William Robins continues a series on his experience of the life planning process, this time tackling obstacles to saving.

In my last session, my life planner was trying to establish my vision, the ‘V’ in the five-stage EVOKE process described by life planning guru George Kinder. I have now undergone the third part of the process, ‘O’, and left feeling very positive after a session devoted to the subject of obstacles.

Beforehand, I did not feel this session would be particularly productive. I was concerned I was not giving my planner enough material, worried my life was too simple, that I had too few financial commitments and no dependants. I have no children and my parents are not yet old enough for that classification. I thought my planner would not have enough to get his teeth into.

I need not have worried. Although at 60 minutes it was the shortest session so far, I was able to leave with a clear sense of what I needed to do and when, plus a handful of new issues.

I now have the beginnings of a compact but meaningful set of life puzzles that we will set about solving together through a structured approach to my finances.

Making time for friends and family

The big spend on the horizon has started to take shape: a trip to Australia to visit family with whom I have lost touch.

The obstacles are: lack of money, lack of ability to manage money, lack of time, which is taken up with work and the 10-month long rowing calendar (a particular problem because if I am going to travel half the world, I will want to make it a long trip), not knowing when I would want to go or could afford to go, and finally, because I wouldn’t be travelling alone, whether I could co-ordinate my finances with my travel partner.

Fortunately, Chris Mellor, director of Amersham-based Inspired Financial Life Planning, had a smaller challenge for me to start on. It presents the same challenges for me but in a microcosm: a trip to Gloucester. It may not seem much but I have a problem with procrastination, so for this trip (to see a university friend with whom I think it is important to keep in touch) I must use calendars and telephones and act today rather than tomorrow or the next time I’m not so busy.

As for Australia, we agreed a realistic timeline of 2014, giving me time to save. This brings us to the other big subject of the meeting; saving.

Developing the savings habit

I do not a have a good history of saving. That was one of the reasons I was interested in being life planned and financially advised. I hoped it would help me find a way to achieve a more prudent existence; indeed, a more structured and, above all, more predictable existence.

At tfmg we have been working hard to define our service proposition and charging structure for our cients and are pleased to say that all of our financial planners exceed the minimum qualification requirement. Therefore we believe we are RDR ready.

For more information see RDR Consumer Guide 

After a strong first quarter, share prices fell back during April amid renewed apprehension over the outlook for the eurozone and particularly Spain, which took centre-stage against a backdrop of fresh concerns over signs of increasing dependence on emergency bailout funds.

Ratings agency Standard & Poor’s reduced Spain’s credit rating to BBB+ and placed the country on “negative outlook”. The benchmark Ibex 35 index fell by 12.5% during the month while share prices in Italy dropped by 8.7%. Elsewhere, in Germany and France, the DAX index and the CAC 40 index fell 2.7% and 6.2% respectively.

Spain’s woes were compounded by the news that the country’s economy had fallen into recession. Meanwhile, according to preliminary estimates from the Office for National Statistics, the UK economy slipped back into recession during the first quarter of 2012, registering a contraction of 0.2%. The FTSE 100 index fell by 0.5% over April as a whole.

In the US, however, confidence at the Federal Reserve appears to be on the rise, with the US central bank increasing its forecast for economic growth and cutting its forecast for unemployment – although policymakers remain cautious about the outlook for the global economy. The Dow Jones Industrial Average index ended the month broadly unchanged, while the S&P 500 index fell 0.7%.

In Japan, the Nikkei 225 index fell by 5.6% during April, with investor sentiment affected by renewed concerns over the outlook for the global economy. In addition, the Bank of Japan’s quarterly Tankan survey of business sentiment indicated that confidence among Japanese manufacturers remains low.

The International Monetary Fund has increased its forecast for global economic growth during 2012 from 3.3% to 3.5%. The organisation appears a little more sanguine – or, at least, a little less negative – about overall prospects for the eurozone and now expects the region’s economy to contract by only 0.3% this year, instead of its previous estimate of 0.5%. Meanwhile, growth in developing economies is tipped to be even stronger than previously expected during 2012 so, in aggregate, developing economies are now forecast to expand by 5.7% during the year, rather than 5.5%.

