Financial advice can cost a lot of money with some advisers charging clients up to £200 an hour. For these fees, a financial adviser will usually help you set goals, make a financial plan, assess your risk profile and do tax planning.
But you don’t have to spend such an amount to give your money a quick and easy makeover. It’s relatively simple to do the basics yourself, particularly when it comes to making a financial plan. Here are the three steps to take.
Work out how your money goals relate to your lifetime goals
Patrick Connolly, a certified financial planner with Chase de Vere, says: “Financial objectives are far easier to reach if you understand how much money you are likely to need for each goal and when you are likely to need it.” As a general rule of thumb, you should consider these lifetime financial goals:
In your 20s and 30s
Focus on paying off debts and other short-term objectives such as cash savings. Or if you’re planning to buy a house and maybe get married and have children, work out a savings plan that will get you to your goal.
Once you start a family your costs may increase and earnings may decrease, especially if one partner reduces their hours or stops working for childcare reasons. Hopefully you will have built up cash savings to cater for this and any short-term requirements or emergencies.
Connolly says: “When having children, people should look at protection needs, particularly life assurance, so there are funds available to support children if one or more of the parents dies prematurely. However, long-term objectives mustn’t be forgotten and people should be reviewing their pensions and also investing in individual savings accounts (Isas).”
In your 40s and 50s
This is the time when you may be spending less on your children as they reach adulthood. You could also be earning a higher salary and that should help you save more for retirement. You may be able to top up your pension pot by paying in annual voluntary contributions (AVCs) which, as the name suggests, allows you to pay additional contributions into your workplace scheme.
In your 60s and 70s
You could be working into your 60s, health permitting, but once you are in your 70s you will probably need to be generating income from your savings and investments to provide a comfortable standard of living. If you’ve paid enough into a pension scheme over the years, then the monthly payout from this should suffice.
Once you have set your goals you need to make sure that you review them every year or when your financial or life circumstances change.
Create a budget: don’t spend money that you don’t need to spend
We all may think we’re keeping an eye on our finances, but it’s easy to overlook the quick wins. Keep these tips in mind when creating your budget:
Review your assets and liabilities
This will include your mortgage and other debts, your savings and your pensions and any other investments. Justin Modray, director of Candid Financial Advice, says: “The simplest way is to sit down with bank and credit card statements and list all your monthly outgoings versus money coming in.”
Free on-line tools such as Money Dashboard, Money on Toast and RetireEasy can really help with budgeting and giving an overall picture of your finances. This should help you get a clear picture of how much money you have to play with every month.
Focus on repaying expensive debt
Modray says: “If you are having to borrow to make ends meet then focus on reducing borrowing and starting to repay expensive debt rather than saving or investing.”
Use separate accounts
Colin Low, a chartered financial planner with Kingsfleet Wealth, recommends that you have two current accounts and a savings account. He says: “You should receive salary payments into one account. Then ensure all standing orders and direct debits are paid from the second account and that sufficient funds are automatically credited to this. Keep the required amount for other spending in account one and transfer the difference into the savings account.”
Identify savings
Be honest and work hard to find savings. Lee Robertson, a chartered wealth manager with Investment Quorum says: “Go back through your direct debits and other small regular payments as it is often the case that you no longer need some of what is being paid out for.
“The quick wins are to check your utilities costs to see if you can get cheaper loans, credit cards, electricity, gas, mobile tariffs and broadband. These small savings can soon add up.”
Make sure that you are saving and investing in a tax-efficient manner
For most people the best approach for tax-efficient investing is to use a combination of pensions and individual savings accounts (Isas). Pensions are the most tax-efficient but Isas are more flexible, meaning that you can access your money whenever you want. “The right split between pensions and Isas is likely to depend on your financial objectives, the access you might need to your money and your tax position, with pensions being better for higher rate taxpayers.”
Share your frustration with financial jargon
The extra easy money project intends to identify the financial jargon you most dislike – the results will appear in an infographic next month. So don’t miss your chance to vent your frustration, tell us below what piece of financial jargon you hate the most.
