’s creditworthiness, indicated by a credit rating.

Balancing risk and return

If you aim to boost your potential returns, you’ll likely need to accept an additional layer of risk. Hence, it’s crucial to diversify your portfolio with a mix of investments that align with your risk tolerance.

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Financial Planning

The gender divide

Reflecting on 75 years of State Pensions

In the 75 years since the inception of the State Pension, we’ve witnessed dramatic shifts in the workplace and significant strides towards gender equality. Yet, a stark reality remains: women are more likely than men to depend solely on the State Pension for their retirement income.

The State Pension currently stands at £886 per month, granted to those eligible for the full amount under the contemporary rules. Eligibility hinges on having either paid or been credited with 35 years of National Insurance.

New research reveals that nearly half (49%) of women are unaware of this stipulation, compared to 40% of men[1]. This disparity is especially concerning in light of the fact that almost two million women (29%) anticipate relying solely on the State Pension in retirement versus only 13% of men.

Forecasting the future: State Pension age and forecast

Interestingly, fewer women have checked their State Pension age (53% vs 58% of men) or accessed a copy of their State Pension forecast (45% vs 50% of men). The latter is crucial as it outlines the accumulated State Pension and forecasts the potential amount upon reaching the State Pension age. However, women who have reviewed their State Pension forecast found it easier to comprehend (55% vs 52% of men).

Financial expectations in retirement

When it comes to estimating monthly living costs in retirement, women expect to need less (£1153.70) than men (£1,279.20), a difference of over £1,500 annually. This difference in financial expectations extends to plans of working until the State Pension age, with 50% of men intending to do so, compared to 42% of women.

Pre-retirement funding: Both genders

For those planning to retire before reaching State Pension age, several differences emerge in their funding strategies. While similar proportions of both genders aim to fund their pre-retirement living costs through workplace pensions, cash savings, or personal pensions, more men (28%) plan to utilise investment funds than women (17%). Meanwhile, 25% of women intend to access their partners’ pension or savings during this period, versus 15% of men.

The State Pension: A lifeline for many

The State Pension remains a cornerstone of retirement income for many, and for nearly one in three women, it’s the only source of income. Surviving on £886 a month is challenging, particularly amidst the current cost of living crisis. The gap between women’s estimated retirement living costs and their projected State Pension is concerning. Even after fulfilling all National Insurance contributions, women still anticipate needing an extra £250 per month beyond their State Pension.

Retirement should be a time of enjoyment and fulfilment, not financial hardship. With the current cost of living crisis squeezing many household budgets, depending solely on the State Pension could lead to challenging decisions about spending for many years.

Source data:

[1] Royal London commissioned a survey by Opinium between 23 and 30 June 2023, with a sample of 4,000 UK Nat rep consumers. Weighted calculation: 29% of UK based adult population figure of 53,188,000 = 1,874,877.

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Financial Planning

Inflation and your retirement income

Several strategies to lessen its impact on retirees

The recent surge in inflation could be a source of worry if you’re a retiree relying on your pension for income. It’s natural to question the resilience of your retirement income plan in the face of escalating prices and how it might influence your lifestyle and long-term aspirations. Mitigating the effects of inflation is crucial for all savers and investors, but it’s even more so for retirees.

Understanding inflation’s impact

As a retiree, you may have a savings pool to sustain your current lifestyle and provide a financial legacy for future generations. But if climbing prices necessitate withdrawing more income than anticipated, your savings could be stretched thin. In the worst-case scenario, your savings could run out prematurely, requiring sacrifices to prevent financial depletion. This might seem daunting, but now’s not the time for avoidance. Receiving professional financial advice and utilising cash flow modelling will provide a transparent view of how inflation may affect your savings and cash flow. With this knowledge, we can help you evaluate whether you need to modify your financial plans.

Maintaining a diversified portfolio

The prospect of further price increases might encourage you to hoard more cash for daily expenses. While having a cash safety net for emergencies or income gaps is vital, holding excess cash may not be prudent in a high-inflation environment. Despite a rise in some deposit account interest rates, they remain significantly lower than inflation rates. Hence, leaving surplus cash in a savings account could exacerbate the struggle with rising costs. A diversified portfolio, investing across various asset classes such as stocks and bonds, is an effective way to insulate your pension from inflation’s harm. Your allocation to each asset class should reflect your individual needs and risk tolerance, which we can assist with. We’ll also ensure your portfolio’s resilience for long-term performance, regardless of broader economic trends.