Elsewhere, the International Labour Organisation (ILO) believes that tough austerity measures imposed by advanced economies are harming global employment prospects and impeding scope to create new jobs. In particular, the ILO believes the “narrow focus on fiscal austerity” in many eurozone countries could lead to another recession in the region.

If you have any questions or queries or wish to discuss any aspect of your financial affairs please contact us.

Estate planning should start early in life and is for everyone, not just the very wealthy. It is about ensuring control of your estate and planning ahead so there are no uncertainties about how it is managed in the future.

Minimise the effect of tax
It can also help minimise the effect of tax and ensure that your beneficiaries are looked after, especially young children or any dependants who may be vulnerable and need special care. Inheritance Tax (IHT) is a tax on your estate – the things that belong to you – when you die and is also sometimes payable on trusts or gifts made during your lifetime.

IHT is often called a voluntary tax because, with careful planning, the amount your estate has to pay could be reduced or removed completely. From writing a Will, to understanding the exemptions and making lifetime gifts, there are currently several options to help mitigate IHT.
Your estate includes the total of everything you own and a share of anything you own jointly. Things that might count towards your estate include:

Property

Investments

Insurance (not written in an appropriate trust)

Payment from a pension plan or employee death benefit (unless in a trust)

Other assets, for example, cars, art, jewellery, furniture
Gifts you have made but still benefit from, for example, a house you have given away but still live in

Certain gifts that you have made in the last seven years

Assets held in trust from which you receive personal benefit

If you own assets jointly, your share of their value is included in your estate

IHT matters
For the 2011/12 tax year, no IHT is charged on the value of your estate up to £325,000. This is known as the ‘nil rate band’ and everything above that is taxed at 40 per cent.

If your IHT nil rate band is not used up on your death, the unused proportion can be transferred to your surviving spouse or registered civil partner.

Assets passed to your spouse or registered civil partner are exempt from IHT (assuming your spouse or partner is domiciled in the UK), regardless of your worth and how soon you die after making them. These rules also apply to gifts made to charities.

Additionally, any amount of money you give away outright will not be counted for IHT if you survive for seven years after making the gift. If you die within this period, the amount of the gift will be included within your estate. Taper relief may also apply in these circumstances and could reduce the amount of IHT due.

Bear in mind tax laws are subject to change, possibly retrospectively. Also, the rules for individuals who are not UK resident or not UK domiciled are different and therefore tax and local laws should be considered.

Planning for IHT
There are a number of things you could do to reduce your family’s potential IHT bill:

Make a Will – an effective Will could help to reduce your IHT bill

Look into exemptions – there are a number of exemptions you could use to reduce the value of your estate. For example, moving assets between spouses or registered civil partners does not create an IHT liability

Consider gifts – if you can afford to give away some of the assets that you own, it may be possible to reduce the size of your estate

Think about life assurance – a life assurance plan won’t actually lessen the IHT bill, but the proceeds could be used to help pay the bill on death if written in an appropriate trust

Consider trusts – if structured carefully, trusts can help to reduce or even eliminate your IHT liability ν

Tax laws are subject to change, possibly retrospectively. The rules for individuals who are not UK resident or not UK domiciled are different and therefore tax and local laws should be considered by a potential investor.

The latest Aviva Family Finances Report reveals that many UK families are putting luxuries ahead of protecting their loved ones financially.

The report discovered that while 50 per cent of families are happy to pay for a satellite television package, just 40 per cent have life insurance. It also found that families are more likely to have insurance for their mobile phone (14 per cent) than insurance that will protect their family financially if they were to suffer a critical illness (13 per cent).

Similarly, more people have taken out an extended warranty on electrical items (13 per cent) than have income protection insurance, which would potentially pay an income for life should they be unable to work as a result of an accident or illness (10 per cent).

Lack of understanding
The report also reveals that the majority of UK families are avoiding the issue of what they would do if something happened to an income earner because they find discussing their finances and mortality ‘uncomfortable’. This is in spite of the financial worries that could be caused by not having protection, exacerbating emotional distress at a difficult time. As a result, many families ignore the issue and fail to appreciate the value of protecting their family compared to spending on other items.

