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While yesterday might have been the best day to start planning for your future, there’s no time quite like the present.
According to Claire Sweet, financial adviser at Blueprint Financial Solutions, starting now is “the key thing to do”.
This World Financial Planning Day (7 October), Sweet has advised people to be brave and dive into the perhaps murky world of their finances.
“I tell my clients that they need to know where they’re starting from – that’s the beginning part of any plan,” she says.
“People can get sucked into the shiny, exciting, ‘I want to put money in crypto,’ but they haven’t got their basics in order.”
In order to get ahead, here are five ways you can set your finances up for success.
1. Budget planning
“My biggest financial tip is to fill out a budget planner,” advises Sweet. “You should have some idea how much is in your bank account, what you spend on bills and how much you need to earn each month.”
The financial adviser believes many people miss out on growing their money because they don’t plan.
“Those on a low income tend to budget very tightly, while people in the middle, that’s most of us, who can pay their bills but juggle things, miss out on opportunities to grow their money, whether that’s in savings accounts, ISAs, pensions, or investments,” she says.
Sweet encourages her clients to do an asset and liabilities tracker using an Excel spreadsheet.
“Look at your numbers once a month or quarter,” she recommends. “Ask yourself – what have I got on the credit card or in loans? This means you won’t get caught out when things like a 0 per cent period ends.”
2. Finding a surplus
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“I look at spending as three categories – past, present, and future,” explains Sweet. “Past is your debt – it needs paying off and that payment has to be a commitment on the budget planner.”
She says that the budget planner will help identify any surplus money, and then you can decide what to do with it.
“The present spending is saving for a holiday or a new car in a couple of years’ time or your emergency fund. And the future is the money for your retirement or the big cruise,” explains Sweet.
The problem comes when there isn’t any surplus money and people have debt. In this instance, Sweet advises people to get creative.
“Go through your unwanted random bits and pieces and sell it on a secondhand app or do a boot sale,” suggests Sweet. “You’re selling your junk at a loss so it’s not taxable income.”
She adds: “We are the first generation of people, especially women, who have so many more opportunities. You don’t like your job? Negotiate your benefits package or change it.”
3. Open more accounts
“Church halls have barometer funds so that when you’re sitting at traffic lights, you see the progress they’re making towards their church roof,” says Sweet. “It’s motivating to see it growing.”
She believes it’s the same when you earmark funds and squirrel them away in lots of bank accounts.
“Most people have a bank account for bills and one for spending, or if you bank with Tide or Starling for instance, they give you different ‘pots’,” she says. “You should also have another pot for all the big things you pay for in chunks annually, such as holidays or Christmas presents,”
The financial adviser also recommends create a pot for enjoyment.
“Budget for how much you can spend on fun things – say 10% or 15% – and put that in a pot too so you don’t overspend,” advises Sweet.
Self-employed workers also need to save for pensions.
“People pay a minimum of 8 per cent into a workplace pension, so for a self-employed person who pays themselves £50,000 a year to avoid the higher rate tax – that means putting around £350 a month in a pension,” says Sweet.
4. Budget for fluctuating mortgage rates
“When my clients ring me up and say, ‘Oh, I’ve heard interest rates are going up next year,’ and I’m like, ‘Yeah, do you know what the lottery numbers are as well?’ laughs Sweet.
“We don’t actually know, but the fact that for a reasonable period of time, five-year fixed-rate mortgages are higher than two-year fixed-rate mortgages says to me they’re going to go up before they go down.
“We had 11 years where mortgage rates were bargain basement rates, but for decades, borrowing for your home has always been around the 4-6% mark across UK, Europe, Canada and the US.
“People say, ‘Oh well, I’m going to do a two-year and wait for rates to come back down.’ They’re going to be waiting a long time, so you need to budget for this.”
5. Seek professional advice about how inheritance tax changes might affect you
“The changes that are coming up with pensions being part of inheritance tax (IHT) was an inevitable loophole that had to be closed,” says Sweet.
“The key thing people have to do is be clear what sort of pension they’ve got and whether this will be affected by the changes in April 2027.”
In the tax year 2023 to 2024, 4.72 per cent of UK deaths resulted in an inheritance tax being paid, according to government statistics, but Sweet warns that it can sneak up on people, especially in the South East where property prices have increased.
“Chances are even a moderate-type pension is going to push them over their nil rate bands and be exposed to IHT,” says Sweet.
She believes it’s important to get professional advice. “This will bring a lot of unregulated advisors out of the woodwork with magic solutions to avoid IHT, so don’t get sucked into a Facebook scam,” she warns.
