Financial Planning for Residents of Cranleigh
Welcome As a business based in Cranleigh since 1994, we have written this guide for local residents to help raise some important financial planning questions for discussion. In this guide we have covered seven of the most important areas of financial planning you should be thinking about. Here at Informed Choice, we work with individuals, trustees and business owners to help them to build, manage and protect their wealth. We have been providing independent financial advice to clients in Cranleigh for sixteen years. If anything within this guide prompts a question, please do get in touch and I will be happy to answer any questions you might have. We offer a first meeting at our expense and with no obligation, to help you to understand your financial goals and objectives. This first meeting is also a great opportunity for you to ask us lots of questions about our experience, qualifications and proposition. You can call me on 01483 274566 or email email@example.com. Alternatively, you can visit our regularly updated website at www.icl -ifa.co.uk. We look forward to hearing from you soon.
Nick Nick Bamford APFS AIFP Chartered Financial Planner
Informed Choice Ltd Sundial House 20 High Street Cranleigh Surrey GU6 8AE First edition published in Great Britain 2010. ÂŠ Informed Choice Ltd 2010 The right of Nick Bamford to be identified as the author of this work has been asserted by him in accordance with the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this publication may be reproduced in any material form (including photocopying or storing in any medium by electronic means and whether or not transiently or incidentally to some other use of this publication) without the written permission of the copyright holder except in accordance with the provisions of the Copyright, Designs and Patents Act 1988. Applications for the copyright holderâ€™s written permission to reproduce any part of this publication should be addressed to the publishers. This publication is provided for general consideration only and the information contained herein is not to be acted upon without professional independent financial advice. Neither Informed Choice Ltd nor any author can accept responsibility for any loss occasioned to any person no matter howsoever caused or arising as a result of or in consequence of action taken or refrained from in reliance of the contents herein. Informed Choice Ltd is authorised and regulated by the Financial Services Authority.
Contents 1—Dealing with debt 2—Emergency funds 3—Protecting your family 4—Investing for the future 5—Retirement Planning 6—Estate Planning 7—Long Term Care 8—Your Action Plan
Dealing with debt Debt can be a drag on your ability to meet other financial objectives. Debt is often very expensive, it diverts financial resources away from planning for the future. There is a four step plan for dealing with debt. First, understanding your current position, secondly stopping making it worse, thirdly drawing up a plan of action and finally implementing that plan. Whilst it can sometimes be scary to get up to date figures and see the current position of your debts, it is always best to deal with debt head-on. Hiding those envelopes and not having a plan of action to repay debt is not good for you or your family. Once you have found out the current level of your debt, your repayments, term of the loan and rate of interest, put these figures onto a single sheet of paper and work out which of your debts (the one with the highest rate of interest) is best to repay first. Create a written plan of action and monitor your progress on at least a monthly basis.
Useful links: ď‚ˇ
Free debt advice from the Consumer Credit Counselling Service on 0800 138 1111 or at www.cccs.co.uk
Free debt advice from National Debtline on 0808 808 4000 or at www.nationaldebtline.co.uk.
Confidential and independent advice on debt and money management from Citizens Advice at www.citizensadvice.org.uk.
Emergency funds Once you have your debts under control, start building an emergency fund. This is one of the most valuable financial planning steps you can take. Most Financial Planners recommend that your emergency fund should be equivalent to between three and six months typical expenditure. For many people, this is a daunting target, so start gradually and build up to this level over time. An emergency fund should be in readily realisable cash assets; liquid enough for you to access in an emergency (such as a bank or building society account) but not so accessible that you are tempted to dip in to the cash too frequently. If you need to save for the short-term, keep that separate from your emergency fund. Emergency funds are important for dealing with unexpected emergencies without having to rely on expensive debt such as credit cards or a loan. One of the most common reasons for a financial emergency is the unexpected loss of a job, which makes the figure of three or six months expenditure look very sensible. By being able to draw on this emergency fund you create enough time to find a suitable replacement job without building up expensive debts.
Useful links: ď‚ˇ
Compare savings accounts at Moneyfacts at www.moneyfacts.co.uk.
Protecting your family Like most people, you probably rely on your income to pay for your lifestyle and support your family. It is essential to carry out a thorough review of your financial protection requirements. By considering the various risks to your finances, you can prioritise any action and put in place relevant financial protection policies. The most serious risk to family finances is death. When a family member who is a ‘bread winner’ dies, the seriousness of this tragedy can be compounded by a lack of financial resources to continue to support the family in the future. Life assurance can be a relatively low cost way of putting in place protection should you die. It can provide a lump sum or regular payments to fund your family’s lifestyle after you have gone. It can also be used to repay debts so your family do not have to continue repaying these. It is also important to consider financial protection in the event of you becoming ill, disabled, or having an accident or a critical illness. Income replacement insurance is a valuable type of financial protection that pays a tax-free benefit in the event of you being unable to work due to sickness or injury. Critical illness insurance typically pays a lump sum in the event that you are diagnosed with a specified critical illness during the policy term. These include heart attacks, cancer or a stroke, and many other conditions. Always check your employee benefits and through any existing financial policies you own in case you already have valuable financial protection cover in place and don’t need additional cover.
