Most of us are time poor. We are busy focusing on day-to-day activities, growing businesses or developing careers, and rarely take time to do a health check on our finances. In a world where life coaches and personal fitness trainers are becoming the norm do we spend the same time on our finances?
These days few people have a job for life with a clear retirement date on the horizon. The trend toward more self-employed, consultancy or contract work means that people are facing greater variability in their income and no longer have a clearly defined pension provided for them. Control is with the individual and not their employer to financially secure their future.
As assets become more complex, people can often lose control or sight of what they have and where they are financially. Having a good understanding of why you are making investment decisions as well as an investment timeline is really important. Clients can often get caught up in the accumulation stage and don’t focus on the future. But it is important to ask: When should I liquidate? Can I simply my finances? Do I have enough to support my lifestyle and goals? What is enough?
Below are ten simple tips to ensure you are taking control over your finances.
1. Have clear goals. Each individual will have different short-term and long-term priorities and goals. Some prioritise building wealth for the next generation, others feel providing a good education is enough. Some people plan to buy a holiday home, others are looking to build wealth for an early retirement. Whatever the ambition, it is worth taking time out to think about what you are aiming to achieve. Spending time thinking of your goals and assessing your priorities can drive more focused financial decisions.
2. Check your retirement pot. It is important to assess your current financial status and what you are entitled to. Gather up old statements and ensure you have everything to hand and in order with the right contact details. Have you worked overseas? Often we forget that we may have accumulated either private or state pensions while working abroad.
3. Assess your needs. Do you know where your money goes? Typically people can account for the big outgoings like mortgages, childcare and education, but the question is often where does the rest get spent? Run a quick check over the last 6-12 months to fully account for how you spent your money.
4. Manage your assets. Throughout life we accumulate both passive and business assets. In many cases we don’t know the real value of either or if they are even appropriate for our needs. Over the course of time we can often acquire passive assets through inheritance or find ourselves holding on to assets that we were unable to sell for whatever reason. When will we sell? Are we managing them effectively? Are we holding them efficiently?
Often people can be concerned about creating a tax liability if they change how they hold assets. However, it is worth reviewing if you are maximising your allowances or if there is a way to reduce your tax position. Do you have losses you can use? Are these the right type of assets to hold directly? Individuals can use a range of structures from companies and pensions through to more complex strictures like family partnerships, depending on the nature of the assets and what they intend to do with them. Taking time to sit with your private client advisor and work out your goal for each asset can be invaluable.
5. Control your debt. Debt is a part of everyday life – from personal mortgages and investment property loans to personal and credit card debt. Interest rates can vary significantly as can the tax breaks available. We would recommend reviewing your debt, understanding the detail around repayment dates and the loan terms to better determine which debt should be paid off first. It’s not always as simple as the ones with the higher interest rates or those that do not have a tax break – it is important to understand the net benefit. Also, if you have invested with others, it is always good to review how the debt is structured and understand fully what your liabilities are.
Releasing security is also important. In setting up the loan you may be required to give additional security. Check if this is still required or are better terms available. Have loan to value ratios improved? Managing debt efficiently leads to better returns on assets and stronger cashflow without changing your personal spending.
6. Plan for future outgoings. It is important to have a clear understanding of your future outgoings and how you manage them. For example, large costs like private school or university education need to be considered. Even ‘free’ university education comes at a price, especially if your children are going to live out of the home. Often grandparents want to assist and it can be most efficient to use gifts like the small gift allowance where you can receive €3,000 tax free each year by way of gift from an individual.
Looking at the other end of the spectrum, the cost of providing nursing home or long-term home care, either for yourself or a loved one, can be expensive. There are efficient ways of managing this cost through claiming tax relief at your marginal tax rate. Working out a plan on how this is funded with your private client advisor, can help minimise the financial strain.
7. Have an exit plan. Whether retiring as an employee or exiting your own business, having an exit plan is important. Will it be a complete exit or will you continue in a director or advisory role? We work with business owners to put an exit strategy in place through our Business Value Builder Programme to help them maximise the sale price of their business. Our tax specialists also advise on the various Capital Gains Tax (CGT) and Capital Acquisitions Tax (CAT) breaks available. Careful planning three to five years out can ensure you maximise the options and value available.
8. Make a will. Being prepared and having a will in place gives you peace of mind that your estate will pass according to your wishes. Having a will also enables to fully utilise of all the tax reliefs available. It is important to understand the jurisdiction of your assets, if they are overseas, even if it’s a holiday home that you feel is not worth much, having a will in the appropriate jurisdiction can avoid unnecessary delays in dealing with your estate.
In the case of incapacity due to illness, having a living will or an enduring power of attorney enables you to put in place a power of attorney that will let nominated people act on your behalf should you not be capable of managing your own affairs. This is hugely important, particularly where there are business assets, property, etc. Without it you may be forced to liquidate assets at inappropriate times and value may be lost.
9. Put a succession plan in place. Having a plan for how your business will be passed on in your lifetime or on your death is critical to prudent financial planning. Who will replace you? Do you have the correct insurances in place? Will you pass the business on to family or key employees? Will you liquidate assets?
10. Develop a strategy and keep control. Assess and reassess your goals. Keep a clear strategy. Run the numbers and check your cashflow, or even better get someone independent to check your cashflow and ensure you are on track. Have a target date to be financially independent. Don’t be afraid to change your goals as life presents new opportunities and challenges. Set some time aside each year to check you are on track – it is time well spent.