Why wait to get your finances in order? Whether it’s making the most of tax allowances, protecting you and your loved ones in case the worst happens, or saving for the future, it’s never too soon to take control of your financial affairs.
Our guide has tips to make sure that you are one step ahead, so that you can be confident your hard earned money is also working hard for you.
Work out your worth
Working out your net worth is a key step to assessing your financial health and achieving your goals. Take a close look at your assets and liabilities to create a clear picture of where you are prioritising your current spending and saving, and where you may need to make changes to your habits.
Look for easy savings
There are lots of things you can do to save money without having to make cuts to your lifestyle. Search for promotional and discount codes for cheaper shopping, cancel any unused subscriptions, switch your utilities supplier, transfer your credit card balance or re-mortgage to a better product. There are plenty of small changes you can make that can bring big savings.
Have a savings buffer
We recommend having at least three months’ salary put aside in an easy to access account to cover emergencies. With interest rates being so low, make sure your money isn’t languishing in a zero interest account – shop around to find the best deal and move your money there to take advantage.
Grow your money
Once you have your savings in place, it’s worth looking at investing. Money invested will provide better long-term returns than money held in cash – but you need to be prepared to have your money invested for at least five years.
A good starting point for most investors is an Individual Savings Account (ISA) where you can invest up to £20,000 in this tax year and enjoy tax-free growth. Once the tax year ends on the 5th April, that year’s allowance is lost forever.
Review your investments
Investments left unattended can soon stray – and you can find yourself faced with poor performance or excessive costs. You may also be taking too much or too little risk with your money, depending upon your goals and how long you plan to invest for. You should check up on your investments at least once a year.
Set yourself up for retirement
It may still be some years away but it’s likely you’ve already got an eye on your retirement. It’s a perfect time to take stock, to check that you really are on course to retire when and how you want to. It’s also an opportune time to find out whether recent pension tax changes and the increase in the retirement age on the 2015 NHS Pension Scheme could disrupt your plans.
Beware the pensions tax trap
Pensions are a great way to put money aside for the future – benefiting from tax relief on what you pay in. As with ISAs they are subject to limits. The annual limit for many people is set at £40,000, but those with total taxable income (includes all taxable income, including your and your employer’s deemed pension contribution) over £150,000 lose £1 of their allowance for every £2 of income, down to a minimum allowance of just £10,000. You can also carry forward unused allowance from each of the previous 3 years if eligible.
Savers are also subject to a maximum lifetime limit of £1.05 million on total pension benefits without suffering a tax charge.
While the limits may sound generous it’s surprising just how many doctors fall foul of them. Review your position and if necessary take defensive action to avoid falling unwittingly into a tax trap.
Protect yourself and your family
Make sure you have the right type and level of insurance to protect you and your family, and you aren’t paying more for it than you need to. Understand what you need the cover for, for example, to cover the mortgage or to make sure your family are looked after in the event of critical illness or death. Ensure that the cover you have is appropriate – you don’t want your loved ones to be left with a debt they can’t manage.
Pass it on
2017 saw important changes to inheritance tax (IHT) with the introduction of a new main residence nil rate band (RNRB) which could potentially give you a total individual nil rate band of £450,000 before IHT is payable, or a combined nil rate band of £900,000 this tax year. The RNRB will increase by £25,000 in each of the next 2 tax years. If you’re worried that your estate value puts you in IHT territory – it’s time for an IHT plan.
Consider making gifts for IHT purposes. For exempt gifts, the annual limit is £3,000 plus as many £250 gifts to separate individuals as you wish to make. There is also a £3,000 allowance for the previous tax year if you did not use it in the last year, but you must use the current year’s allowance first.
If you have children, why not put money aside for their future. Pensions and ISAs both offer tax-efficient ways to save – depending on when you want your child to have the cash.
Double the opportunity
All of these tips apply to your spouse or partner as well, so you can both make savings and prepare for the future, making sure that your household has the strongest possible financial foundations.
Content correct at time of writing and is intended for general information only and should not be construed as advice.