Personal Financial Planning

Imagine your ideal financial future. Do you dream of owning your own home, securing a comfortable retirement, or perhaps starting a business? These are your long-term goals. But reaching them requires breaking them down into smaller, more manageable short-term and mid-term goals.

• Short-term goals - These are usually achievable within a year or two, such as building an emergency fund, paying off credit card debt, or saving for a holiday.
• Mid-term goals - These typically have a 3-5 year time frame, like saving for a car or a significant down payment on a house.

Having a clear vision of your goals, along with a well-crafted personal financial plan, keeps you motivated and helps you make informed financial decisions today. We will discuss these with you and suggest realistic methods of achieving them.

Just like any journey, financial planning starts with understanding your current location. We ask you to gather all your financial documents and get a clear picture of your:

• Income - This includes your take-home pay, any side hustles, and investment income.
• Expenditure - Track your spending habits for a month to understand where your money goes. Categorise your monthly expenses into necessities (rent, utilities), discretionary spending (entertainment, dining out), and debt payments.
• Assets - List your valuable possessions, such as your car, savings accounts, and any investments you might have.
• Liabilities - This includes any outstanding debts you owe, such as mortgages, store cards, student loans, and credit card balances.

By creating a financial snapshot, we can identify areas where you can potentially cut back on non-essential spending or allocate additional funds towards achieving your goals.

A sound and practical budget is the key to financial success. It helps you allocate your income towards your needs, wants, and, most importantly, your financial goals. Our financial advisor will help you to create a realistic and effective budget using methods like this:

• Track your income and expenditure - Use budgeting apps, spreadsheets, or simply a pen and paper to track your income and expenses for a month.
• Categorise your spending - Divide your essential living expenses into categories like housing, utilities, groceries, transportation, entertainment, and debt payments.
• Prioritise your needs - Essential expenses like rent, utilities, and groceries come first.
• Allocate for your wants - Include a reasonable amount for discretionary spending on hobbies, entertainment, and dining out.
• Plan for savings and debt repayment - Set realistic goals for saving towards your short- and long-term goals, and allocate funds for debt repayment.

Your budget is a living, dynamic document. We will help you to review and adjust it regularly as your income, expenses, and goals evolve. By taking these initial steps, you can organise and control your monthly cash flow, which is a great start!

As we all know, life is full of unexpected events, and having a financial safety net in place can provide peace of mind and prevent small (or even large) bumps in the road from derailing your financial goals.

We recommend that you aim to save 3-6 months' worth of living expenses in an easily accessible savings account, such as an ISA (Individual Savings Account) with instant access. This emergency fund can help cover unexpected costs like car repairs, medical bills, or temporary job loss, preventing you from relying on high-interest debt.

Expensive debt, particularly high-interest debt like credit cards or payday loans, can significantly hinder your financial progress. We help you develop a strategic plan to pay off your debts, focusing first on those with the highest interest rates.

We may suggest a range of strategies, including the following:

• Debt consolidation - This involves combining multiple debts into one loan with a lower rate, simplifying your repayment process and potentially reducing your overall interest payments.
• Snowball/avalanche methods - The Snowball method focuses on paying off the smallest debts first, regardless of interest rate. This can provide a sense of accomplishment and boost your motivation to continue. The Avalanche method prioritises paying off debts with the highest rates first, ultimately saving you more money in the long run.

We help you choose the strategy that best suits your financial situation. Remember, becoming debt-free is a marathon, not a sprint.

Life and health insurance can act as a financial shield, protecting you and your loved ones from unforeseen circumstances.

We will suggest a range of possible types of insurance, including:

• Health insurance - This helps cover the costs of medical care, offering peace of mind and potentially preventing significant financial strain in case of illness or injury.
• Life insurance - This provides a financial benefit to your beneficiaries in the event of your death, helping them maintain financial stability during a difficult time.
• Disability insurance - This replaces a portion of your income if you are unable to work due to illness or injury, ensuring you can continue to meet your financial obligations.

We will discuss your specific needs and circumstances to determine the appropriate level of coverage for each type of insurance.

Investing is a powerful tool for building wealth over time and achieving your long-term financial goals, such as retirement or a child's education. However, it's crucial to understand your risk tolerance and time horizon before venturing into the world of investments.

