Financial planning may help you reduce the tax due on the sale of your business
What you need to know about your defined benefit pension
The 3 common ways a pension could be split during a divorce
2 crucial steps you may take to prepare for financial shocks
10 LIFE MILESTONES THAT FINANCIAL ADVICE COULD HELP YOU NAVIGATE
Financial advice can add value to your life. It could help you grow your wealth and improve your overall wellbeing.
A long-term study from the International Longevity Center suggests working with a financial planner could help you get more out of your assets.
The study assessed how the assets of people that received professional financial advice between 2001 and 2007 changed by 2012/14. It discovered, on average, those who took advice saw a total wealth boost of more than £47,000, including a significant increase of £31,000 to pension wealth.
In fact, when compared to people that did not take advice, “non-affluent” people working with a financial adviser benefited from a 35% uplift in their wealth. For “affluent” individuals it was 24%.
£47,000
The average person who took financial advice benefited from a wealth boost of
35%
Compared to those who didn’t take advice, advised “non-affluent” individuals saw an uplift in their wealth of
The research indicates financial planning could boost your wealth over the medium and long term.
What’s more, a separate survey suggests the nonfinancial benefits of seeking advice could be just as valuable. A report in Professional Adviser states 54% of people seek financial advice for their peace of mind.
Having a bespoke financial plan that’s aligned with your goals and considers your concerns could help you feel more confident about your finances.
FINANCIAL ADVICE COULD HELP YOU DURING KEY MILESTONES
While financial advice may be valuable throughout your life, it might be particularly useful during milestone events where the decisions you make could affect your long-term finances.
Specialist, tailored advice could help you navigate changes to your finances or life in a way that reflects your goals.
Among the scenarios where financial advice could be beneficial are when:
- You’ve secured a promotion or a new job – page 4
- You want to prepare for unexpected shocks – page 6
- You’re getting married or expecting a child– page 9
- You’re going through a divorce – page 14
- You’ve received a lump sum – page 17
- You’re preparing to sell your business – page 20
- You want to understand how to secure the retirement you want – page 22
- You’re nearing your retirement date – page 24
- You want to lend financial support to loved ones – page 27
- You’re thinking about your estate plan – page 30
Read on to find out what financial challenges you could face in these scenarios, and how effective financial planning could help.
1. YOU’VE SECURED A PROMOTION OR A NEW JOB
Changes to your regular income could present the perfect opportunity to review your finances and get the most out of your money now and in the future.
As your income increases, whether through promotion or a new job, reviewing your finances could help ensure your plan continues to reflect your financial circumstances.
This is a step you may take several times during your working life. In fact, according to Zippia, the average Brit will have 12 jobs during their lifetime and, hopefully, there will be pay rises and promotions along the way too.
Zippia also found the average salary increase when changing jobs is 14.8%. So, as your career progresses, your salary could rise sharply.
When reviewing your finances, it may be a good idea to consider both the short and long term.
REVIEWING YOUR SHORT-TERM BUDGET
When your income increases, you may see fewer reasons to budget. After all, if you have more than enough to cover essential expenses, you may not need to watch your outgoings as closely.
However, it can be easy for your everyday expenses to rise without you being aware – this is commonly called “lifestyle creep”.
Perhaps you’re more likely to treat yourself when you’re shopping? Or you’re more generous when you’re buying gifts for loved ones?
Your expenses increasing isn’t necessarily a bad thing. Improving your lifestyle and having more financial freedom are common reasons to seek promotions or switch jobs. Yet, it’s important to evaluate if these expenses are making you happy or contributing to other goals.
Research from Aegon found only 1 in 5 people are very aware of the day-to-day experiences that give them joy and purpose in life.
Being more conscious of how you use your money could mean you make choices that reflect what brings you happiness.
That doesn’t mean you have to reduce discretionary spending – splurging on a meal with family or friends could make you happy. It’s about deciding how to use your money to create the life you want.
As well as reflecting on what’s important to you now, reviewing your budget could help you take steps to secure a future you’re looking forward to.
Could workplace benefits help your money go further?
When you’re weighing up how to make your money go further, it’s worth reviewing if your workplace offers any benefits that could help.
