financial-checklist

Few of us will mourn the passing of 2020. The impact on health and wealth has been profound for so many. It’s tempting to sit tight and see how events pan out before making plans. But here’s a brief financial checklist of things you should consider sooner rather than later.

Use tax-efficient savings

You’d need to have saved a rather large amount of cash to exceed the Personal Savings Allowance for income tax. Any cash savings above that allowance should probably be in a cash ISA, or a LISA if you’re eligible. But if you have enough funds, you should also consider maximising your ISA allowance with a stocks and shares ISA. If you’re still earning, consider additional pension savings, but bear in mind your Lifetime Allowance.

Consider a one-off drawdown

If you’re still earning and paying into a pension plan then this is not for you. It might be for you if you have a paid-up pension plan, and your regular income for this financial year is less than the threshold for the 40% higher rate. It’s quite possible that the basic rate will be increased, or that the higher rate threshold may be reduced. Tax rises next financial year are widely expected. To mitigate against this risk, you could prepare to take a one-off drawdown to maximise your usage of the basic rate band this financial year. If you decide to do this, you should reinvest the proceeds, probably into a stocks and shares ISA.

Review pension plan beneficiaries

Your pension plans can help to reduce inheritance tax after you die. Make sure that you’ve nominated the right beneficiaries for your pension plans with your plan provider. Most pension plans fall outside your estate, so your will won’t cover the distribution of any proceeds.

Review your will

Have you made a will yet? If not, you really should unless you genuinely don’t care who inherits your estate. If you already have a will, review it to make sure that it’s still what you want.

Don’t over-spend or under-spend

There’s plenty of advice saying not to over-spend and under-save; if you do, you’re liable to deplete your retirement funds too soon. But under-spending and over-saving is a bad idea too; there’s no guarantee you’ll live long enough to enjoy your savings. Some spending is on essentials, but some is discretionary and under your control. Getting the balance right isn’t easy, but our unique calculator is especially designed to help with this.

Review expenses

You shouldn’t assume that your spending on ‘essentials’ is fixed. Sometimes inertia causes us to keep paying for things for which we have little use, or for which there are cheaper alternatives. For example, maybe you’re paying too much for energy, and should switch provider. Or maybe you’re paying an exorbitant extended warranty cover for your old TV, and should cancel it.

Review life insurance cover

How would your dependants cope financially were you to die tomorrow? The clue’s in the word “dependants”. If they depend on your income, then life insurance is a must. Your cover should roughly be for your future estimated earnings minus your future personal consumption, ignoring inflation. Following this rule, you may need to top up your life insurance every few years.

Your financial checklist for the long term

In the midst of turmoil, it’s too easy to think short term. A financial checklist isn’t something to do once and forget. Planning needs to be long term, and work for your whole life, before and after retirement. Having a long-term mindset will help you avoid making poor impulsive decisions, like panic selling in a falling market. For this you need a plan. A plan is not about which specific shares or funds to invest in. You’ll still need to decide things like that, but only after you have a plan, which is like a roadmap. Our Intelligent Financial Planning Calculator helps you not only find your roadmap, but lets you keep it up to date as things change.

And finally…

This is not the time to stress yourself out. The end of the year is not a deadline, but hopefully a new opportunity. We wish you peach and prosperity and Happy Holidays.

Financial Checklist For The End Of Year
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