5 things to think about when planning your finances

It’s probably fair to say that 2020 has left us all feeling just a little bit vulnerable. And with more uncertainty ahead, that feeling probably isn’t going to disappear any time soon.

So we thought it would be helpful to give you ‘5 things to think about’ when it comes to planning your finances. These are worthy of consideration, whether we’re in uncertain times or not.

1. Sorting our first pension

A pension is the perfect savings vehicle for retirement mainly because you can enjoy tax relief on your contributions. If you’re paying basic rate tax at 20%, then for every £80 you save into your pension, HMRC tops it up by £20, making it a great option for long-term saving for retirement. The sooner you start pension saving, the longer your money has to grow. 

Former pensions minister Ros Altmann said that when you do it right, with good advice, saving into a pension can be a golden opportunity to buy £50 notes for £20.

2. Setting up a savings plan for our children

If 2020 has reminded us of our own vulnerability, then of course providing for our children is a key concern.

Did you know that you can turn your child into a mini pensioner by opening a Children’s Stakeholder Pension in their name? Just like an adult pension, their pension fund attracts tax relief at 20%. Up to £2,880 a year can be paid in with the government contributing another 20% in tax relief which takes this up to a £3,600 limit. Then there’s the Junior ISA or ‘Jisa’. You can put up to £9,000 into a junior ISA in the 2020/21 tax year.

3. Making a will

A properly planned and up-to-date will ensures that your wealth passes on as you would want it to. If you have no will, then the law of intestacy is applied, which may not completely reflect your wishes.

But distributing wealth directly to your family is only the beginning of what your will can do: you can nominate executors to ensure your wishes are followed; you can appoint guardians for your children under 18; you can express your funeral wishes, or leave money to charity.

4. Life Insurance

‘You don’t take out life insurance because you’re going to die, you take it out because those you love are going to live.’

Life cover provides a lump sum to your family if you were to die unexpectedly. The amount of cover can be aligned to what they would need to maintain their current lifestyle – for example, you could be covered for the amount of your mortgage liability, your total monthly outgoings.

Or you can set this up as a monthly payment in the form of Family Income Benefit or FIB. FIB pays out a regular, tax-free monthly income, for whatever term you have agreed. FIB can be very handy for covering school or university fees, for instance.

5. Sickness Insurances

The insurances you take out in case you don’t die. Critical illness insurance (CI) pays out a tax-free lump sum if you’re diagnosed with a major illness like cancer or stroke. This money could be used to pay off your mortgage or cover any loss of earnings while you recuperate.

Income protection insurance (IPI) covers you if you are unable to work due to ill health. It’s perfect if you are self employed, as it gives you a ‘mini-salary’, usually equivalent to half of normal income, tax-free, for the term of your policy, and pays out alongside any other benefits you may receive. Careful here: advice should be taken when looking at IPI, as different policies have different definitions of ‘being unable to work’.

In fact advice should be taken when considering any of these five points, but of course we would say that.

At AAB Wealth we offer tailored financial planning designed to give you the right balance of support to suit your circumstances and to help you achieve your perfect financial future.

Contact us to find out more.

This article does not constitute financial advice, and should not form the basis for financial decisions, which should be taken only in consultation with a qualified financial adviser. The value of investments can fall as well as rise, and you may end up with less than you invested.