City thinking, local knowledge

Why you should review your plan in 2021

By Questa Chartered

If 2020 taught us anything, it’s that circumstances can suddenly change immeasurably and without warning. Something can come out of nowhere that has a dramatic effect on our everyday life and throws all our plans into uncertainty.

Which is why, now more than ever, it’s a good idea to review your situation on a regular basis and check that your financial plan is still on track to meet your needs.        

So in 2021, here are five key areas to consider:

Are your goals the same?         

The events of last year may have caused you to reflect on your priorities and shift your goals significantly. You may have decided you would like to retire earlier and spend more time with the family, for instance. Or your income may have been hit hard and you may feel the need to carry on earning for longer. The shift to remote working may have made you happier to carry on working, seeing there’s no commute. Or you may be considering working part-time or on a consultancy basis.

However your long-term goal may have changed, reflect on the timescales in your financial plan and see if they need adjusting. Consider whether you are contributing the right amount to your pension or ask yourself if you could be saving more to reach your objectives? Conversely, you may have saved enough. It may be time to spend some of your hard-earned money and enjoy fulfilling some of your goals.  

Has your attitude to risk changed?  

It’s important to keep considering your risk profile as your circumstances in life change. As a younger investor, you may be prepared to take more risk for potentially higher returns. But as you get closer to retirement, you may want greater security and less volatility. Consider your  capacity for losses. Is your plan robust enough to weather the lows and the highs?

But remember that you can miss out on your goals by not taking enough risk as well as too much. While it may have been unnerving to watch the stock market plummet at the start of the pandemic, coronavirus will be just one of many crises over the long-term. Our financial planners will take your risk tolerance into account and reallocate assets or rebalance your portfolio accordingly.     

Have you got a rainy day fund?

The purpose of such a fund is to give you peace of mind and a sense of financial wellbeing. An American survey by the AARP Public Policy Institute found that “people with an emergency savings account were 2.5 times more likely to be confident in their long-term financial goals.” It’s considered a good idea to have about three months of income available, although this will differ with the type of employment you’re in and how easy it is to find a similar level job. 

Your emergency savings should be separate from your long term assets. You don’t want to have to withdraw money from a pension fund because those funds won’t be able to benefit from any subsequent market recovery. Also make sure you have an In Case of Emergency (ICE) pack with all your essential documents, details and passwords for your financial accounts. Check that it’s up to date and that your family knows where it is kept.

Has your income and expenditure changed?  

The last year will have involved financial hardship for many. You may have been furloughed and on reduced income or you may have lost your job altogether. You may have had a business in a sector decimated by the lockdown measures. Alternatively, you may have been one of the lucky ones where your job and income have been relatively unaffected. Whatever your situation, it’s important to consider the effect on your financial goals and adjust your plan to make it realistic.     

On the flip side, you may not have been spending much either. No commuting costs, no holidays, little eating out and gym membership frozen. True, utility bills may have increased due to more home working and you may have developed an unhealthy online shopping habit but overall you may well have been saving money. Again, do the sums and reflect it in your plan.   

Has your tax status changed? 

Linked to a change in your income, you may have moved into a different tax bracket so see how that will affect your financial plan. Check with your financial planner that you are making the most of any tax-efficient schemes for your savings. If you’re intending on selling a second property or vehicle, remember to factor in the effect of Capital Gains Tax. 

How we can help 

At Questa, we provide ongoing support and regular reviews so that your financial plan can be adapted to reflect any changes in your life. Let us know if you’d like us to update your service level to contain additional checks, rebalances and reallocations. Or, if you have any questions about your financial plan and how we can help you to achieve your goals, get in touch.

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