For example, salary sacrifice schemes could provide a way to reduce your tax bill now. Or your employer may match your pension contributions and, if so, increasing the amount you’re paying into your pension could deliver significant long-term benefits.
Checking your employee handbook or speaking to your workplace’s human resources department may identify potential benefits that are useful.
Remember, an attractive perk isn’t automatically right for you. You should consider if it fits into your wider plan before you proceed.
SETTING YOUR LONG-TERM GOALS
The decisions you make about your money now could have a long-lasting effect. While you may focus on the present, setting long-term goals could secure the future you want.
Whether you want to buy property in the next five years or are looking forward to a retirement in several decades where you travel the world, planning is essential.
Yet, the Aegon report found only 18% of people have a plan to achieve long-term goals, and this affects their financial decisions.
People that have a firm picture of their desired future are more likely to build emergency savings, manage debt more effectively, and be homeowners.
Source: Aegon
Creating a financial plan could mean you’re more resilient to unexpected shocks and are more likely to reach your goals.
As your income increases, there may be steps you can take towards your aspirations. Depending on your goals, this may include:
- Increasing your pension contributions so you could retire sooner or have greater financial freedom when you give up work
- Boosting your investment portfolio to grow your wealth over the long term, which you may want to use to retire, leave as an inheritance, or support other goals
- Setting money aside that you could use to lend a helping hand to your children in the future, such as paying for university or a deposit to get on the property ladder
- Overpaying your mortgage so you can become mortgage-free sooner and have more disposable income later.
Reviewing your finances when your salary increases provides an opportunity to understand how you could use the additional income as a stepping stone to larger goals.
Financial planning may help you balance short-term spending with long-term goals when your income changes. It could mean you’re able to get more out of your money and identify how to use it to boost your overall wellbeing.
2. YOU WANT TO PREPARE FOR UNEXPECTED SHOCKS
The unexpected happens. While you can’t prevent unforeseen circumstances, you may take steps to improve your financial resilience so you’re in a better position to weather shocks.
A financial shock is an unexpected event that might harm your finances. For example, it could be an accident that means you need to take time off work, or if you have to replace your home’s roof due to a leak.
While a financial shock can occur at any point in your life, it’s common to start thinking about the effect it could have when your circumstances change.
Common triggers for considering your financial resilience include:
- Taking out a mortgage
- Getting married
- Having children
- Switching jobs.
A financial shock may have an immediate effect on your finances. In the case of needing to take time off work, your income may stop. It could mean you face pressure meeting your essential outgoings.
Additionally, it could affect your long-term financial security. You might dip into savings to cover costs or stop contributing to your pension.
DO YOU THINK “IT’LL NEVER HAPPEN TO ME”?
- Losing your job can place significant pressure on your short-term finances. It may also affect long-term plans. Economic uncertainty means 3 in 10 employers are likely to make redundancies in 2023 and 2024, according to Acas research.
- Thinking about serious illness can be difficult. As well as the effect it has on your health and wellbeing, you may need to take time away from work to recover. Government figures show 8% of employees have experienced a long-term sickness absence lasting four weeks or more.
It’s often factors outside of your control that cause a financial shock. While you can’t prevent them from happening, you can change how prepared you are and how you respond.
2 CRUCIAL STEPS YOU MAY TAKE TO PREPARE FOR FINANCIAL SHOCKS
1 Create an emergency fund
As the name suggests, an emergency fund is a pot of money you can draw on when you face unexpected expenses. From repairing the boiler to covering your mortgage payments if you’re not working, an emergency fund could provide a valuable safety net.
Yet, despite its importance, research suggests it’s something many people don’t have. According to HSBC, 1 in 6 UK adults have no savings. This could place them in a vulnerable position financially if they experience a shock.
How much you should hold in your emergency fund will depend on your budget and the other steps you’ve taken to boost your financial resilience. A general rule is to have enough money to cover between three and six months of essential outgoings.
You want your emergency fund to be readily accessible when you need it, so a cash account often makes sense. However, that doesn’t mean you shouldn’t look for ways to get the most out of your money.
Interest rates are higher than they have been in more than a decade. Shopping around could mean you find an account that’s right for you and offers a higher interest rate so your savings may grow at a faster pace.
