Planning is one of those things that can be daunting when you think about everything that you need to consider and all the things that you need to do, which is why, if you’re going to start doing it, picking some low hanging fruit can be a great way to get into it.
Some of the easiest things to get started on the planning journey are also some of the least interesting unfortunately.
Over time our interests and, as a result, our spending habits, tend to become entrenched. We find things that we like to do, things that we like to buy, things that we enjoy spending out money on, and once we have found them we stick with them. This is not universal and there will be those things that we would like to do or buy that we don’t or can’t, either because of lack of time or lack of disposable money or other priorities. However, the core of our spending is habit and that gives planning a chance of working.
The transition away from cash, accelerated by the Covid period, has created problems for some people. When you have to go to the cashpoint and take cash out you become more conscious of what things cost and how quickly you spend it. However, using card more frequently has made looking at the bigger picture and the process of drawing up a budget easier.
Being able to download 12 months’ worth of transactions from your bank and see what you spend where, helps you start the planning journey from “what do I do at the moment” without having to remember to keep every receipt for every coffee or newspaper or night out. Where a few years ago there might have been multiple lines each month that just meant you took £100 out at the cashpoint, now those are far more likely to be limited to the occasional entry that tallies with a particular event.
Armed with this data, you can put together a current budget, splitting it into Existence, Lifestyle and Luxury items. We suggest that you try to group things in this way because it makes It easier when you are further down the planning road if you can see what is the minimum that you need to exist, what is the cost of what would be a normal, or acceptable lifestyle, and what is really a bit of a luxury and you could do without it if you really had to.
Whilst you are earning what you need to spend to enjoy your life, then the simple profit and loss of what do we have coming in after tax and what do we have going out to pay for our lifestyle, is fine. The question is what do you have to depend on when that picture changes and you stop supporting yourselves from what you can earn?
As with your spending, this is not the fun end of planning, but it is a something simple that you can set yourself to do and feel good about achieving. So set yourself a task to make a comprehensive list of what you have got, and what you know you will get that will enable you to make this transition.
Top of the list in our view is your State Pension entitlement. Ignore those who say “it won’t exist when I get there” or “I might get it when I am 90 if I am lucky”. Check when you are due to get your State Pension, what you are projected to get based on your current National Insurance record and what you need to do to get to the maximum if you are not already there.
This is your concrete base, guaranteed by the State and with built in increases. I accept that the Government might change State Pension Ages again, or remove the Triple Lock or even means test the pension however, in our view any changes will have to balance the interests of those currently getting it and those who are paying for it in the expectation that they will eventually get it. This means that, if you are within 20 years of State Pension Age, it is far more likely that you will get it, and when you are projected to get it, than that you won’t.
The next step is to make sure that you list out everything that you have in bank accounts, ISAs, pensions, property, National Savings, investment portfolios, Company Pension benefits, individual shares and anything else that could be used to produce income or capital to live off. With each one, make sure that you know which company it is with, how much it is worth, how it is invested and write down policy or membership numbers and contact details for the provider. Do this once and then keeping it up to date is easy.
We would recommend not including your main house and not including any potential inheritance. It is too tempting to try to make a plan work by being optimistic about these two things. Your house is a home not an investment. Choosing to move at some point because it is right for you is fine and, if that releases some capital, then that’s fine also. Having a plan that only works if you are forced to move and have to release a certain amount of capital is not.
When you’ve got your list, check that you have updated your address with each company and, if you have changed your name, that they have your current name. Too often we find that we are unable to get information on a clients’ pensions in particular because they started one before they were married and never got round to letting the pension company know they had changed their surname.
Two key elements of financial planning ticked off the list. Two boring elements but two that don’t demand that you are able to visualise yourself in twenty years’ time, when at the moment you might be finding it difficult to see next year taking shape or feel that you have to come up with better objectives than simply being comfortable. With what you’ve got and what you spend, you have the basic building blocks for a plan.
