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. So, as we enter February 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, which should improve your overall financial health and help you make more prudent financial decisions in the longer term.
Reviewing your savings and investments
The ideal starting point to review your financial position is to complete a simple summary sheet detailing your assets and liabilities, income and expenditure. It is amazing how many people do not do this!
You should also regularly review your investments as different rates and ‘deals’ come on the market all the time. By not reviewing them, you very often stand to lose money. In fact, many banks and other providers often rely on you doing nothing. They will 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. So keep on your toes and review regularly.
It’s also worth bearing in mind that fixed term products (eg 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.
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 so 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. Mortgage rates, products and lending criteria are changing all the time and there would be tangible benefits in working with a whole of market independent mortgage adviser for 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 loan is your largest outgoing and increasing bank 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. 12 of the high street banks are now actively lending to the profession with increasingly competitive terms being offered, so if your bank will not budge, then there are potentially 11 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.
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’.
Will planning is a vital part of your financial health check. If you do not have a Will (and I am still staggered at how many people do not) 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.