2. Assess if financial protection could be right for you
- If you needed to stop work due to an illness or an accident, income protection could provide you with a regular income. It would continue to pay out until you return to work, retire, or the term ends.
- Being diagnosed with an illness could affect both short- and long-term finances. Critical illness cover would pay out a lump sum if you were diagnosed with an illness that’s covered under your policy terms.
- Term life insurance would pay out a lump sum to your loved ones if you passed away during the term. It could be useful if your family relies on your income by providing them with financial security. You could also choose whole-of-life insurance, which would pay out on death at any time.
An Aegon report suggests almost 7 in 10 people don’t have life insurance, critical cover, or income protection to fall back on.
You would need to pay regular premiums to maintain your cover. The cost of premiums will depend on a range of factors, from the potential payout to your age.
While the cost of premiums is something you need to consider, you should also weigh up how comprehensive the protection is. Sometimes, spending more could mean you have greater security.
5 of the Biggest Financial Protection Myths Busted
“Financial protection doesn’t pay out”
It’s a common misconception that if you make a financial protection claim, it won’t pay out. However, statistics from the Association of British Insurers shows financial protection policies paid out a total of £6.85 billion in 2022. What’s more, insurers accepted 98% of claims.
“I wouldn’t benefit from financial protection”
While no one wants to have to make a financial protection claim, the unexpected does happen. For example, the NHS states 1 in 2 people will develop some form of cancer during their lifetime. Taking out appropriate financial protection could help you prepare for the unforeseen.
“Financial protection is too expensive”
The cost of financial protection varies, but it may be cheaper than you think. A range of factors, from your age and health to the level of cover you want, will affect your premiums. The cost may differ between providers too, so shopping around could be worthwhile.
“I already have enough protection through work”
Your employer may provide you with some protection. For example, they may offer an enhanced sick pay policy that would mean you receive an income if you were too ill to work. Workplace perks may affect what financial protection is right for you, but there might still be gaps – how long would you receive sick pay for?
“I have a pre-existing condition so I can’t take out financial protection”
Pre-existing conditions could mean it’s more difficult to take out financial protection, but there are specialist providers. You may also take out protection that excludes pre-existing conditions.
As financial planners, we could help you identify potential gaps and risks in
your finances. We could also explain what steps you may take to improve your
resilience and provide peace of mind.
3. You're Getting Married or Expecting a child
Whether you’re planning a wedding or preparing to become a parent, changes to your family can be an exciting time. Yet, they can also raise new financial questions and challenges.
Taking a new step in your relationship could lead to important money conversations and decisions.
Whether you’re moving in with your partner, planning a wedding, or preparing for another relationship milestone, it could affect your finances too.
While important, discussions about money can be fraught. In fact, according to a survey from Royal London, money is the number one issue that couples argue about.
62%
of people say they have argued about money
24%
of people in a relationship consider their partner to be irresponsible with money
33%
of couples say they’re financially incompatible with their partner
1 in 3 people say they keep financial secrets from their partner, including hidings savings and debt
Source: Royal London
You and your partner may have very different attitudes to money or goals that can be difficult to navigate. It can be frustrating and lead to issues within your relationship. So, finding a way to bring your finances together could be essential for the health of your relationship.
Working with a financial planner as a couple could help you both get on the same page when it comes to finances.
Having a frank conversation about your assets, income, and what you want to achieve over the long term could help you work towards shared goals effectively. It may mean your dream of retiring early or setting up your own business is more likely to become a reality.
5 useful tips for talking about money with your partner
- Make money part of ongoing conversations rather than a topic you discuss every now and again. This can help you both feel included in financial decisions. Transparency about your finances could prevent potential issues escalating into arguments.
- It’s not just the figures that are important – so is understanding each other’s values. So, when you’re reviewing money, as well as looking at your income and outgoings, consider what your shared financial priorities are.
- Don’t be afraid to tackle the “big” money topics. Agreeing on areas like your household budget is essential, but talking about how much you need to save for retirement or what would happen if one of you faced a serious illness, are vital for long-term plans.
- Keep your finances organised. Knowing where all your paperwork is and what each asset is earmarked for can make your finances clearer and minimise potential conflicts.
