Are you ready to take on a financial workout?
According to fitness tracking app Strava, today is Quitters Day 1, the day when most of us wave goodbye to our New Year’s resolutions! But what if instead of feeling bad about ditching unrealistic resolutions, you made today the day you got your finances into shape?
Here is our financial workout plan, no lycra needed…
1. Realise the power of your money
At Holden & Partners we have been advising people on sustainable investments since the industry was in its infancy and it has come a long way in the last twenty years. There is one common misconception we hear time and again; that to take on a sustainable portfolio is to compromise on financial performance. Our own research and independent studies reveal the opposite to be true; a sustainable portfolio can outperform a more traditional set of investments. 2
The money you invest in your pension, and elsewhere, could be hard at work making a positive sustainable impact at the same time as building your wealth. Make My Money Matter have calculated that greening your pension is 21x more effective at reducing your carbon footprint than giving up flying, going veggie and switching energy provider combined. This is because pension funds typically invest money on our behalf, often into companies that do harm, supply chains that are unsustainable, and industries that accelerate climate change .
A financial advisor can give you impartial advice about the right approach for you about making a change. 3
2. Review (ahem, or create) your financial plan
When you have enough money to pay the bills and are living comfortably, it can be all too easy to get into a pattern of short term thinking and not to worry too much about the future, but having goals over the short, mid and long term can help to focus your mind on your prosperity over a wider time horizon.
For example – if you are already investing, are you happy with the way these investments are performing? Do you want to take on more or less risk? If you do not currently invest, could this be the time where you start to really think about the future and putting some money aside to work for you in the longer term?
Looking at your plan can also help to make sure that you are maximising your tax allowances and being efficient in how you save and invest.
3. Do a pension health check
Talking to an advisor about the current value of your pension pot(s) might be low on your list of priorities but it could be one of the most important conversations you have. Understanding now whether you are on track for the retirement that you envisage means that you can decide whether you might want to top up any shortfall to avoid uncertainty later on.
4. Address wills and Lasting Power of Attorney
If thinking about your pension is something you put off for another day, then maybe creating or reviewing your will and setting up Lasting Power of Attorney (LPA) are even further down the list, but sorting them out can give you peace of mind that you are looking after your loved ones, and that your assets are being used for the things that are important to you. It’s not something to leave until old age – everyone should think about this. We published a guide last year to look at the easy steps you can take to get them sorted – read on.
5. Get protected
In the same way, reviewing any protection for illness and death you have in place is also important. You may have arranged cover in the past, but does it still meet the needs of your family? As circumstances change over time it is a good idea to review your cover periodically to make sure it still serves its original purpose of protecting you and the ones you love.
6. Concentrate on compounding
If you are fortunate enough to be able to put aside a modest amount of money each month, it will add up over time. If you invest £100 a month and reinvest the original sum and interest each month, after 30 years, it could be worth nearly £75,000, rather than the £36,000 you would build up by leaving it in a low interest bank account. 4
7. Speak to your children about the importance of financial planning
It seems strange to us that financial planning is one of those things that still hasn’t made it onto the mainstream school curriculum. Having to navigate the complex world of mortgages, tax and pensions is something that doesn’t start to happen generally until young people join the working world.
If you remember being confused by financial systems and processes when you first started earning money, why not bring your children or grandchildren in on the steps you are taking, talk to them about why and how you are doing certain things with your money, and the importance of planning for the future. Any practical good habits they pick up from you now will stand them in good stead as they grow up.
Please note that any thresholds, allowances, percentage rates and tax legislation stated may change in the future. The content of this post is for your general information and use only; it is not intended to address your particular requirements. This communication should not be deemed to be, or constitute, advice. You should not take any action without having spoken with your usual adviser.
1 https://www.strava.com/challenges/2183?hl=en-GB
2 For example, since its launch in 2014, Holden & Partners’ Sustainable Balanced Portfolio has consistently outperformed the industry standard Investment Association Mixed Investment benchmark.
3 https://makemymoneymatter.co.uk/whats-the-issue/
4 Assumption – investment return 5%, costs of 0.5%