2020 was a turbulent year but, despite this, few could have anticipated the further twists and turns to come in 2021. Yet, with the dawn of 2022, we remain in the midst of the COVID-19 pandemic. And, while there were some positives to the past 12 months – the vaccine rollout, reunions with loved-ones and the resumption of travel are all good examples – new variants mean the progress we have made could be reversed at any time.
All of this has led many people to stop and take stock of their priorities and what really matters to them – turning their attention to forward planning and some New Year resolutions beyond changing our diets.
We believe a good place to start is by reviewing your financial situation. So, here are five simple steps you can take to ensure you get your finances in order for the new year and beyond.
A sensible place to start when it comes to assessing your financial situation is incomings and outgoings. Consider making a schedule of your regular payments to see what you’re actually spending your money on. Do you have long-standing costs and commitments you had forgotten? Are you still paying out for things you no longer use (or need), such as gym memberships or news subscriptions? Have you subscribed to too many streaming services? By recording what you regularly spend and stopping payments you no longer need, you will have a much clearer picture of your own cost of living.
You could even take this to the next level and work out your own personal inflation rate. The Office for National Statistics publishes the official UK inflation rate each month based on the Consumer Price Index (CPI). By taking your own monthly costs and comparing them to those of the previous year, you can estimate your own personal inflation rate. How does it compare to the current UK CPI figure of 5.1%? Repeating this exercise once or twice a year can help you track your changing spending patterns, and plan more clearly for the future.
There’s a famous quote that nothing in life is certain except for death and taxes. Yet more than half of UK adults apparently don’t have a will. Wills are vital tools for planning for the future of your loved ones, so if you haven’t already made one, you might want to make it a priority this year. If you have, it should be reviewed regularly given your circumstances change. And remember that if you have assets overseas, you may need additional specialist advice to determine whether a will is required in each jurisdiction.
Official documents, such as wills, share certificates, and birth and marriage certificates, should also be kept together in a secure place – where you and the rest of the family can easily find them when needed. For financial matters, the rules for how long you should keep paperwork depend on the type of document. If you’re self-employed, any records to do with your business need to be kept for at least five years, but for personal tax-related documents, HMRC recommends at least 22 months from the end of the tax year they relate to.
Now that you know your true cost of living and have an up-to-date will in place, you can put together a plan to help you achieve your own financial aspirations.
Start by plotting out short, medium and long-term goals. What, for example, do you want to achieve in the next two, 10 and 25 years? Consider undertaking a gap analysis – which identifies where you are now, where you want to be, and what steps you need to take to get there.
For example, do you have an idea of what you want to pass on to your children, or even your grandchildren? If you’re a business owner, do you have a succession plan in place? When do you want to retire and is this achievable? If not, what more can you do to work towards this goal? Will your family be adequately provided for when you’re gone? And what more can you do in this area in terms of insurance and protection?
This is also the perfect time to ask yourself whether your money is working as hard as it could be and whether you have a plan. If managing your finances is not your strong suit, consider sitting down with an adviser who can assess if there’s more you could be doing.
Also, consider your philanthropic endeavours. Could you afford to give more financially and, if so, where should these funds be going? Take some time to ask yourself what causes matter most to you and what you’re passionate about. These answers could lead you towards certain organisations or, again, a wealth adviser can help, particularly with the structure of your donations.
With your paperwork and records properly organised, you can start investigating whether you are taking full advantage of any possible tax allowances and reliefs you could be entitled to. If you are UK resident, are you using your annual ISA allowance? Is your pension working as effectively as it could be? And did you know that some pensions can also be passed on to the next generation outside of your ‘estate’? You are currently allowed to put up to £40,000 into your pension each year, although this may be reduced if you have an income of more than £240,000 or have already accessed part of your pension.
Of course, the future tax landscape remains uncertain, with questions still to be answered. Will further tax increases, in addition to the 1.25% increase in national insurance contributions, need to be considered as a result of the rising debt incurred by the pandemic, for example? While rumours of a wealth tax have abated, we could still see increases to capital gains tax and the reform of inheritance tax. As such, now is an opportune time to review your financial affairs.
As ever, tax matters are notoriously complex, and it always pays to take specialist tax advice to suit your own individual circumstances.
For many of us, COVID-19 forced us to evaluate our current lives – how we are living them and what we might change. All of a sudden, many of us became very aware of how fragile life can be.
Consider asking yourself these questions, or talking them through with a loved one:
Once you have taken the time to truly understand these aspects of your life and how you feel about them, you’ll be in a strong position to look at your life and see where adjustments – small and large – can be made in terms of time and money spent.
If you would like to discuss any aspect of your financial plans, please get in touch – our experienced wealth planners would be very happy to assist you in developing a personal wealth plan to help you and your family achieve your financial goals.
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Clients of Nedbank Private Wealth can get in touch with their private banker directly to understand how wealth planning can help them achieve their financial goals and objectives, or call +44 (0)1624 645000 to speak to our client services team.
If you would like to find out more about how we can help you with wealth planning support, please contact us on the same number as above, or complete the contact us form using the link below.
Any examples of investments and structures used are for illustrative purposes only. The inclusion does not constitute an invitation or inducement to buy any financial investment or service. None of the content constitutes advice or a personal recommendation. Nedbank Private Wealth does not provide individual tax advice, and instead works with clients’ existing advisers or can provide an introduction if needed. Individuals should seek professional advice, based on their jurisdiction and personal circumstances, before making any financial decision.
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