Avoiding putting measures in place
No one likes to dwell on poor health or mortality, but by denying that illness – or worse – is even a possibility, people are avoiding putting measures in place to protect their loved ones. Too many people assume that someone else will step in and look after their families if they weren’t there to provide for them, but the reality is very different.

UNNECESSARY RISK
People need to ask themselves just how they would pay for their mortgages, their food and all the other costs of living should they suddenly lose an income. While no one likes to think about ‘what ifs’, by not even considering these scenarios, people could be putting the future financial security of their families at unnecessary risk.

Source – The Aviva Family Finances Report is an in-depth study into the financial needs of the 84 per cent of the UK population who live as part of a modern family.

Data was sourced from the Aviva Family Index, which used findings from over 10,000 people who are members of one of the six groups of families identified above via Opinion Matters. This report is a definitive appraisal of the personal finances of families in the UK. Not only does it look at personal wealth, income sources and expenditure patterns, but also tracks how these change across the different types of family unit.

Share prices rallied during the first quarter of 2012 amid hopes of a global economic recovery underpinned by renewed optimism the eurozone would avoid a collapse. Investors around the world were nervous early in the month as Greece approached the deadline to secure sufficient backing for its controversial debt swap. Following the news of a favourable response to the bond exchange proposal, eurozone leaders approved the latest bailout package worth €130bn (£108bn) while the International Monetary Fund (IMF) agreed to contribute €28bn.

“Financial markets have become a little calmer and recent indicators point to an uptick in real economic activity, mostly in the US,” the IMF commented. Amid signs US consumers are becoming more confident, the Dow Jones Average index rose by 2% during March. In the UK, the FTSE 100 index fell by 1.8% while in Japan the Nikkei 225 index rose by 3.7%. In Europe, the DAX index in Germany rose by 1.3% during the month while, the Athens General Index fell by 2% although it did rise by 7.1% over the first quarter as a whole.

“The global economy may be on the path to recovery but with not a great deal of room for manoeuvre and certainly no room for policy mistakes,” warned IMF managing director Christine Lagarde. Meanwhile recent data from the Organisation for Economic Co-operation & Development suggests that the UK and the eurozone economies are showing some tentative indications of recovery, India and Russia are showing signs of positive momentum in growth, while the US and Japanese economies continue to improve. However, growth in Brazil and China is showing signs of slowing down.

According to a study undertaken by KPMG and the Greater Paris Investment Agency, London remains the most popular city in the world for foreign investment, followed by Shanghai, Hong Kong, Sao Paolo and New York. Moscow was in eighth place and Mumbai in 10th, reflecting the increasingly global influence of the emerging markets.

Fixed-income funds retained their position as the most popular asset class during February, according to the Investment Management Association. After four months of outflows, sales of equity funds moved into positive territory during February, however, suggesting investors may be growing more confident and less risk-averse. The Sterling Corporate Bond, Sterling Strategic Bond and Global Bond sectors were the top-three best-selling fund groupings during February, while Global Equity Income was the most popular equity sector.

If you have any questions or queries or wish to discuss any aspect of your financial affairs please contact us.

The Budget highlights included:

• The personal allowance will be increased to £9,205 in 2013/14, but the higher rate threshold will be reduced by £1,025 to £41,450.
• There will be a limit on the maximum amount of income tax reliefs that can be claimed from 2013/14.
• As expected, from 2013/14 there will be a drop in the higher rate of income tax from 50% to 45%.
• The so-called ‘mansion tax’ has taken the form of higher stamp duty on house sales over £2 million.
• Child benefit is to be phased out where income is over £50,000.

For a summary of the key tax data in George Osbourne’s Budget of 21 March click on the image below

Investor sentiment showed signs of picking up during February, with many Asian markets performing particularly strongly during the month as investors drew confidence from better-than-expected factory production in Japan, encouraging jobs data from the US and signs of improving confidence in the eurozone. The Nikkei 225 index surged 10.5% during February and has increased by 15% since the beginning of the year.

In the UK meanwhile, the FTSE 100 index rose 3.3% over the month, having risen 5.4% since 2012 began. February also saw ratings agency Moody’s place the UK’s AAA credit rating on “negative outlook” and warn that further economic or fiscal deterioration would call into question the government’s ability to reduce the nation’s debt burden. Elsewhere, the ratings of several European countries were cut or placed on “negative outlook”.

