Saving private finances
IN many variations, lockdown has been here, gone and back again. Mentally this is, of course, a drain on everyone, and for business and for households, it is almost impossible to plan.
The ability to plan gives us a sense of control in our lives that keeps us a bit closer to sanity.
The biggest threat to anyone’s financial planning however is that of apathy – to think that’s its all sorted and its fine.
Perhaps lockdown is a time to look closer at that and see what fine changes can be made to our finances. Here are some ideas and tips:
I presented on an online seminar last week and covered money, describing it as being as exciting as a cardboard licking competition.
Whilst it is just that, some of the simple changes could make a big difference to your aforementioned choices later in life.
First up was the cost of life cover. Whilst there are nearly 400 insurance companies in the UK (not all of which have a life insurance arm), it was staggering to see the difference in cost if I compared the first company to the bottom of the first page, ie number six. A straightforward policy to protect a 40 year old for a £300,000 life insurance was 33 per cent more expensive than the company in first place at £14.33 a month.
Consider therefore, if you are not using, or haven’t used an independent financial adviser (IFA) to assess how competitive your premiums are, how uncompetitive they may be. Remember, if you are paying more than you should, you could keep that premium the same and have the extra cover (33 per cent more) go to your family or business.
That is actually an easy task, and most IFAs would check that for free by running it through their system. If you have a plan in the cupboard, have it checked out.
If you own your own business or are employed and have life cover, one useful plan allows you to buy that cover more tax efficiently.
You are paid through PAYE and it passes through the filters of employee and employer national insurance, and then tax. You are left with the remains and you buy your life cover.
If, however, you have the firm pay it, the expense is tax deductible and is paid gross with a potential saving of up to 49 per cent from a tax perspective.
Moving on to income protection for accident sickness and disability. Comparing costs for a £1,666 per month protection plan, the difference was staggering. Remembering the reasons for using an IFA, the difference in cost between the most competitive premium (£37.68) and just number seven on the page, was an unbelievable 62 per cent.
There are many people who buy one policy from a bank, then another from another bank, and simply put them in the cupboard. This is a time to take them out and spring clean them, because hopefully in spring, you will be socializing instead.
Many pensions are taken out and then stored away with the old photos. I looked at the performance figures last week of the best global managed fund versus the worst over just 20 years with a £100,000 fund.
The worst had turned the sum into £94,640 and the best performer had achieved over £1m. Remembering both investors start with the same investment, at retirement this level of difference makes its way into your pocket when creating an income.
If the policyholder took just 2 per cent as a drawdown income, one would earn £36.40 per week and the other £403 per week.
Finally, its mortgages. I compared the very best rates for a £100,000 loan and chose a two year fixed rate to compare.
Naturally, there are hundreds of options, but I stopped the page at option 140.
Cost for the cheapest option over two years was £3,160 and the cost for the most expensive was £13,910.
There were many in between but you can see here why calling an IFA and asking them to assess the competitiveness of your plans is essential.
Peter McGahan is chief executive officer of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. If you would like a complimentary assessment of your plans, call Darren McKeever on 028 6863 2692, email firstname.lastname@example.org or visit www.wwfp.net.