Your financial advisor will go over these issues with you:

• Risk tolerance - This reflects your comfort level with potential losses. Some individuals are comfortable with higher risks involved, in exchange for the potential for higher returns, while others prefer a more conservative approach.
• Time horizon - This refers to the amount of time you have to invest before needing the money. Generally, younger individuals with a longer time horizon can tolerate higher risk, while those nearing retirement may favour lower-risk investments.

They will also offer investment advice on various financial products, including:

• ISAs - These tax-efficient savings accounts offer various investment options, allowing you to grow your wealth while benefiting from tax advantages. Regular payments don't have to be enormous, but they can make a lot of difference over the years!
• Employer-sponsored plans - Many employers offer retirement savings plans like workplace pensions, often with matching contributions from your employer, which can significantly boost your savings.
• Other diversified investments – You could consider mutual funds, stocks, or bonds, depending on your risk tolerance and investment goals. We will conduct thorough research and offer professional guidance before advising you to make any investment decisions.

Retirement planning is crucial for ensuring a comfortable and financially secure future.

Your Prescient Accounting financial advisor will set you on the right path by helping you:

• Estimate your retirement needs – You need to consider your desired lifestyle in retirement, including housing costs, healthcare needs, and any travel or leisure activities you envision. Retirement calculators will help to estimate the amount of income you'll need to maintain your desired standard of living.
• Start saving early - The earlier you begin saving for retirement, the more time your money has to grow through compound interest. As mentioned above, you could contribute to employer-sponsored retirement plans, like workplace pensions, and explore additional savings options like ISAs. This is even more important if you are retiring early.

Your financial plan shouldn't be a one-time document. As your life circumstances and goals evolve, it's wise to revisit your plan periodically, typically every year or two.

This might involve:

• Reviewing your budget - Adjust your monthly budget allocations to reflect changes in your income, expenses, and spending habits.
• Reassessing your investments - Evaluate the performance of your investment portfolio and adjust your strategy based on your evolving risk tolerance and time horizon.
• Re-evaluating your insurance needs - As your life circumstances change, your insurance needs may also evolve.

Your financial planner begins by thoroughly reviewing your current tax situation. This involves analysing your previous year's tax returns and obtaining a complete picture of your sources of income, tax deductions, and any tax credits you may be eligible for. They'll identify potential areas where you might be overpaying tax or where there could be opportunities to optimise your tax liability.

A dedicated Prescient Accounting advisor can guide you on how to structure your investments in a tax-efficient manner. They'll advise you on utilising tax-advantaged accounts like ISAs (Individual Savings Accounts) or workplace pension contributions to maximise your tax savings. They can also recommend investment products designed to minimise your exposure to taxes like Capital Gains Tax.

Planning for retirement goes hand-in-hand with tax planning. A financial planner can help you understand the tax implications of withdrawing from pensions or other retirement savings accounts, allowing you to plan your withdrawals strategically. Our capital gains tax accountants can also advise you on strategies to potentially minimise your tax burden during retirement.

If you own assets like property or shares, a financial planner can help you minimise the impact of Capital Gains Tax (CGT) when selling those assets. They'll advise you on how to utilise your annual CGT allowance, consider transferring assets to your spouse or civil partner, or explore other strategies to potentially reduce your CGT liability.

We also help clients with estate planning, a crucial aspect of which involves minimising Inheritance Tax (IHT). We can guide you on using your annual IHT allowances and suggest strategies such as gifting assets to family members or setting up trusts to potentially reduce your estate's IHT liability.

Tax laws often change, and it can be challenging to keep track of the latest updates. We continually educate our staff on changes in tax regulations and assess how those changes might impact their client's financial plans. This ensures that they can advise you on any actions needed to stay compliant and optimise your tax situation in light of new legislation.

