Our ...November Newsletter 2011
We are very pleased to be participating in Financial Planning Week 2012, the national consumer awareness campaign which starts today and runs until 27th November.
The campaign aims to provide useful information and tools to help consumers improve their financial fitness.
We have created a comprehensive set of hints and tips especially for our newsletter readers to help you with your own financial planning arrangements. It is a common misconception that financial planning is only for the wealthy. In reality, financial planning will help all of us achieve financial independence regardless of how much or how little we have.
In this issue:
- 10 steps to successful financial planning
- Latest mortgage trends
- Top 5 budgeting tips
- 5 ways to start reducing your debt
- Have you taken precautions?
- A Cappuccino, a Latte or…. critical illness cover?
- Exclusive offer for our readers
- Tips for efficient saving and investing
No 1. Be honest with yourself
The right products and investments can make a world of difference to your financial situation – but a portfolio of unsuitable products can at the very least, be expensive – and at worst, could prove disastrous.
Therefore, before you embark on any financial strategy, take some time to really consider what your circumstances are and where you would like to be. If you want to achieve long-term financial success, it is very important to be realistic and make sure you set objectives and consider the risks you can take (or cannot take) in light of your situation.
No 2. Ask yourself some questions
There are a number of questions you need to know the answer to before you start making any financial decision. These include:
What are your core values and where do you want to be? What can you sacrifice?
What do you need to protect? What liabilities do you have – and who relies on you for their income or well being?
What would you leave behind if something happened?
What risks are you realistically willing and able to take with your money?
Do you need income from a financial plan or just growth for the future?
And how long can you keep your money invested before you will need it?
No 3. Consider all eventualities
When considering your financial plan, you should take time to consider not only what you want to happen, but also what might happen whether you like it or not! If you are planning to retire soon, start a family, take a career break or to change your home, this is likely to affect the strategy that you choose.
You also need to think about who depends on you and might suffer were you no longer around. Planning can help make sure you and your family are well equipped to deal with all eventualities.
No 4. Be smart
Benjamin Franklin’s belief that “by failing to prepare, you are preparing to fail” might be something of a cliché in the twenty-first century, but it is worth thinking about before you begin the financial planning process.
Your objectives should be clear and SMART. This is business speak for making sure you areSpecific about what you are trying to achieve, can Measure the success (or failure) to keep your plans on track, keep them both Attainable and Realistic given your own circumstances, and that in the end, you will see something Tangible (this could mean a gain or a loss) in return for the work you have put in.
No 5. Consider your priorities
You may have many different goals and objectives. However, trying to achieve everything at the same time could take you off track and leave you actually achieving nothing at all.
Instead, consider which of your goals are most important. For example, if you have a young family, protecting your children against the fallout from losing your income might take precedence over longer term plans for retirement – at least until they are older.
No 6. Be flexible
It is impossible to know what the future holds; your life, your job and the financial markets in which you invest are all affected by events beyond your control. Be it an accident, an inheritance, extreme weather conditions or simply the ups and downs of markets, any one of these can throw you off course, even if that effect is only temporary.
It is therefore vital to ensure you have your priorities straight and take a long term view so that, if anything does happen unexpectedly, you have both the flexibility in your plans and clear vision of your objectives to get you through.
No 7. Be prepared for compromise
In any relationship or family, there is always a degree of compromise. If you like to take risks but your partner prefers a bit of safety, you need to agree a broader investment plan and it is important to be open with those who rely on you and make sure they will be looked after should something unexpected ever happen.
No 8. Write down your goals
It is always best to be clear about both your financial and non-financial objectives and to make sure they are realistic. One good way to help this – and to remember what you are trying to achieve – is to write those objectives down.
This action will help you to clarify your thought processes and keep your plans on track. It also allows you to revisit them at regular intervals and make sure that they both continue to make sense and allow you to adapt them if and when your circumstances change.
