Every New Year starts with optimism and the hope that it will be better than last. Most people will also have made resolutions as the clock struck midnight on New Year’s Eve that are quite often linked to their health and wellbeing. Sadly, nearly 50% don’t get past the first month before the resolution is broken – don’t let this be you!
As we move further into 2018 it is still not too late to make a new resolution – this time linked to your financial health. Think of it as a ‘Well Man’ or ‘Well Woman’ check for your finances.
Here’s a quick guide for undertaking a simple and achievable review, irrespective of your income or outgoings. This approach should improve your overall financial health and give you a plan to stay out of the 50% that don’t stick to their resolutions.
Reviewing your savings and investments
The start point must be review your financial position using a simple summary sheet detailing your assets and liabilities, income and expenditure. It is amazing how many people don’t do this and how can you possibly know what needs attention if you don’t know what you have?
Given the recent Base Rate rise you should review your investments as different rates and ‘deals’ come on the market all the time – what was a cracking deal back in 2016 might not be the best now. Banks and other providers often rely on you doing nothing and pay you a paltry figure once any initial introductory period expires even though other ‘new’ accounts within their product range would pay higher but they conveniently do not tell you about these ones. The responsibly is all yours to get the best deal.
It’s also worth bearing in mind that fixed term products (e.g. notice accounts and short term bonds) will often pay higher rates compared with basic instant access accounts – just ensure you set a suitable diary note one month before expiry to check out what else is on offer.
Essential also that you maximise your tax allowances. The key to this is to make use of ISAs, your pension allowances and other tax efficient saving and investments.
Working with an independent financial planner who has access to the whole of market is a prudent move if only to give you peace of mind that your finances are in the right place or to highlight areas in which improvements could be made. You want to avoid any adviser who is a ‘tied agent’ as they can only advise on a select group of products – not great for you as you want to access the widest range possible.
Reviewing your personal borrowing
Whether it be your personal mortgage, credit cards or perhaps a loan taken out for a car, it is just as important you take stock of your borrowing position. Indeed, paying off borrowing or at least restructuring debt on a more tax efficient basis may be a good starting point. And with savings rates remaining low, there may be merits in concentrating on repaying credit card and higher rate personal loan borrowing rather than building up savings. It may be possible also to consolidate the higher cost credit card borrowings on to a loan with repayments spread over a convenient three or five year term.
Your house mortgage or ‘buy to let’ loan should also be reviewed on an annual basis and especially before expiry of any fixed rate periods. Again, banks often rely on inertia and you reverting to their standard (expensive….) variable rates. A mortgage is often the largest personal debt someone has so not reviewing it annually is madness – savings of £000’s per year at not uncommon. Again using a whole of market independent mortgage adviser will ensue you get the best advice and guidance.
Reviewing your business borrowing and banking
This is an area which is most often missed when undertaking a financial review. It is quite likely however that your practice/business loan is your largest outgoing and increasing bank account service charges a regular feature on your bank statements.
Firstly, speak with your bank manager about your bank charges. Ask if any free banking is available or find out how you could benefit from lower charges if you simply make a few changes to how you operate your bank account. For example, making greater use of online banking and minimising the cash you pay in are two very simple steps that could reduce costs.
If you have owned your practice for more than two years you should also now present a lower risk to the bank as your loan will have reduced and the value of your practice (hopefully) increased. If this is the case, you should push the bank for better terms and lower interest margin as in theory the risk to the bank should reflect the margin they charge.
You should also check if you are with the right bank. 14 of the high street banks are now actively lending to the veterinary profession with increasingly competitive terms being offered, so if your bank will not budge, then there are potentially 13 others who could consider better terms. Certain banks are also ideal for your first practice purchase, however their credit policy may be sadly lacking if you wish to expand and potentially acquire further practices. They could say ‘no’ to your expansion plans; however what they actually mean is you do not fit their credit criteria. Remember if this is the case, there are other banks and options open to you – key is to work with an Independent Business Adviser who can give you an unbiased and whole of market overview.
Finally, funding for equipment and refurbishments should be reviewed on a periodic basis to ensure you are receiving best terms and also to check they are structured in the most tax efficient manner.
Insurances & Wills
The vast choice of insurances (both personal and business related) can sometimes be confusing. Your personal life and practice structure will be constantly changing and you need to ensure you undertake an annual review to assess whether your existing policies remain competitive and ‘fit for purpose’. Very often life cover taken out in 2005 doesn’t quite meet the needs of a client in 2018 who now has a business, children and a higher level of earnings.
Will planning is a vital part of your financial health check. If you do not have a Will (unbelievably this is still nearly 50% of the population!) this should be your number one priority. You should also review your Will at least every two years in line with your ever changing personal life and business/practice structure to ensure your wishes would be fulfilled in the event of your untimely demise and also to ensure as little as possible ends up in the tax mans hands.
These are just a few suggestions to ensure 2018 is the year you ensure your finances are in the best possible shape and follow through with them and don’t end up in the 50% that give up on their resolutions!