No one finds talking about money easy but sometimes talking something out is the only way to get it sorted, and with Talk Money Week upon us 7IM believes there is no better time to get talking.
Talk Money Week is a UK wide initiative to encourage people of all ages, financial experience and wealth to talk about their finances. Michael Martin, Private Client Manager at 7IM, says that there is no better time to start talking about money than the present, and being honest and open about your finances can lead to discovering solutions to any potential future issues.
“Talking about your personal finances can be difficult at the best of times, but it can make a real difference to peoples’ lives.
“Albeit everyone has different circumstances, people go through the same life stages, and talking about money could be the first step to future-proofing your finances.”
Below, Martin gives his seven top tips to help UK savers get their finances into shape now, and into the future.
1. It’s never too early to start planning for your retirement
“Pensions and long-term savings are often easily dismissed – they can be shrouded by jargon and there are of course so many other things competing for your money. But when it comes to pensions it’s never too late to start.
“Since the introduction of the pension freedoms in 2015, the onus is now more than ever on the individual to ensure their own financial security in retirement.
“The best thing you can do is to start saving early and have a plan in mind for when it comes to your retirement. This will not only give you the best opportunity of securing a safe financial future but means you can also take advantage of the power of compounding returns, attractive tax breaks and additional contributions from employers via your workplace pension.”
2. Keep some cash for a rainy day
“Cash may not be king at the moment but it certainly still holds a position of power in the inner circle.
“As long as you keep to the fundamentals, holding cash for 1-2 years’ worth of expenditure, you will be able to ride the dips.
“Everything else is based on the same fundamentals; invest for the long term and diversify. When you have been through the markets of the ‘dot com boom’, Iraq wars, the Global Financial Crisis, and currently COVID-19, you know that every 6-7 years events like these come along. So this is nothing new.”
3. Diversify your tax risk
“Political uncertainty and a fluid tax system means that diversifying your tax risk is a good way to ensure that you won’t be caught out by any changes that may happen.
“While it’s impossible to be completely ‘future proofed’ you can try to be as robust as possible by making sure that you use all your allowances. That way, should one investment become tax inefficient, the others can compensate. Use pensions, your Capital Gains Allowance, ISA and dividend allowance. Other higher risk investment vehicles could also be Enterprise Investment Schemes and Venture Capital Trusts.
“The government does not give us many ways to save tax, so make sure you use as many as you can – you never know when they may be taken away!”
4. Be clever with wealth structuring and inheritance
“Most people are familiar with the seven-year gifting rule, which means that assets given to the next generation are not liable for Inheritance Tax (IHT) as long as the donor lives on for seven years; what you might not know is that even if the donor does not survive for seven years after the gift IHT can be still be reduced proportionately to the period of time that they did.
“There are complexities in this area, but gifting might be a good option as long as you take proper legal and tax advice – it is often a 14 year rule.”
5. Plan for your family’s future
“Giving money away at least seven years before you die is one way, and there are various types of trusts that you could set up for future generations.
“It’s also important to think about your will. Whilst clearly not the most cheery of subjects, making sure your will is up to date and done by a qualified adviser or solicitor, will ensure that everything will be quicker and easier to sort out after you’ve gone.”
6. Take advice for the big moments
“Whether it’s covering education costs or taking that first step onto the eye-wateringly expensive housing ladder, speaking to a professional can help you prepare for those big moments that matter.
“Of course, deciding when and if to take financial advice can be difficult but there are some key moments in life when doing so really makes sense; such as getting married or entering a civil partnership, receiving a windfall of money such as inheritance, or when it comes to your retirement.
“Throughout all these moments a professional financial planner is well equipped to analyse your situation, help plan your approach, and advise what’s best for you and your family.”
7. Stay flexible
“While having a clear financial plan in place is the best way to arm yourself to secure a robust financial future, it’s also important that those financial plans are flexible and that you don’t leave yourself dependent on one outcome.
“Diversifying your risk, be that tax or investment, and having a mix of both short and long-term savings should allow you to weather any storms and keep your financial plans on track. Having the proper advice to implement this flexibility to cover unforeseen costs or market downturns can still allow you to protect your finances and achieve the lifestyle you want.”