No 9. Set milestones and target dates
It is important to review your financial objectives at regular intervals, mostly to ensure they stay on track. By setting your ultimate target date at the outset, you get a realistic timescale against which you can make decisions about how to allocate your money and achieve your objectives.
However, you also need to set interim review dates – milestones – which will enable you to check up on the performance or costs of your different selections and ensure your money continues to work for you in the most effective way possible. It will also allow you to make changes quickly if any aspect of your plan under performs.
No 10. Be realistic about your liabilities
It is vital to be realistic about your liabilities. If you have debts outstanding, then you may save more money by paying them off (and thereby saving yourself high interest payments) than you could make from an investment. You should also make sure you have a readily available ‘emergency fund’ for unexpected outgoings.
Putting these foundations in place first allows you the freedom to make the right investment choices and give your family the financial future you desire.
House prices have barely changed over the course of 2011 and with the bank rate held at 0.5% yet again and some experts predicting interest rates will remain at this level until 2014, we asked Mat Clamp our mortgage expert, about the trends he’s noticing in the current mortgage climate.
What is the ideal amount for a deposit these days?
10% is the minimum but 15% would get you a much lower rate.
How can a parent help their child get on the property ladder?
There are a couple of options. Parents can act as guarantor for their child and there are specific guarantor mortgages available with a 10% deposit.
Alternatively they could choose to remortgage their home to give their child equity and it is possible with some lenders for a parent to go on the mortgage as a joint applicant.
What trends you are seeing with the type of mortgages currently available?
Fixed rates are definitely more popular as interest rates cannot go down much more and particularly as the trackers are priced very close to the fixed rates at the moment.
Any spectacularly good deals around at the moment?
NatWest are currently offering a 2.45% rate for 2 years fixed, on a 50% loan to value re-mortgage basis. The fee is £499 which includes free legal costs.
How does existing debt affect what you can borrow?
This varies from lender to lender as each has its own affordability calculator. It is still possible for some people to get up to 5 times their income with the right credit score and level of deposit. Monthly loan commitments are always taken into account if there is more than 6 months remaining.
What type of client are you most able to help save money?
I would say all clients have the potential to save money, whether that is a review of their mortgage or their insurances. It is usually best if they are not tied into a mortgage with a penalty but I have managed to save people money even if they are tied in as interest rates are so low at the moment.
Want to know how much you could borrow? Try this useful online mortgage calculator
1. Keep a record that clearly shows your monthly income and expenditure. Spread as many bills as you can over the year to keep your expenditure as even as possible and reduce the number of months where your expenses increase dramatically. However, be sure to check that you are not charged punishingly high rates of interest to do so.
2. Write down what you spend for one full month. Be sure to include absolutely everything eg: newspapers and magazines, lunches, food, entertainment, etc. Only by doing this will you be able to calculate how much your day to day living is actually costing you. You’ll be amazed at how much money you waste.
3. Be disciplined, don’t be tempted by store cards and offers to pay later, to buy things you don’t need. Make your plans on exactly what you do need and stick to them. It would be a good idea to destroy your existing store cards. You can always re-apply in the future.
4. Identify areas of expenditure with a high cost and plan for them by setting aside money each month into a separate savings account – e.g. holidays, cars, Christmas etc. By setting up a direct debit you won’t be tempted to ‘forget’ to transfer the money.
5. Avoid debt other than for planned big budget items like houses or cars. Aim to live within your means at all times. Where debt is unavoidable, make sure you shop around and get the best terms you can, draw up a debt repayment plan and make sure you pay it off as quickly as possible.
Here’s an online budget planner that we like: interactive budget planner.
1. Treat yourself. By promising to reward yourself if you reach your debt reduction goal, you are more likely to follow through. Make it more formal by writing it down and keep it handy so that you can regularly refer to it.
2. Be clear about how much you owe, the rate of interest you are being charged on each debt and exactly how you are currently spending your money. See our Budgeting section for information on tracking your incomings and outgoings. This will help ensure you create a debt-reduction plan that is realistic and achievable.
