Incremental changes will do it

Todler walking

What are you still wanting to achieve in your life? As we move into the new year it is good to pause for a moment to think about what we might do differently this year. After all it was recognised by someone back in the 19th century that ‘The definition of insanity is doing the same thing over and over again and expecting different results.’

So before you rush into the usual round of tasks, meetings, hobbies and entertainment etc it would be good to take stock of a few areas where you could do something differently. You only need to make small adjustments to put yourself on a more successful path.

Taking my theme of journeying towards prosperity you might want to consider making incremental changes in respect of your general health and fitness, or your relationships, or your financial wellbeing, or you might have been neglecting the spiritual side of your nature. We could take our cue from the Apostle Paul who wrote ‘Therefore I do not run like someone running aimlessly; I do not fight like a boxer beating the air.’ Covid has reminded us just how precious life is and we don’t want to spend 2021 just going through the motions.

If I provide a few pointers to those wanting to make an incremental change or two to their financial wellbeing then you can easily repeat the exercise for the other aspects of life I have mentioned which will enable you to have a truly prosperous 2021.

The best way to see if there are areas you would like to improve is by asking a series of questions.

(1) Do you have any debts?

I am not referring to a mortgage you might have. Other debts, particularly unsecured loans and outstanding credit card balances look ridiculously expensive now that the Bank Base Rate is 0.1%. If you can increase the repayments even by a small amount you will save a great deal of interest. If this is for you see my earlier blog about debt.

(2) Do you plan your expenditure?

No self respecting business would not have a budget to work to. Why should family finances be any different? If you need help with getting started you could use the Money Advice Service Budget Planner.

(3) Is your family protected?

We have all seen how fragile life can be during the last year. If you were not around how would your family manage financially? Life assurance is still quite inexpensive if you are in good health and not ‘on the home straight’ as it were. This is one of the things we do very much better than our European neighbours.

Hopefully your family will never need to claim but the premiums are a small price to pay for the peace of mind it will give you and them. If this is for you see my section on protection.

(4) Do you save regularly?

Most people live up to the level of their income. The problem occurs when unexpected expenses need to be met. The only sure way to have funds to meet such unexpected expenses as well as all the ones we know are coming is to put money aside into savings and investments each month.

The secret is to set up a direct debit or bankers order so that the saving becomes part of our regular expenditure. There is then no need to borrow in a financial emergency. If this is for you see my section on how to start investing.

(5) Have you considered risk and reward?

If you are saving or investing, or if you intend to start this year, are you aware that risk and reward are directly related up to a point. Some risks are just not worth taking as they can lead to a total loss. However, this should not make you risk-averse or you will never build funds of any real value after inflation is taken into account.

It is essential that your investment strategy reflects your overall goals and objectives. Remember, the longer your investment horizon, the more risk you can afford to take. If this is for you see my section a successful investment process.

(6) Do you have a mortgage?

If you do, why not check with your lender to see if you could overpay your mortgage by something each month. You will save a great deal by doing so and arrive more quickly at that day when you no longer have a mortgage.

If you have an interest only mortgage see if you can change it to a repayment mortgage. Doing so is a bit like wearing a brace on your teeth as a child. It hurts for a while but soon you no longer notice it and the end result is well worth it. If this is for you see my section on mortgages.

(7) Are you building up a personal pension?

Review your pension contributions. Can you increase them even by a small amount? If you are within 15 years of your planned retirement age then you should try and really step up your pension contributions this year. This is one of the most important wealth creation things you can do.

If you are fortunate enough to be a member of a defined benefit occupational pension scheme then the job is done for you to a great extent. However, even if you are so blessed there are still benefits in putting funds aside into your own pension pot.

Personal pensions are one of the most tax efficient investments you can make. Furthermore, because they do not form part of your estate for inheritance tax purposes you can pass on any unused portion of your pension fund to your family. If this is for you see my section on personal pensions.

(8) Is your wealth stagnant or flowing?

Money needs to flow and move and in this respect it is like water. When water is stagnant it becomes a smelly mess. Allow it to move again and it can soon return to its healthy state. Many people cling to their money, worrying about their finances and this creates an attitude of poverty-consciousness.

Being prosperous I would suggest, has less to do with the amount of money we have and more to do with the attitude with which we view ourselves and our lives. The key to an abundant lifestyle is to maintain that sense of prosperity. This then allows us to be more confident in our generosity to others.

Is there a charity which you could help this year by starting a regular donation, however small? If this is for you see my earlier blog straight talk about money.

(9) Have you reviewed the level of your wealth?

This is particularly important as you move into your 60s and beyond. Do you know the limits for inheritance tax? Are you above them? If so, you could start to do things now which would alleviate the tax burden on your family.

One of the simplest ways is to give a total of £3,000 to your children each year. You might be able to do that without affecting your standard of living but it might make a big difference to them. You might also be saving £1,200 in their eventual inheritance tax bill for each year that you do this. If this is for you see my section on gifts to reduce inheritance tax.

(10) Are you still learning?

As a financial adviser I have had to prove every year of my working life that I was still learning, still moving forward in my chosen profession. But it has never been a problem as we should all keep learning for as Albert Einstein said ‘once you stop learning you start dying’.

As I now have my own website I have decided that this year I will learn to use CSS which is the method by which I can more easily control what is displayed. I can run my website without it in the same way that I can drive a car without understanding what is under the bonnet but this year I want to learn that new skill.

I hope that some of you will decide to use my website to improve your understanding of financial planning, a subject which in a modern society should really be taught in school.
May I take this opportunity to wish you a
Peaceful, Happy, Healthy and Prosperous 2021


Arthur Childs

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