The new year is a great time to review, organise and take control of your finances.
As the cost of living remains high and a general election looms, it’s more important than ever that you have robust financial plans in place to help you achieve your long-term goals.
Whatever your priority is, be it to fund a comfortable retirement or support the younger generations in your family, read on to discover five clever ways to improve your financial planning in 2024.
5 tips for boosting your financial planning
1. Review your savings
It may be tempting to put any extra cash into a savings account and forget about it, especially with the relatively high interest rates savers have benefited from in 2023.
According to figures published by Moneyfacts the current (January 2024) best possible rate on an easy access savings account is 5.05%.
However, with savings interest rates forecast to stay higher for longer, it’s worth reviewing your savings regularly and shopping around for the best rate. Leaving your cash sitting in the same account long term could mean that you miss out on opportunities to boost your savings by taking advantage of higher interest rates.
Check your savings interest rate
If the interest you earn on savings exceeds your Personal Savings Allowance (PSA) you could be liable to pay Income Tax on it.
The PSA for basic-rate taxpayers in the 2023/24 tax year is ÂŁ1,000 and for higher-rate taxpayers ÂŁ500. Additional-rate taxpayers do not have a PSA and will be charged tax on all the savings interest they make.
Make the most of your annual ISA allowance
Using your full annual ISA allowance might help you to save in a more tax-efficient way. For the 2023/24 tax year, you can pay up to ÂŁ20,000 into ISAs without paying any Income Tax or Capital Gains Tax on your interest or returns.
You could also help younger family members start saving by setting them up with a Junior ISA, which has an annual allowance of ÂŁ9,000.
2. Consider investing for the long term
Keeping an emergency fund offers peace of mind. As a general rule of thumb, having enough to cover three to six months’ worth of essential outgoings could provide a useful financial buffer. This might allow you to cover unexpected costs without feeling forced to sell your investments or borrow money.
However, interest on savings rarely beats inflation so over time your cash savings could diminish in real term value as inflation rises.
So, you might also want to consider investing some of your cash savings.
Investing in assets such as bonds, shares and funds offers the potential for better long-term returns than cash savings. And by diversifying your portfolio (investing in different types of assets), you could limit the potential negative impact of downturns in the market, as each asset class will perform differently at different times with some making gains while others fall in value.
By reinvesting your returns, you could also benefit from compounding, which may have a powerful impact on your savings over time.
Compound returns are the returns you make on both your initial investment and the profits you make. In the short term, compounding might seem to make little difference to the overall performance of your portfolio. However, when compound returns are added year after year, it could quickly snowball resulting in higher returns in the long term.
This graph demonstrates the potential benefits of investing over the long term.
Source: Nutmeg
3. Check your pension
Whether you’re already retired or planning for the future, paying attention to your pension and retirement savings could help you to achieve your financial goals.
Clearly, if you are up to date with your Intelligent Pensions reviews, you are likely to have discussed the following pension checks with your financial planner. If not, please get in touch.
Track down lost pensions
If you’ve moved between employers during your career, you might have multiple pension pots, which can be easy to lose track of.
You can track down lost pensions by contacting previous pension providers or employers. There’s also a free government tracing service that can provide you with the contact details for any companies you’ve had a pension plan with.
Calculate if you have “enough” retirement savings
Once you’ve located all your pensions, review how much you have in savings and calculate what level of income this could provide when you retire. Do you have enough to fund the retirement you want? Don’t forget to consider how long your retirement might last as well as what you’d like to do during this next stage of life.
If you think there may be a shortfall between your pension income and your retirement expectations, it might be worth considering increasing your pension contributions or delaying drawing your pension. This could enable you to take advantage of generous government tax relief while continuing to grow your pension pot.
Make plans to pass on your pension when you die
In most cases, your pension won’t be considered part of your estate for Inheritance Tax (IHT) purposes so nominating a beneficiary could be a tax-efficient way to pass on some of your wealth.
You can do this by completing an expression of wish form to stipulate who you’d like your pension to go to and in what proportions.
4. Manage your estate planning
An estate plan allows you to choose who will inherit your assets. It could also help you pass on your wealth in the most tax-efficient way while minimising the risk of disagreement between family members.
Review and amend your plans periodically
It’s important to review your plans periodically to ensure that they align with your wishes.
For example, if a new grandchild is born, you may wish to include them in your estate planning. Also, IHT laws can change, so keeping your plans up to date could ensure that your loved ones benefit from more of your wealth.
Consider a living inheritance
If you’re retired and have surplus income, you might want to consider a living inheritance. By gifting your children or grandchildren some of their inheritance during your lifetime, you could enjoy seeing them benefit from your wealth. You may also find that you’re able to offer financial support when they need it most, such as when buying their first home.
Furthermore, gifting could help to reduce the value of your estate for IHT purposes.
A financial planner can explain your IHT liabilities and help you make a tax-efficient estate plan that ensures more of your wealth is passed on to your family.
Plan for later-life care
You can also use an estate plan to set up arrangements for later-life care, to ensure that you have the future you want and that you have enough saved to cover the costs.
According to figures published by Which?, on average residential care cost between ÂŁ686 a week in the north-east of England and ÂŁ995 a week in the south-east in 2022/23.
Planning as early as possible could give you more time to save for later-life care and protect your loved ones from the worry and expense of making arrangements on your behalf.
Set up a Lasting Power of Attorney
A Lasting Power of Attorney (LPA) is a legal document that allows you to appoint one or more people to help you make decisions or to make decisions on your behalf if you become unable to do so.
Having an LPA could give you control over your future health and finances and reduce stress for loved ones at a difficult time.
Following the Powers of Attorney Act received Royal Assent in September 2023, changes are now underway to make the application process easier, quicker and more secure by moving it online. So, now is a great time to consider setting up an LPA.
5. Seek professional financial advice
If you’re uncertain about whether your retirement saving plans are on track, you’re unsure how to start estate planning or would like to find out more about investing for the long term, a financial planner can help.
A report from Royal London has revealed that regular professional financial advice could also improve your emotional wellbeing by increasing your confidence in managing money.
The new year is a perfect time to seek advice and take control of your finances.
Get in touch
If you’d like to know more about how we can help you plan your finances for the year ahead, please email us at hello@intelligentpensions.com or call 0800 077 8807.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment. The fund value may fluctuate and can go down, 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.
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.
The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.
