Christmas is just around the corner and, while you might be busy with friends and family, it’s also a good time to take a couple of days off work and think about all those other issues you’ve not had time for over the last few months.
So, with just 12 days to go until Christmas, we thought we’d celebrate with the 12 financial planning ‘ways’ of Christmas that will help you achieve financial success in 2020.
1. Increase your savings
When you receive a pay rise, it’s easy to succumb to ‘lifestyle inflation’ and increase your spending in line with your new means.
However, whenever you get a salary increase – or you receive dividends or a bonus – it can pay to save as much of it as you can. Top up your emergency fund, maximise your ISA contributions or consider setting up a regular savings account for your child or grandchild. Whatever you choose, you won’t miss what you never had!
2. Invest for the long term
Look after your ‘future self’ by investing in the markets. Historic data indicates that investing in the markets is likely to beat cash over the long term.
Figures from Schroders show that:
- £1,000 put into the average cash ISA at the start of the 1999/2000 tax year would have been worth £1,162 by the end of the 2016/2017 tax year, once the effects of inflation are taken into account.
- £1,000 invested in the UK stock market in April 1999 could have been worth £1,841 by the end of the 2016/2017 tax year, based on the FTSE All-share total return index.
Please note that the value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
3. Give yourself a (tax) break
There are lots of ways to reduce your tax bill, from pension contributions to ISAs and Venture Capital Trusts (VCTs).
Indeed, earlier this year the Daily Telegraph outlined 362 perfectly acceptable ways to reduce tax, from making profits on wine to gifting money to your children when they get married.
Use tax breaks wisely – less tax paid means more money in your pocket.
4. Give someone else a (tax) break
As well as reducing your own tax bill, there are ways of helping your family to be more tax efficient.
If you have a young family, think Junior ISA. In the 2019/20 tax year, you can pay up to £4,368 into a Junior ISA. Cash and Stocks and Shares ISAs are available, and there’s no personal income or capital gains tax to pay on any growth.
You can also maximise contributions to your spouse’s pension. If your spouse doesn’t work, you can contribute £2,880 into a pension for them each year, and this will be grossed up to £3,600 through tax relief.
Even if your spouse is earning you can also pay into their pension. For example, if your spouse earns £40,000 a year you can pay up to 100 per cent of those earnings into a pension.
You can also set up a pension for a young child and contribute up to £2,880 a year. Again, the 20% tax relief means this is boosted to £3,600.
5. Review your pension contributions
Pension tax relief is a generous tax break which few people maximise. Understand how pensions can work for you and your family to create a lasting legacy.
As well as the benefit of boosting contributions through tax relief, pensions can also be an excellent vehicle for the transfer of inter-generational wealth and reducing your Inheritance Tax liability.
You may face issues with either the Annual or Lifetime Allowance, so speak to an expert for advice on how best to structure your retirement planning.
6. Have an Investment MOT
Earlier this year, the Association of British Insurers (ABI) estimated that more than 1.6 million pension pots worth £19.4 billion are ‘lost’.
Jamie Jenkins, Head of Global Savings Policy at Standard Life Aberdeen, says: “Many are building up numerous pensions while being disengaged with details such as how much they’re worth and where the money is invested.”
Do you have old pensions or ISAs that you’ve contributed to in previous years? If so, it could pay to establish whether they are still performing. Take the time to dust off all the details and review the performance.
7. Protect yourself
How would you and your family cope if you had an extended illness – or worse?
Financial planning is often about ensuring that there is capital available for you or your family to maintain their lifestyle after unexpected events.
So, taking out income protection, Critical Illness cover, or life cover could provide you or your dependents with invaluable income (or a lump sum) if something happens to you.
8. Retire early
Many people don’t ‘dare to dream’ and end up working too long. This is often because they are concerned that they may run out of money in later life.
Indeed, a 2019 report by the World Economic Forum claimed that male British pensioners were expected to run out of money 10.3 years before they died, while female pensioners can expect to outlive their pension pots by 12.6 years.
However, for many people, it could be an option to retire now. You could enjoy the fruits of your labour and avoid dying with too much.
9. Create a legacy
Are you fortunate enough to be able to help secure the financial future of others? How would you want to be remembered by those that you leave behind?
Legacies left in Wills are hugely important to charities, with more than £3 billion left to good causes in 2018 alone. Your legacy could be:
- A cash sum
- Specific property or assets
- A share of your estate
Legacies can also have an individual tax benefit. For example, if you leave 10% or more of your net estate to charity, you’ll reduce the Inheritance Tax rate payable on your estate from 40% to 36%.
Foundations are an excellent way of offering long-term support and backing causes that may otherwise struggle to gain attention. Charitable foundations can also respond creatively to immediate needs as well as taking a long-term approach.
10. Have a plan
What do you want to get out of life? If unsure, you need a plan.
Financial planning doesn’t have to simply look at the numbers, and whether you have enough money now and in the future. It can also look at your goals and aspirations for the future.
Having a plan and knowing what you want to do when you retire can help to inform what resources you need to do those things. It’s hard to do one without the other!
Proper financial planning (which includes investment management, tax mitigation and cash flow forecasting) is an ongoing process. It not only requires some initial planning, but also regular reviews of performance, your goals and any changes in your circumstances.
Can you be confident that you have all the answers, all of the time?
12. Get in touch
And what should you do on the 12th day of Christmas?
Go and recommend your friends to a financial planner who can help with all of these things!
We’re Chartered planners and we can help you to enjoy the lifestyle you want, now and in the future. Email email@example.com or call us on 01189 876655.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Your pension income could also be affected the interest rates at the time you take your benefits. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.