Investing for the future When you need to build financial assets to fund a longer-term goal, it is often preferable to invest rather than save. This means exposing your money to some risk with the aim of getting returns over and above those available from cash savings. Investing for the future requires decisions about asset allocation. Investment asset classes are the broad type of investments you might select. There are four main asset classesâ€”cash, fixed interest securities, company shares (equities) and property. Within each of these asset classes, it is possible to drill further down into sub-asset classes, such as UK Corporate Bonds within the fixed interest securities asset class or European equities within the equities asset class. Investing money is a trade off between risk and potential reward. The more risk you are prepared to take, the greater the potential for rewards. However, with more risk also comes greater volatility (the ups and downs in the value of your investments) and a greater potential for loss. When investing money it is essential to link your investments to your overall financial goals, carry out a detailed assessment of your attitude towards investment risk and regularly review your investments. We recommend that investors review their investments at least once a year. During this review, you should rebalance your asset allocation and replace underperforming or unsuitable investment funds.
Retirement planning Planning for retirement is regularly in the news these days. We are living longer and we must face up to the challenges posed by these demographic changes. Increased life expectancy can be translated quite simply into increased cost of providing pension income. Over the coming years we expect to see several changes to the State Pension system, with the minimum retirement age being increased to 66 for men and women by 2020, and then to 67 and 68 following that. The relatively low level of the State pension, at a proposed ÂŁ140 a week from 2015, means that making personal provision for your retirement is essential. Pension plans are usually considered to be a tax-efficient way to save for the future. Once you have accumulated pension plan assets, you need to think about how these are best invested to meet your financial objectives. When you reach your selected retirement age, there are important decisions to make about converting your pension fund into an income for the rest of your life. Many people choose to buy an annuity with their current pension plan provider. However, it is essential to shop around to get the best rate and take advice so you choose the right options. More flexible retirement income options should also be considered. People with larger pension funds or those with other sources of income might consider Unsecured Pension where the pension fund remains invested during retirement. Visit www.direct.gov.uk to request a free State Pension forecast and start planning your retirement today.
Estate planning Inheritance tax is paid on the value of your estate when you die. With many people in the Cranleigh area owning expensive property, the potential impact of inheritance tax is becoming an increasing concern for people who wish to preserve the maximum value for their children or other beneficiaries. When you die, a nil rate band is applied to the value of your estate and then inheritance tax is charged at 40% of the value of your taxable assets over and above this nil-rate band. For the 2010/11 tax year, the nil-rate band is £325,000. Any unused nil-rate band is transferable between spouses on death, and assets passed to a UK resident spouse on death are exempt from inheritance tax. It is possible to structure your estate ahead of your death to reduce the amount of inheritance tax you pay. For this reason, inheritance tax is often referred to as a ‘voluntary’ tax, although without proper estate planning in place it is anything but voluntary! Inheritance tax planning requires a balance between control over assets and the effectiveness of the strategy you implement. It is often possible to cancel out an inheritance tax liability entirely, if you are prepared to give up complete control and ownership of assets. Estate planning should always start with having a valid will written. This should be reviewed regularly and kept in a safe place. You should let people know where a copy of your will can be found, in the event of your death. Don’t make your own will! Seek advice from a solicitor.
Long term care The decision to place a parent or close relative in a care home is often emotionally challenging. The financial aspects can be confusing and create additional stress at a time when your mind is on other things. Long term care and the associated financial costs remain a big challenge for UK society. The current system is means and needs tested, with those who have assets exceeding ÂŁ23,250 having to pay their own costs. Below this level of assets, the local authority will usually take over the payment of part or all of your care fees, but will have discretion about where care is provided. Care fees planning requires professional independent financial advice from a suitably qualified and experienced individual. In addition to determining the most suitable way to fund care fees, you need to consider how to structure assets and which benefits you can claim. Some individuals can benefit from NHS Continuing Care and it is also possible to claim Attendance Allowance as a contribution towards care fees. Visit www.mycarefeesadviser.co.uk for valuable information about all aspects of care fees planning.
Your action plan The right course of action will vary depending on your personal and financial circumstances, your goals and objectives. The following is a suggested action plan based on the topics covered in this booklet:
Draw up a schedule of your debts, repayments and interest rates before working out a plan to repay these over a specific period of time.
Calculate the size of the emergency fund you need to accumulate and start saving.
Think through some scenarios to work out what financial protection you should put in place for your family.
Consider investing money for the future, but do this based on specific financial objectives and after understanding your attitude towards investment risk, reward and volatility.
Plan for your retirement so you do not have to rely on a State pension when you are older. Seek professional advice to understand your retirement income options.
Make a will and calculate the inheritance tax liability your children would face when you die, before deciding whether you want to take steps to reduce it.
Seek professional advice if you are faced with funding the cost of long term care.
Most importantly, arrange a meeting with an independent financial adviser at Informed Choice to discuss the issues most important to you and create a tailored plan of action.
The next step We hope that you have found this to be an interesting and informative booklet. Here at Informed Choice, we work with individuals, trustees and business owners to help them to build, manage and protect their wealth. We would welcome a conversation with you about your financial goals. The first meeting is at our expense and without obligation. Do drop us a line to request a new client welcome pack and book an appointment. You can call us on 01483 274566 or email firstname.lastname@example.org. We look forward to hearing from you soon.
Informed Choice Ltd Sundial House 20 High Street Cranleigh Surrey GU6 8AE Informed Choice Ltd is authorised and regulated by the Financial Services Authority.