Why Ignoring Your Finances Could Cost You Dearly

When was the last time you sat down with a professional and reviewed your finances?

Maybe you’ve reconsidered your plans for retirement?...Have you even thought about how much income you’ll need in retirement and at what age you’d like to retire?

Have your circumstances changed since you last reviewed your financial situation?

There’s never a better time for a financial review than now.

By putting it off until another day...

• The cost of preparing for your retirement will increase.

• The cost of life cover and / or Critical Illness Cover could increase, or the cover could even become unavailable if your health deteriorates in the meantime.

• Any savings or investments you plan to make will have less time to grow.

Have you made a start on your financial planning and feel that you're in a good place now that you've done so?...If so, how many of the following can you tick off your list?

1. Set up a pension

2. Set up life cover and Critical Illness Cover

3. Pay off debt, including your mortgage

Even if you can say 'yes' to all of the above, can you say that you've reviewed your plans within the last 12 months?

Give some thought to the following:

Pensions

You may think that because you've got a pension, you're sorted for retirement. Don't let the fact that you’ve set up a pension lull you into a false sense of security....When was the last time you reviewed that pension? Do you know what charges you’re paying? Do you know what funds your pension is invested in? And possibly more importantly, how much are you paying into that pension regularly? ... Are you on track to achieving your desired level of income when you retire?

Protection

When it comes to protection. Do you know how much cover you have in place and whether this is suitable for your family’s circumstances? Have your circumstances changed since you took the cover out? Does the term of the cover meet your needs i.e. does it provide cover over the full term of your mortgage, or does it cover you until your children will be financially independent, or until you retire (depending upon the purpose of the cover and your personal needs)?

Mortgage

Maybe you have focused on paying off debt and have managed to clear your mortgage in full, leaving you entirely debt free and able to enjoy your hard earned income. This is great and is what many of us strive towards, you may view it as a real accomplishment...maybe feeling that you can now relax and enjoy spending your spare income on luxuries, days out, hobbies etc. However, repayment of your mortgage should not come at the expense of your retirement provision - delaying paying into a pension will make it more expensive for you over the period that you do save for retirement, or significantly reduce the size of the ‘pot’ available to you at retirement.

The cost of delay...

For example, saving £100 per month from the age of 30 could provide you with a pot worth £141,745 by the time you reach 65 (assuming annual growth of 7% and plan charges of 1% per annum, source: unbiased.co.uk).

Delaying that £100 per month saving into a pension by just 5 years could result in a pot worth over £41,000 less at age 65, or delaying your £100 per month pension contribution by 10 years could see a staggering reduction of just under £72,000 on the size of your pot at retirement (all figures are based on an assumed annual growth rate of 7% and plan charges of 1% per annum, source: unbiased.co.uk).

Overpaying on Mortgage Vs. Saving into a Pension

With fixed interest rates on standard mortgages typically in the region of 1.97% pa to 3.62% pa (as at May 2020, source: moneyfacts.co.uk) and the average annual growth on a Mixed Asset (20% - 60% shares) Pension Fund being 6.8% over the past 10 years (source: FEAnalytics.com) it makes good financial sense to focus on putting money into a pension fund rather than overpaying on your mortgage (although obviously the repayment of debt should be considered a priority and you should always ensure you keep up the repayments on any loan / mortgage).

Everyone's personal circumstances will be different to another's, and everyone will have different goals in life. Financial planning can be a complex area, made simpler by having a Financial Adviser you can rely on.

How can a Financial Adviser help?

A Financial Adviser will assess your personal financial situation and discuss your objectives with you. They will then offer professional advice to help you achieve your goals.

This could involve helping you decide on how much you can afford to save or invest, how to make the most of what you have in place already, and reviewing any existing plans to ensure they remain suitable, that they are invested appropriately and that they will meet your objectives.

A Financial Adviser will help you create a plan, addressing your needs to put you on track to achieving what you want to achieve.

Please do get in touch if you'd like to review what you have in place already, or make a start on planning for your financial future.

Charlotte Owen