Estate planning is a crucial step in securing your family's financial future. A financial advisor can play a vital role in this process by offering expert guidance and support in various aspects:

• Understanding Your Estate - They'll help you gain a comprehensive understanding of your entire estate. This includes not just your physical assets like your house, car, and savings accounts, but also investments, retirement accounts, life insurance policies, and any business interests you may have.
• Beneficiary Designations - They'll work with you to ensure your beneficiary designations are up-to-date and reflect your current wishes. This applies to retirement accounts, insurance policies, and any other financial accounts that allow for beneficiary designations.
• Will Assessment - If you already have a will, your advisor can review it. They'll ensure it aligns with your overall financial plan and accurately reflects your current wishes for the distribution of your assets. If you don't currently have a will, they can guide you through the process of creating one.
• Minimising Inheritance Tax (IHT) - Your Prescient Accounting advisor can provide guidance on strategies to potentially reduce the Inheritance Tax (IHT) liability on your estate. This might involve using your annual IHT allowances effectively, gifting assets during your lifetime, or considering the use of trusts.
• Trust Recommendations - Depending on your circumstances, they may suggest setting up trusts to manage assets for your beneficiaries. Trusts can help ensure your wealth is distributed according to your wishes, provide for your loved ones over time, and potentially offer tax benefits.
• Power of Attorney - Your advisor may discuss having a Lasting Power of Attorney (LPA) in place. An LPA designates someone you trust to make decisions on your behalf if you become unable to do so yourself. There are two different types of LPA – one for health and welfare, and another for property and finance, and your adviser can explain their importance within estate planning.
• Working alongside Legal Professionals - While financial advisors offer valuable advice on estate planning, they often work in collaboration with solicitors and estate planning specialists. Prescient Accounting will ensure the financial aspects of your estate plan are aligned with the legal and tax complexities involved.

This is one of the basic concepts of personal financial planning but is often overlooked. However, it can make a big difference to your financial life.

Understanding Your Needs

• Day-to-Day Banking Habits - Your dedicated advisor will discuss your everyday banking needs. Do you mainly use online banking and debit cards, or do you still rely on cheques and visiting branches?
• Spending Patterns - They'll assess where you spend your money. Do you regularly travel abroad, and therefore need fee-free foreign transactions? Do you often find yourself dipping into your overdraft?
• Savings Goals - If you want to build your savings, your financial planner will discuss your goals and time frame to determine the most suitable account types.

Analysing Account Features

Your financial planner will dissect the features of various bank accounts and match them to your needs:

• Interest Rates - If you're looking to maximise returns on savings, they'll examine accounts with competitive rates, potentially considering fixed-term savings accounts.
• Overdraft Facilities - If you occasionally need an overdraft, they'll compare overdraft rates and arrangement fees across different accounts.
• Fees and Charges - They'll pay close attention to monthly fees, foreign transaction fees, and any other potential charges associated with different accounts.
• Rewards and Incentives - Your advisor will check for bank accounts offering cashback, vouchers, or other introductory benefits that align with your spending patterns.
• Branch and Online Banking - If physical branch access is important, they'll factor that into their recommendations. For those who favour online banking, they'll consider banks with user-friendly apps and online platforms.

Additional Extras

A Prescient Accounting financial planning specialist won't focus on the nuts and bolts of bank accounts. They'll also consider:

• Packaged Accounts - These accounts often bundle additional benefits like travel insurance or phone insurance for a monthly fee. Your planner will assess if these bundled features are truly valuable to you.
• Ethical Banking - If you prioritise ethical and sustainable banking practices, your advisor will research banks aligned with your values.
• Alignment with Financial Goals - Your choice of account might be influenced by broader financial goals, such as saving for a deposit on a house. This will be kept in mind while researching accounts.

Personal financial planning involves creating a strategy tailored to manage your finances to achieve personal economic satisfaction. This strategy outlines your financial goals and the steps you need to take to achieve them.

A financial plan is crucial as it provides a roadmap for your financial future, helping you to manage income, investments, and savings more effectively to achieve your long-term goals.

Starting with personal financial planning begins by assessing your current financial situation, defining your financial goals, and developing a comprehensive plan that outlines how to achieve these goals.

The key components of a financial plan include budgeting, savings, investments, insurance, tax planning, retirement planning, and estate planning, each tailored to meet individual financial goals.

It's advisable to review your financial plan annually or whenever there are significant changes in your life, such as a change in income, marital status, or financial goals, to ensure it remains aligned with your objectives.

Yes, personal financial planning can significantly help with debt management by providing strategies to manage and reduce debt efficiently, such as budgeting, prioritising debts, and creating a repayment plan.