Evaluating your income strategy

A thoughtful income strategy is another way to lessen inflation’s impact during retirement. This involves determining the income needed for your current needs and adjusting this over time as your circumstances evolve. It also includes knowing when and from which investments to generate income; this minimises the risk of realising losses or selling quality investments at unfavourable times. We can help you understand which asset classes and sectors have the potential to grow in various economic conditions. Structuring your income could also boost tax savings, ensuring more of your money supports your lifestyle and goals. This is particularly crucial if rising costs increase your income and bump you into a higher tax bracket.

Taking the next step

Inflation’s effect on your retirement income may cause anxiety, but there are strategies to keep your plans on track. However, these steps can be intricate, making professional advice invaluable. We can help you comprehend what rising prices mean for you, where to invest in a high inflation environment and how to withdraw income sustainably and tax-efficiently. You can then focus on enjoying life today, confident that you have a robust plan in place.

Need help with the uncertain terrain of inflation and retirement planning?

If you require further information or assistance, don’t hesitate to get in touch. Let us guide you through the uncertain terrain of inflation and retirement planning. For a conversation about tailor-made options that suit your requirements, don’t hesitate to contact us to learn more. A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS THE PLAN HAS A PROTECTED PENSION AGE).  THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.  YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS.
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Financial Planning

Taking the first step

Introduction to investing for beginners

Embarking on the journey of investing can seem intimidating initially, but with a long-term perspective, it can significantly accelerate the achievement of your financial goals. It’s normal to feel a mix of excitement and apprehension as a first-time investor. There’s a lot to navigate – stocks, bonds, mutual funds, market trends and a sea of unfamiliar jargon. Remember, every successful investor started right where you are now. The stock market is known for its fluctuations, with dips and rises being part and parcel of the game. However, history evidences that shares often outperform cash over extended periods and stay ahead of inflation. Here are five essential tips to help you take the first step and beyond.

1. Aim high, aim right

The first step of your investment journey involves setting concrete goals. A relatively long-term target helps your investments weather market volatility. Your goal could be anything from saving for retirement to securing your children’s future. During temporary market downturns, keeping your eyes on the prize reduces the likelihood of selling out and incurring losses.

2. Consistent investments: The key to stability

Contrary to popular belief, you don’t need a mountain of money to begin investing. Regularly investing manageable amounts each month or gradually investing a lump sum can prove beneficial, especially during times of economic uncertainty and stock market turmoil. Your money purchases more shares when the market is down and fewer when it’s up. This strategy averages out your investment cost and may contribute to smoother portfolio performance over time.

3. Maximise your tax allowances

Remember your Individual Savings Account (ISA) allowance, which resets annually on 6 April. For the current 2023/24 tax year, this is £20,000. An ISA allows your investments to grow tax-efficiently, enabling more of your money to contribute towards your future.

4. Emotional intelligence in investing

Allowing emotions to guide your investment decisions is not a wise strategy. It’s natural to feel nervous when the stock market dips, especially for novice investors. However, maintaining your composure and staying in the market once you’ve entered can be crucial.

5. The art of diversification

A well-rounded investment portfolio will typically include a mix of equities, bonds and cash. Diversification is beneficial, as different assets react differently under varying market conditions. This can help balance returns and lessen the impact of a specific asset’s value decline. For beginners, diversification can be a challenging task. That’s where expert professional financial advice is crucial. We can help you distribute your money across various investments tailored to your unique needs and risk tolerance. We can also ensure you’re making the most of your tax allowances and reliefs, giving you confidence that your money is working as hard as it should.

Ready to navigate the world of investing?

If you require further information or have any questions, don’t hesitate to get in touch. We will demystify the complex concepts, simplify the terminology and provide practical steps to getting started. Together, we can navigate the world of investing. Contact us to discuss your future goals. THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. THE VALUE OF YOUR INVESTMENTS CAN GO DOWN AS WELL AS UP AND YOU MAY GET BACK LESS THAN YOU INVESTED. THE TAX TREATMENT IS DEPENDENT ON INDIVIDUAL CIRCUMSTANCES AND MAY BE SUBJECT TO CHANGE IN FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.
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Financial Planning

Financial planning

A personal journey tailored to your unique financial situation and aspirations

Financial planning isn’t a one-size-fits-all process. It is a personal journey tailored to your unique financial situation and aspirations. Without considering your complete financial status and goals, the effectiveness of specific planning elements can be compromised. Here are some main areas to consider when developing a robust financial plan.

