If you’ve been following my blogs you’ll know about my penchant for headwear; my role as Financial Advisor entails me, in effect, wearing three hats. There’s my lifestyle planner hat, my financial planner hat and finally my financial advisor hat.
Last time we looked at how it’s important to really think about what lifestyle you hope to achieve and to a certain extent why you want to achieve it. From my point of view, this stage is almost entirely about listening.
Once we’ve set some outline goals we can begin to look at your income and assets and start to do some financial planning. This is where I change into my financial planner hat.
People often think that they need to have a substantial income before it’s worth planning for the future. This then brings up the question as to what is a‘substantial’ income and there isn’t an answer to this. It doesn’t really matter what your income is, you’ll always be better off by planning rather than not. In addition, most people’s incomes increase as they get older so setting in motion plans at an early stage is an excellent discipline.
As an example, take someone in their early twenties, recently graduated, returned back home and doing their first job. This might be the first time they’ve had a decent income so there will be a strong temptation to spend it all! However, if we’ve decided that they aspire to owning a home then it’s easy to see that saving a little every month is a sensible idea. If they begin to save right at the very beginning then they will never miss the money. Something like an ISA will provide a tax efficient way to save; the monthly amount needed need not be much and it’s tax free as opposed to a standard savings account in a bank.
Later in life, many people have acquired assets; these could be the equity in their own home or a house they’ve inherited, pensions, shares or investments whether inherited or otherwise. It’s not unusual to inherit a property from your parents. If you do, what should you do with it? A good starting point for answering that question would be to look at the work we did when I had my lifestyle planner hat on (link).
Maybe your children are approaching university age? Would it be a good idea to sell the property to release cash to help them through university or would it be better for them to use a student loan and then for you to use some of the cash from the property sale to fund a deposit for their first house? Another idea would be to sell the property and buy another one in the town where your child is studying. You could rent the house to them, which they fund by subletting to their friends whilst at the same time utilising the cheap student loans available. There are many, many options but steering your way through the decisions will always be clearer when you have a plan.
Regular saving, buying or selling property, releasing equity, selling investments or making investments all use financial vehicles of some sort. There are literally thousands of options and choices and keeping up to date with them all, along with keeping abreast of relevant legislation is a full time job. This is where I need my next hat.
Advising clients on the best places to put their money means I need to wear my financial advisors hat.