- Work with a financial planner when you’re discussing money. This could be useful for two key reasons. First, your financial reviews provide the perfect opportunity to sit and talk about your finances and goals. Second, having a professional on hand to explain areas like tax efficiency or investment risk could prevent miscommunication.
Planning as a couple could your tax bill
Working towards goals together isn’t the only benefit of creating a financial plan with your partner. It could also present an opportunity to use allowances more effectively to cut your combined tax bill.
Many tax allowances are for individuals. Both you and your partner could use tax breaks, such as the:
- ISA annual allowance
- Pension Annual Allowance
- Annual exemption for Capital Gains Tax (CGT)
- Dividend Allowance.
For example, CGT is a tax you pay on the profit of certain assets when you dispose of them. For 2023/24, the annual exemption means you can make a profit of up to £6,000 before CGT is due – the allowance will fall to £3,000 in 2024/25.
As you can pass on assets to your spouse or civil partner without being liable for CGT, careful planning could allow you to make use of both of your annual exemptions. It’s a step that could reduce your overall tax liability as a couple.
The Marriage Allowance could cut your Income Tax bill
If you’re married or in a civil partnership, you could use the Marriage Allowance to reduce how much Income Tax you pay.
The Personal Allowance is the amount you can earn before Income Tax is due. In 2023/24, it is £12,570. If you or your partner doesn’t exceed this threshold, the lower earner may be able to pass on some of the unused allowance.
You can pass on £1,260 of your Personal Allowance, which could reduce your combined Income Tax bill by up to £252 a year.
To benefit from the Marriage Allowance, the person with the higher income must be a basic-rate taxpayer.
Getting your finances in order could provide peace of mind as a new parent
Preparing to welcome a child is an exciting time, but it’s also a milestone that could substantially change your finances.
It’s likely that a new baby will alter your day-today outgoings and could affect your income too. So, reviewing your budget now could mean you feel comfortable with your finances.
Changes to your household budget may affect long-term plans as well. For instance, could childcare costs mean you have less to contribute to your pension or investments in the future?
A financial review may help you stay on track for other life goals you have.
According to research, the cost of raising a child from birth to 18 in the UK is more than £200,000 – or £938 a month.
Source: LV=
Starting a nest egg could provide your child with more more opportunities
If you’re welcoming a new child, your thoughts might be focused on sleepless nights or the milestones that are to come. But thinking further ahead and creating a nest egg could be valuable.
You might have thought about your child’s education, and perhaps plan to send them to private school.
According to the Institute for Fiscal Studies, the average private school fee across the UK in 2022/23 was £15,200. Over 13 years of compulsory education, that adds up to a huge £197,600. Once you add in extracurricular activities or boarding options, the final figure could be much higher.
- Learn to drive and buy their first car
- Attend university
- Get on the property ladder
- Travel the world.
There are many different options when you want to create a nest egg, including a Junior ISA (JISA).
Like their adult counterparts, a JISA is a taxefficient way to save or invest. In 2023/24, the JISA allowance is £9,000.
One thing to keep in mind is that you usually cannot make withdrawals from a JISA before the child is 18. Once your child turns 18, they will have access to the savings and can use the money how they wish.
When your family is growing, creating or updating your financial plan to reflect new longterm goals or concerns you may have could ensure your financial decisions continue to reflect your changing needs.
Life insurance v family income benefit
Expecting a child is a common trigger for considering financial protection, and it could provide financial security if the worst should happen.
Both life insurance and family income benefit would pay out if you passed away during the term. However, how they do so is different, and it’s worth weighing up which might be right for your family.
Life insurance would pay out a lump sum, which your family could use how they like. For example, they may pay outstanding mortgage debt, school fees, or cover everyday living expenses.
In contrast, family income benefit would pay a regular income for a set period.
While family income benefit is less flexible, it could be a valuable option if your family would be overwhelmed or struggle to manage a lump sum payment. A regular income might provide greater peace of mind for some.
You can read more about the benefits of financial protection, and how it could create security on page 7.
Working with a financial planner could provide you and your partner with an opportunity to discuss topics that may be difficult or complex. By creating a financial
plan together, you can work towards shared goals and other milestones in the future.
