THERE is no doubt the last few years of disruption have impacted society on so many levels. One of the greatest issues facing most of the business sectors is that of finding employees. “People just don’t seem to want to work” is the general answer and it’s the answer across many sectors.
I’m not sure it’s as simple as that, but, given the extraordinary rise in the cost of living, the motivation to return to work will come sooner than later.
It has been put to me via a friend psychologist that the trauma of control being taken away over the last two years has paralysed many people from taking any action or creating plans. A “what’s the point” approach has led to people abandoning their goals or aspirations which could see their financial planning severely affected later.
Financial goals, (or goals generally) are key to helping us wake with purpose, so, let’s look at how to create a financial plan.
When you take back control, take that first step or movement, it’s an expression of hope, desire and control which gives you that great feeling of empowerment.
Start with creating the specific and measurable goals in relation to key financial areas.
What income do I need at retirement? Freezer money. What is that likely to be with inflation?
What are my medium term savings needs ie repaying a mortgage or money for school fees etc? Fridge money.
What are my short term savings needs for immediate access for emergencies? Larder money.
Make the goals as specific as possible and try visualising what that goal looks and feels like. That way you are more likely to achieve them and stay focussed on them.
‘Save for holiday money’ isn’t quite as inspiring as ‘£4,800 needed so I can feel the warm sand as I curl it between my toes with a fine glass of my fancy in my hand’.
A very important starter is awareness. It’s about writing down (or using an app such as Mint) what your expenditure is and where the wastage is. Metaphorically, there is no point turning your heating up full blast when there is poor insulation or window leaks. You need to start by looking at where the leaks are in your expenditure.
Contactless tapping has taken our relationship away from money. When we pop into town with £100 cash in our pockets and bump into some friends for a drink, there comes a point where we know there is just enough left in our pocket for a portion of chips or a taxi. The choice is clear.
This connection has been lost and awareness of where the ‘fritter money’ is going is vital.
Debt management is the next key step. Are you paying more than you need to for that debt?
With interest rates at low historic levels, I find it remarkable that people are still paying over 20 per cent on their credit cards. A £20,000 credit card might cost £4,000 per year in interest alone, assuming it is not one of the heftier organisations. £20,000, on a two-year fixed rate mortgage, is £388 per year. The interest saving in just over two years is £7,234. Over less than six years, the interest saving repays the capital in full.
So look at these debt plans to reduce the costs fully.
Look at the next drag – tax. Through taxes, we pay our way to grease the world to keep it spinning, but we should pay no more than we need to. When setting your goals, look at the drag that tax will have on those goals over time.
An example I used last week, showed how a tax inefficient investment over 25 years produced 39 per cent less than a tax efficient one. If you think of that in terms of time in a five-day week, that’s the equivalent of two days’ work for nothing.
Finally, work with an independent financial adviser. They are not as expensive as you might perceive. But work directly with one who can liaise with your solicitor and accountant. Between them, they will be able to save significant time and money to help you achieve your goals.
Peter McGahan is chief executive of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. If you have a financial question, call Darren McKeever on 028 6863 2692, email info@wwfp.net or visit wwfp.net
