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Is your financial health check overdue?

Joanna Faith
Written By:
Joanna Faith

To mark ‘Talk Money Talk Pensions Week’, which is taking place from 18-22 November, Jeannie Boyle reveals the key times in your life when a financial health check is a good idea. 

Money is a big worry for many people, but we are often loathed to speak about it. Yet checking in with your finances regularly can help keep you on track to achieving your financial goals.

Just like our physical health, there are sometimes signs or circumstances that remind us that a check-up is overdue. Here are five of the most common things that make people get on top of their finances. If they resonate with you, it might be an opportune time to check on your own financial health.

You’ve had a major life event

Getting married, buying a home, starting a family, changing job, or starting a business can change your life. Not only might your life goals have changed, but the demands on your money will have changed. You might need to spend more, or perhaps be able to save less. A professional adviser will be able to help you understand where you stand.

A change in circumstances might not always be so pleasant. A change in health might expose a vulnerability in your family income. Divorce might radically change your income, access to capital, and retirement planning. Death could affect any, or all, of these areas of our finances and indeed bring with it other issues around inheritance.

All of these events have major demands on our time and emotions. Engaging a professional to help with the money aspect can help focus our energies.

Your child is heading off into higher education

Higher education can be a life shaping experience. With current graduates from English universities graduating with an average debt of £50,000 the shaping could be further reaching than you anticipate. This could have an impact on both their and your personal finances for decades to come.

Starting independent life with debt is only part of the issue. The national average deposit needed to get on the property ladder is c£52,000 and if property prices continue to rise they might need more than £80,000 in ten years’ time. The amounts required in parts of London and the South East are significantly higher than this.

Starting to prepare early is essential. It helps provide funds when they are needed and also models prudent financial behaviour. One of the most popular ways to save for children is to open a Junior ISA. These are tax-free savings accounts that allow you to save up to £4,368 (2019/20 tax year) in a cash deposit or by investing in stocks and shares. There is no tax to pay whilst the money grows inside the JISA account and all withdrawals are tax free.

You have a poorly performing cash ISA

We often see poorly performing cash ISAs which could be transferred to a stocks & shares ISA. Inflation stood at 1.7% in September 2019, but even the best current one-year cash ISA rates are below this. So even though your cash ISA is rising in value, the prices of things you want to buy are climbing faster.

A prudently invested stocks & shares ISA has the potential to provide a higher level of tax free income, although you need to be happy with the additional risk that this presents. The value of investments can fall as well as rise in value so you could get back less than you invested.

You’re looking to retire in 10 years’ time

Ten years feels like a long way away, but the decisions you make about your finances now can have a big impact on your future. The earlier you act the gentler the course correction you might need to make. Leaving a review until too late can lead to painful financial consequences that could have been avoided.

Knowing and monitoring progress can be hard if your finances are fragmented. The number of different pension schemes people accumulate continues to increase. Bringing them together into one place can be more convenient and provide the potential for greater returns. Some older pensions have special benefits, so it’s worth taking time to check the detail before you act.

Once you know what you’ve got, it’s essential to keep on top of your pension investments and review them regularly. You can control your investment risk to a large extent by adjusting your risk profile. For example you might decide to move from an adventurous approach to cautious as you look to take risk off the table.

If you’re almost at the point of retirement then seeking advice is vital if you’re to make the most of the pension freedoms. For an increasing number of people their retirement income will mean more than just their pension.

You’ve accumulated a folder full of paperwork

Organising your documents can be a nightmare. Stuff gets tossed on the dining room table or in a spare drawer, where it remains unloved, unsorted and neglected. If you feel like you’re drowning in documents, chances are you hanging on to too much paperwork and this alone can be enough to put you off becoming more proactive with your personal finances.

There is always a danger that long-forgotten money will end up festering in a low-interest account or you misplace an important life insurance policy document. You may even be paying more in charges than you need to be across multiple policies.

Are your finances fit for purpose?

Understanding what you’ve got and how it fits into your long term plan can be challenging. A good place to start is to sit down with a qualified financial planner. With a few details from you about your financial situation and your goals, they can come up with an outline of what you need to consider over the coming years. 

Jeannie Boyle is director & chartered financial planner at EQ Investors