3. Remember the 3 P’s – Plan, Prioritise, and be Patient. You may prefer to start paying off your largest or highest-interest-rate debts first or you may opt to pay off the smaller ones in their entirety whilst gradually tackling the large ones. Either way, you will need to be focused, methodical and patient. By sticking to your plan and keeping in mind your end goal, you will succeed.
4. Be resourceful and don’t be afraid to ask for help. There are financial advisers who specialise in budgeting and debt and there are debt support groups you could join. The The Consumer Credit Counseling Service has an online facility called Debt Remedy which offers free tailored advice from expert debt counselors and other helpful organisations include the National Debt Line and Citizens Advice Bureau.
5. Track your spending habits and cut back where necessary. Give yourself a weekly or monthly maximum for spending and if you share your plans with a family member or trusted friend, you will feel more accountable and more likely to stay on course.
Should you be worried about what you owe? Find out by taking this Interactive Debt Test.
Creating a financial plan is a great starting point, and if things go well then all well and good, but what if the unexpected happens…
What if you die unexpectedly? What effect will this have on your family/dependents?
Equally, what if you become ill and can’t work?
Here are some important considerations for ensuring you have addressed your own protection needs adequately:
1. Firstly, find out what provision you may be entitled to under the terms of your employment contract in the event of long term illness.
2. If you became seriously ill tomorrow and were unable to work, how long would your savings last?
3. Consider what you would leave behind in terms of financial liabilities, if something happened to you tomorrow.
4. Consider the effect to your family if your income was no longer there to support them. How much would they need in order to pay the bills and fund their everyday living expenses each month?
5. Ensure that any cover you do have in place is tax efficient and, where appropriate, written into Trust.
This is just a brief overview of the issues to consider, but if you would like assistance answering any of these questions, please contact us on 01926 651122 or email us at firstname.lastname@example.org.
As a nation we are drastically under insured. It may be that you have already considered the cost of protecting your family and income against death or illness but if you haven’t, it doesn’t need to cost as much as you think. In fact £40,000 of critical illness cover could cost no more than a few cups of coffee – convinced? If not, please click here.
In recognition of National Financial Planning Week we are offering an incentive to encourage our readers to address this important need. For a limited period only, on all life and critical illness policies taken out by Friday 9th December, we will return your first two premiums absolutely FREE.* This means you have 12 months of cover for the price of 10.
Please call us on 01926 651122 or email us at email@example.com and quote the reference code L2111. This offer will expire on 9th December 2011.
* This offer applies to critical illness and life insurance policies taken out before 09.12.11. Premiums will be refunded by cheque within 2 weeks of receipt of the first two month’s premiums.
Generally it is only once we have tackled other matters such as protection, debt management and addressed our income v expenditure budget that we can move on to saving and investing for the long term.
Last year the average UK household saved just £2.73 per day, or £996 over the year. This year these levels are likely to be even lower given the continuing economic problems and high unemployment.
Here are our tips for efficient saving and investing:
1. It’s never too early to start saving, even with the smallest amount, but getting into the habit is key. By setting up a direct debit to move funds into a savings account you can start small and gradually build up.
2. Make best use of tax efficient savings including your annual ISA allowances and pension contributions.
3. Make best use of personal allowances and, where possible, look at placing money in the name of your partner if they are a basic rate tax payer, in order to reduce your overall tax liability.
4. Try to spread large deposits between institutions and remember that the first £85,000 of a saver’s assets are protected by the UK Government where their savings are with a UK bank, building society or credit union. For savers with larger amounts, spread your money around different organisations for maximum security.
5. If it looks too good to be true it probably is – there is no such thing as a low risk investment that will give consistently high returns. Risk and reward go hand in hand.
If you are satisfied that you have fully considered the above then you’re in good stead. However if you are concerned that any of the above areas have not been addressed properly, please give us a call and we will help you to make the most efficient use of your savings and investments and provide you with maximum benefit.
Please call us on 01926 651122 or email us at firstname.lastname@example.org.
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