Every new year starts with optimism and the hope that it will be better than the last. Most people will also have made resolutions as the clock struck midnight on New Year’s Eve, many of which will be linked to health and well-being. Sadly, it’s thought that nearly 50% don’t get past the first month before their resolution is broken – don’t let this be you! It is not too late to make a new resolution, this time linked to your financial health. Think of it as a ‘Well Man’ or ‘Well Woman’ check for your finances.
Here’s a quick guide for undertaking a simple and achievable financial review, irrespective of your income or outgoings. This approach should improve your overall financial health and give you a plan that you can stick to throughout 2018.
Savings and investments
The start point must be reviewing your financial position using a simple summary sheet detailing your assets and liabilities, income and expenditure. It is amazing how many people don’t do this; how can you possibly know what needs attention if you don’t know what you have?
Given the recent ‘base rate’ rise, you should review your investments; different rates and ‘deals’ come on the market all the time – what was a cracking deal back in 2016 might not be the best now. Banks and other providers often rely on you doing nothing and pay you a paltry figure once any initial introductory period expires, even though other ‘new’ accounts within their product range would pay higher. They conveniently fail to tell you about these ones. The responsibility is all yours to get the best deal.
It’s also worth considering that fixed-term products (e.g. notice accounts and short-term bonds) will often pay higher rates compared with basic instant access accounts – make sure you set a suitable diary note one month before expiry to check what else is on offer.
It is essential that you maximise your tax allowances. The key here is to make use of ISAs, your pension allowances and other tax-efficient savings and investments. Working with an independent financial planner who has access to the whole of the market is a prudent move, if only to give you peace of mind that your finances are in the right place, or to highlight areas in which improvements could be made. You want to avoid any adviser who is a ‘tied agent’ as they can only advise on a select group of products – not great for you as you want to access the widest range possible.
Personal borrowing
Whether it be your personal mortgage, credit cards, or perhaps a loan taken out for a car, it is just as important you take stock of your borrowing position. Paying off borrowing, or at least restructuring debt, on a more tax-efficient basis may be a good starting point. And with savings rates remaining low, there may be merits in concentrating on repaying credit card and higher-rate personal loan borrowing than building up savings. It may be possible to consolidate the higher-cost credit card borrowings onto a loan with repayments spread over a convenient three- or five-year term.
Your house mortgage or ‘buy to let’ loan should also be reviewed on an annual basis, especially before expiry of any fixed rate periods. Again, banks often rely on inertia and people reverting to their standard (expensive) variable rates. A mortgage is typically one of the largest personal debts a person has and reviewing it annually could save you thousands of pounds per year.
Business borrowing and banking
This is an area that is often missed when undertaking a financial review. It is quite likely, however, that your practice/business loan is your largest outgoing, and increasing bank account service charges are probably a regular feature on your bank statements.
Firstly, you should speak with your bank manager about your bank charges. Ask if any free banking is available or find out how you could benefit from lower charges if you make a few simple changes to how you operate your bank account. For example, making greater use of online banking and minimising the cash you pay in; these are two very simple steps that could reduce costs.
If you have owned your practice for more than two years, you should present a lower risk to the bank as your loan will have reduced and the value of your practice will (hopefully) have increased. If this is the case, you should push the bank for better terms and a lower interest margin because in theory, the risk to the bank should reflect the margin they charge.
You should also check if you are with the right bank. Fourteen of the high street banks are now actively lending to the veterinary profession with increasingly competitive terms on offer, so if your bank will not budge, there are potentially 13 others which could consider better terms.
Certain banks are ideal for your first practice purchase; however, their credit policies may be lacking if you wish to expand and potentially acquire further practices. They could say ‘no’ to your expansion plans, but what they actually mean is that you do not fit their credit criteria. Remember: if this is the case, there are other banks and options open to you; an independent business adviser can give you an unbiased and whole market overview.
Finally, funding for equipment and refurbishments should be reviewed periodically to ensure you are receiving the best terms and to check they are structured in the most tax-efficient manner.
Insurances and wills
The vast choice of insurances (both personal and business-related) can sometimes be confusing. Your personal life and practice structure will constantly be changing and you need to ensure you undertake an annual review to assess whether your existing policies remain competitive and ‘fit for purpose’. Very often, life cover taken out in 2005 doesn’t quite meet the needs of a client in 2018 who now has a business, children and a higher level of earnings. Will planning is a vital part of your financial health check.
If, like nearly 50% of the population, you do not have a will, this should be your priority. You should also review your will at least every two years in line with your ever-changing personal life and business/practice structure to ensure your wishes would be fulfilled in the event of your untimely
Banks and other providers often rely on you doing nothing and pay you a paltry figure once any initial introductory period expires, even though other ‘new’ accounts within their product range would pay higher
demise, and to ensure the amount taken for tax remains as low as possible.
These are just a few suggestions to ensure 2018 is the year your finances are in the best possible shape. Follow through with the changes and don’t end up in the 50% that give up on their resolutions in January!
