6 steps to good financial planning

pension reforms - 7 things to know

Savings

MoneyPlus Features Team

8th June 2015 at 1:34pm

Good financial planning

Markets can become more volatile and an unsettled period could impact any decisions on whether you should invest right now or put those thoughts to one side, influencing your financial planning.

No matter what happens, life goes on and the principles of sound financial planning don’t change.

If you’re in your early 20s, you could be in your first job and saving for a deposit on a flat. Hitting your 40s, your focus might be on building your life savings, supporting your growing family and university fees. About to retire? You may want to holiday more while making sure you have enough left to live on comfortably and leave your family an inheritance.

But whatever age and life stage you’re at, making the most of your finances makes sense. Here’s our top six tips.

1. Save early

The sooner you start, the better the chance of building up a decent pot of savings. Find a place for them which gives a decent rate of return – it can make a big difference over time – and is tax efficient.

Saving for children or grandchildren? Junior ISAs and Child Trust Funds are two options that can help build into a sizeable sum by the time they are 18. That could fund their gap year or university place.

Our six ways to save for a child’s future blog has more ideas.

2. Budget for what you can afford

Do you know where all your money goes? Is your budget realistic? Can you save on the things you have to pay such as utilities, shopping and the mortgage?

Martin Lewis at MoneySavingExpert.com has this advice: “Budgeting isn’t just a way of calculating your expenditure; it’s also a way of controlling it. One of the ways to do this is to start living with a philosophy that says ‘what can I afford to do?’ rather than ‘how can I do what I want for less?’”

3. Take control of your finances

Keeping an eye on your bank account, savings, investments and mortgage online gives you control. Make the most of apps to check and manage your money – Which? magazine has a useful video guide on what to look for here

Standard Life has a new iPhone app that can help you do this.

4. Honesty matters

According to research1 carried out by YouGov for Standard Life, almost half of us admit to fibbing when it comes to what we earn, save or spend; and our partner is the person we are most likely to fib to.

Does it matter?

As Julie Hutchison, Family Finance Expert, writes in her regular blog: “I’d say it does. The first step to a positive financial future is to be more honest about money, particularly with your partner. It’s hard for any couple to build a future together based on financial fibs and the likelihood is that you are not being honest with yourself either. It could cost you in the long run, if the result is over-spending and under-saving.”

5. Be tax smart about savings

If you’re one of the six in ten UK adults who have a pension2 give yourself a pat on the back for choosing flexible, tax-efficient savings which give 20% tax relief. You’ll know that putting £2,880 into a pension in one tax year means you’ll get it topped up to £3,600.

If you’re a higher-rate taxpayer with an income tax rate of 40% or 45% you can claim the additional 20% or 25% tax relief on your self-assessment tax return.

Almost half of us admit to fibbing when it comes to what we earn, save or spendMany pensions can now be inherited free of tax, depending on whether the pension holder is under or over 75 when they die, with pension wealth passed down the generations more easily and outside of inheritance tax. Of course, pensions are long-term savings, and their value can go up and down over time, but their tax efficiency isn’t in doubt. Read more about pension tax relief here.

ISAs have also had a bit of a makeover, with the annual allowance up to £15,240 for the 2015-2016 tax year. Interest earned is free of tax and you can choose a Cash ISA or a Stocks and Shares ISA, or a mix of both.

New rules mean they’re better on the inheritance front too. The surviving spouse or civil partner of an ISA holder who dies can inherit the value of their ISA on top of their own, regardless of who inherits the actual funds.

Whether an ISA or a pension is more suitable for your savings depends on your circumstances, and particularly when you want to access your money. Our Pensions v ISAs: a comparison blog, goes into more detail.

6. Take control of your legacy

Half of us have Wills in place2 and can leave what we want to the people who matter most.

However it’s important to know that your Will doesn’t normally control who inherits your pension.

Your pension company usually makes the final decision, with reference to a Beneficiary Nomination form indicating your wishes. It’s vital to fill out this form and keep it up to date so it can be taken into account. It’s possible to do this online for some pensions, or you can request a form from your pension company.

So, while no-one can predict what the markets will do, what we do know is sound financial planning steps can give your finances a better outcome.

1 ‘Spending and saving in 2015’ survey, research carried out by YouGov for Standard Life, 2014

2 unbiased.co.uk research conducted by Opinium, September 2013

Share your thoughts

Join the conversation and follow us on twitter @StandardLifeUK and Facebook.

The information in this blog or any response to comments should not be regarded as financial advice. A Stocks and Shares ISA and a personal pension are investments. Their value can go up or down and may be worth less than you paid in. Laws and tax rules may change in the future. The information here is based on our understanding in April 2015. Your personal circumstances also have an impact on tax treatment.