Setting your financial goals

Consider your life plans for the next five, ten and twenty years. Are you on track to achieve these? Depending on your life stage, your goals might differ. Short-term focuses include buying a house, paying university fees or making significant purchases. Medium-term goals can involve tax-efficient investments, retirement planning and more significant spending events. Long-term objectives might include tax-efficient retirement income, estate planning reviews and identifying Inheritance Tax issues.

Keeping track of your cash flow

Understanding your cash flow is crucial. It provides a clear view of your current assets and future requirements. Incorporating cash flow analysis into your financial planning gives an accurate position of your short, medium and long-term goals. This monitoring keeps you on track with financial returns, inflation, planned changes and any unexpected occurrences. It also allows for the creation of ‘what-if’ scenarios, empowering you to make informed decisions about your finances.

Preparing for unexpected situations

Life can throw curveballs – illness, unexpected death of a partner, financial emergencies or job loss. Preparing for these potential situations can provide security during challenging times. Ensuring that your household has financial resilience in case of such events is essential.

Creating a debt repayment plan

Debt comes in various forms, with mortgages being the most common. A plan to pay off debt is vital for long-term security, whether being mortgage-free or focusing on early retirement and reduced expenditure. As interest rates rise, reducing any debt over a shorter term than previously planned could be financially sensible.

Evaluating and managing risk

Risk can take many forms. It could be family risk should illness strike, job changes or investment risks. Do your investments align with your risk appetite? Are you aware of how market volatility can affect your investments? With many factors increasing risk, such as the COVID-19 pandemic, global lockdowns, supply-chain disruption, the war in Ukraine, high inflation rates and rapid interest rate rises, ongoing risk assessment and management are vital to keep your long-term financial plan on track.

Making informed investment decisions

Your investment strategy is critical to any financial plan. A bespoke investment strategy considers your personal outlook and goals, balancing the risks you’re willing to take with the return needed to meet your objectives. It also considers your tax position and maximises your tax allowances. Diversification is key – ensuring you’re not overly reliant on one type of investment reduces the overall risk of losing money.

Effective tax planning

Your financial plan should consider your current tax position, tax-efficient investments and savings. It should also plan around your estate to ensure your legacy is passed on as you wish. With many tax bands frozen until 2028, including the Inheritance Tax threshold band, financial planning must effectively cover trusts, planned gifting and investments that hold assets outside the estate.

Need further assistance or information for your unique financial situation and aspirations?

Remember that financial planning is personal, and the right approach can make all the difference. Should you require further assistance or information, feel free to contact us. We’re here to help you navigate your financial journey with confidence. THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE. THE VALUE OF YOUR INVESTMENTS CAN GO DOWN AS WELL AS UP, SO YOU COULD GET BACK LESS THAN YOU INVESTED.
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Financial Planning

National Insurance Contributions (NICs)

Rates to be cut for millions of workers

In the Autumn Statement 2023, Chancellor Jeremy Hunt announced significant reforms to National Insurance. This is the third change to National Insurance since 2022. But despite these cuts, the tax burden is still expected to remain at a record high. Mr Hunt cut the main rate of Class 1 employee NICs from 12% to 10%. This will take effect from 6 January 2024. There will also be a cut in the main rate of Class 4 self-employed NICs from 9% to 8%. This will take effect from 6 April 2024. From 6 April 2024, Mr Hunt said no one will be required to pay Class 2 self-employed NICs.

Details of the National Insurance Contributions (NICs) changes are:

  • From 6 April 2024, self-employed people with profits above £12,570 will no longer be required to pay Class 2 NICs but will continue to receive access to contributory benefits, including the State Pension.
  • Those with profits between £6,725 and £12,570 will continue to get access to contributory benefits, including the State Pension, through a National Insurance credit without paying NICs as they do currently.
  • Those with profits under £6,725 and others who pay Class 2 NICs voluntarily to get access to contributory benefits, including the State Pension, will continue to be able to do so. The government will set out the next steps for Class 2 reform next year. As part of this reform, the government will protect the interests of lower-paid self-employed people who currently pay Class 2 NICs voluntarily to build entitlement to certain contributory benefits, including the State Pension.

National Minimum & Living Wage Uprating

From 1 April 2024, the National Living Wage (NLW) will rise by 9.8% to £11.44 an hour for eligible workers aged 21 and over across the UK. Young people and apprentices on the National Minimum Wage (NMW) will also see a wage increase.

Autumn Statement 2023: How will my finances and business be affected?

If you want to discuss how the announced measures could affect your finances or business, don’t hesitate to get in touch with us for more information. We look forward to hearing from you. THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.