Our ...November Newsletter 2013
Today is the start of Financial Planning Week 2013, the national consumer awareness campaign, organised by the Institute of Financial Planning to provide useful information, tips and tools for consumers to help them improve their financial “fitness”.
We’d like to share with you 3 articles that we’ve written specifically for this week and we hope you find them useful.
In this issue:
Although we’ve limited each set of tips to 5, the lists are not exhaustive and if you’d like further information or assistance please do get in touch.
You’ve probably heard it many times before – the average Briton isn’t saving enough to be able to afford a comfortable retirement – however a recent report by the Independent on Sunday put it sharply into context. In order to retire on the equivalent of today’s minimum wage (approximately £12,000) you would need to have a pension pot of just over £220,000.
Given that most of us would expect to live on more than the minimum wage, it’s time to take a reality check on your current pension arrangements. Increasing your contributions doesn’t have to be difficult and here are 5 steps you can take today that will help to boost the income you receive during retirement.
1. Check your current pension position
Once you know where you stand you can start to plan ahead. Add up your total pension pot as it stands today and using an online pension calculator, work out how much income this would provide you in retirement. There are plenty of online calculators available, but one of our favourites is on the excellent Money Advice Service website
If you have several different pensions it may be worth consolidating them. As well as making it easier to manage your retirement funds, a larger pot will give you access to a wider range of investment products and it’s highly likely that you’ll benefit from lower management charges too. A word of caution though: always take professional advice before taking action as some pensions may invoke penalty charges if you move them, and others, eg final salary schemes, may be better left as they are.
3. Take advantage of free money
If your employer has a contribution matching policy then whatever you contribute could effectively be doubled. Your employer will probably have a cap on the amount they will contribute but in any case this is a helpful extra that will help your pension grow.
4. Use Salary Sacrifice
Some employers offer salary sacrifice where you can agree to ‘sacrifice’ part of your salary which gets paid straight into your pension as additional contributions. Given that your cash salary amounts will be lower, your employer will end up paying lower NI (National Insurance) contributions and may pass some or all of this saving on to you and you will also save some personal NI contributions too, further boosting your contribution levels.
5. Increase your cash contributions
It’s not always easy to find spare cash on a regular basis or to forego luxuries, but if you are about to pay off a loan or end a regular subscription, you could start paying the monthly amount into your pension instead. Alternatively, each time you receive a salary increase, try diverting a percentage of the additional funds into your pension before you get used to having the extra cash.
The stark reality is that we have to take responsibility for funding our own retirement and this boils down to 3 choices: start saving earlier, pay higher contributions or delay retirement.
Financial planning isn’t just about building an impressive investment portfolio or maximising your savings account. It’s also about managing your money sensibly to make it work harder for you and to avoid expensive pitfalls. So here are 5 easy ways to help you get more out of your money:
1. Prioritise your debt and pay off expensive debt first.
Credit cards and other high interest loans can cost you 10 or 20 times more in interest charges, than you would earn if you put the same sum into a savings account. You could be better off clearing your credit card bill(s) in full each month and any spare cash left over can then be paid into your savings account. Better still, if you have no spare cash after clearing your credit card bills, re-visit your monthly spending and identify ways to reduce this on a regular basis.
2. Use your full ISA allowance each Tax Year.
The current allowance is £11,520 per person with a cash element of up to £5760 and the balance as a stocks and shares ISA. This is tax free and many people have built up impressive savings over the years simply by maximising their annual ISA allowance.
3. Increase your pension contributions.
The Government provides a number of incentives to encourage us to save for retirement including salary sacrifice and tax benefits. For example, if you are a basic rate tax payer you receive 20% tax relief on your personal contributions (i.e. £20 for every £80 that you contribute). Further suggestions can be found in our previous article, 5 steps to boost your pension.
4. Compare, compare, compare.
It can be very easy to let your annual household and motor insurances roll over automatically each year but it’s well worth investing a little time to compare deals with other suppliers as you could make some significant savings. The market place is very competitive with new deals appearing all the time, and the online price comparison sites have made the comparison process much easier.
5. Review your budget.
Your financial circumstances are likely to change from year to year so it’s worth reviewing your budget regularly to identify any areas for improvement. Making a list of all your outgoings and expenses will highlight expenditure on items that are no longer a necessity or that can be replaced with alternative, cheaper options. The key here though, is to be realistic rather than ruthless.
Let’s face it – budgeting can be boring. But today’s technology has completely revolutionised the way we control our finances and there’s a vast array of software tools and Apps to help you manage your budget at home or on the go.
Here are 5 budgeting tools that will certainly take the boring out of budgeting.
Free Online Budget Planner
The Money Advice Service website offers an easy to use, handy tool that will help you to ‘set the scene’, taking you through all areas of your income and expenditure to arrive at an overall monthly total. It also gives you a visual breakdown of your spending and sets out suggested next steps and tips for ongoing management of your budget.
Free Home Budget Calculator
This App will help you to record your monthly household expenses, track whether you’re overspending and by how much, identify potential areas where you can cut back and analyse your spending habits so you can see where your money goes. Available free from iTunes.
My Budget Book
For Android users this App provides all the standard money management and budget functions but with added features allowing you to set goals and limits for various accounts and criteria eg credit card spending. It offers a visual dashboard and a graphical overview to help you plan ahead for larger purchases. It costs approximately £2.30 and is easily configurable for UK settings.
A UK-based tool to rival the well established Mint.com, Money Dashboard is a free software tool that integrates with your online banking so you can get a real time picture of your finances all in one place. It tracks your income and outgoings and will indicate whether or not you will have a surplus at the end of the month, and using your past spending patterns helps you budget realistically for the future.
Many people will be wary of plugging their banking logins into a third party programme but according to the developers the tool uses the same, industry-standard security as many of the world’s leading banks and the software cannot be used for withdrawals, payments or transfers.
You Need A Budget
A complete personal finance programme that’s also available as an App for both iPhone and Android, You-Need-A-Budget was awarded a Best Buy from Which? Magazine who noted it was ‘head and shoulders above the rest for ease of use’. It costs approximately £40 with a 34 day free trial and the developers are clearly confident about their product as they don’t require you to enter your payment details until the free trial ends. Although a US product it is easily configured for UK settings.
NB: The above product information is shared in good faith as a guide only and is believed to be correct at the date hereof. The information is not offered as professional advice or as any specific recommendation.
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