How to be your own personal finance adviser

• Alex Hartley
• 25th February, 2016
• Money & Finance

A financial advisor provides advice and guidance on how to keep your finances in check and the best ways to make the most of the income that you have to achieve your future goals. Of course, if you want the help of a financial advisor then you’re going to have to pay for it, as this kind of assistance doesn’t come for free. For most of us, paying for a financial advisor simply isn’t good sense but that doesn’t mean you can’t introduce this kind of guidance into your life. Change your mindset, get money smart and there’s no reason why you can’t be your own financial advisor – here’s how.

Getting on top of pensions

One of the first steps a financial advisor would most likely direct you to take is to make sure that you have enough set aside for a comfortable retirement. Make sure that you’re up to date with National Insurance Contributions that will entitle you to a state pension – if you’re an employee then this is automatically deducted from wages but if you’re self-employed you need to make these payments yourself. Most employers now offer access to a workplace pension – and, if they don’t then they will soon have to. You don’t have to join your workplace pension but it’s worth looking into the benefits it offers (in particular, that your employer pays in too) and how this compares to a private pension.

Setting financial goals

An initial meeting with a financial advisor would involve a full audit of your current financial situation and – most importantly – your goals. These are the key questions:

• How much is your monthly income?
• What are your outgoings?
• Are you budgeting successfully/living within your means?
• How much ‘extra’ do you have every month?
• Do you have debt you want to pay off?
• Are you planning to save for something significant? (such as buying a home?)
• What do you want from your finances in the next 2/5/10 years?

The idea behind these questions is to work out where you currently are in terms of your financial needs and where you want to get to over the next few years. Setting financial goals is not just a great way to focus your mind on what you want to achieve with your money but it also means you have to work out a realistic route to get from here to there.

Investing your cash

For most of us, choosing and managing huge investment portfolios is something that we are unlikely to need a financial advisor for, as we have more limited means that we want to use more tangibly, for example buying a property. However, it’s still worth looking into ways you could invest the spare income that you do have to help it grow. For example, buy-to-let properties continue to be a good investment, despite loss of tax breaks for landlords, as rents are forecast to rise fast over the next couple of years. Low risk bonds (such as government gilts) are worth looking into as a way to dip your toe into investing, or you might want to put spare money into something like crowd funding an innovative startup that could offer rich returns if successful. If you want to start ‘real’ investing – putting cash into stock market shares, for example – then a financial advisor would usually recommend that you have cash in the bank to cover you for at least six months first. And remember, there’s no such thing as a risk free investment.

Working through tax

It’s no secret that HMRC doesn’t exactly make it easy for those of us without years of accounting experience to understand what the UK tax regime requires of us. However, it’s key for making the most of your money to be able to understand tax planning so that you don’t have to pay an advisor to do it for you. Take a little time to look at your annual return so that you understand what you’re being taxed on and how you can reduce your annual bill. There are some common pitfalls that compromise most of us when it comes to our taxes – avoid these and you’re well on your way to being a top financial advisor to yourself:

1. Not using tax efficient savings – such as ISAs, which are tax-free.
2. Inheritance tax – this significant tax is 40% on anything over £325,000 in your estate when you die. There are numerous ways to help ease this burden, for example by making use of the annual give away allowance, making gifts out of income, using tax exempt spouse transfers and setting up a trust.
3. Capital gains tax – gains on assets sold that have increased in value. Make sure you know what your annual allowance is (£11,100) and which assets are capital gains tax free (for example, a property that is your main home).

This is general guidance only and if you want precise advice and/or have complex financial affairs or significant assets/income then you may wish to get advice from a fully qualified financial adviser. Solution Loans cannot provide advice as we do not have full details of your personal circumstances.