US consumer confidence exceeded expectations during February, rising to a 12-month high and boosting hopes consumer spending will provide valuable support for the country’s economy. Meanwhile, better-than-expected US jobs data provided a lift for share prices around the world. The Dow Jones Industrial Average index breached 13,000 points towards the end of the month, reflecting a renewed sense of optimism among investors. In all, the market index increased by 2.5% during February and has risen by 6% since the start of the year.

Another bailout for Greece – this time equivalent to some £108bn – was finally agreed towards the end of the month. As part of the deal, Greece has to cut its deficit to 120.5% of GDP within the next eight years and must also allow a permanent European Union presence in the country to monitor developments. Even so, ratings agency Standard & Poor’s subsequently announced that it had downgraded Greece’s debt to the status of “selective default” following the news of the agreement.

During February, the DAX index in Germany and France’s CAC 40 index rose 6.1% and 4.7% respectively. Meanwhile, the Athens General Index fell by 6.6% during the month although it has increased 9.3% since the start of the year.

According to the Investment Management Association, net retail sales of equity funds more than halved last year – from £6.9bn in 2010 to £3bn during 2011 as a whole. Although equities has remained the most popular asset class overall, their share of funds under management has declined significantly over the last decade, falling from 71% at the end of 2002 to just 53% at the end of 2011.

If you have any questions or queries or wish to discuss any aspect of your financial affairs please contact our advisers.

In my last session, my life planner was trying to establish my vision, the ‘V’ in the five-stage EVOKE process described by life planning guru George Kinder. I have now undergone the third part of the process, ‘O’, and left feeling very positive after a session devoted to the subject of obstacles.

Beforehand, I did not feel this session would be particularly productive. I was concerned I was not giving my planner enough material, worried my life was too simple, that I had too few financial commitments and no dependants. I have no children and my parents are not yet old enough for that classification. I thought my planner would not have enough to get his teeth into.

I need not have worried. Although at 60 minutes it was the shortest session so far, I was able to leave with a clear sense of what I needed to do and when, plus a handful of new issues.

I now have the beginnings of a compact but meaningful set of life puzzles that we will set about solving together through a structured approach to my finances.

Making time for friends and family

The big spend on the horizon has started to take shape: a trip to Australia to visit family with whom I have lost touch.

The obstacles are: lack of money, lack of ability to manage money, lack of time, which is taken up with work and the 10-month long rowing calendar (a particular problem because if I am going to travel half the world, I will want to make it a long trip), not knowing when I would want to go or could afford to go, and finally, because I wouldn’t be travelling alone, whether I could co-ordinate my finances with my travel partner.

Fortunately, Chris Mellor, director of Amersham-based Inspired Financial Life Planning, had a smaller challenge for me to start on. It presents the same challenges for me but in a microcosm: a trip to Gloucester. It may not seem much but I have a problem with procrastination, so for this trip (to see a university friend with whom I think it is important to keep in touch) I must use calendars and telephones and act today rather than tomorrow or the next time I’m not so busy.

As for Australia, we agreed a realistic timeline of 2014, giving me time to save. This brings us to the other big subject of the meeting; saving.

Developing the savings habit

I do not a have a good history of saving. That was one of the reasons I was interested in being life planned and financially advised. I hoped it would help me find a way to achieve a more prudent existence; indeed, a more structured and, above all, more predictable existence.

I want the power to plan, to know I will have the facility to do things a few months down the line, secure in the knowledge that the money I spend will not, and cannot, take away my ability to pay the bills.

To start with, I am buying a piggy bank. This idea filled me with a great deal of positivity because it is tangible and I know I will respond to that.

It’s an idea we came up with right at the end of the session. Mellor asked if there was anything else I wanted to talk about. I said I was worried the costs taken up by my rowing (fees, training camps, hotels, travel and suchlike) would interfere with my savings plans.

This is particularly bad during Henley Regatta week in June, when food, accommodation and other miscellaneous expenses quickly add up to hundreds of pounds. That cost puts a very nasty hole in my monthly finances and even payday cannot undo the damage because I have less at the beginning of the next month than I need.

Mellor asked how having the money put aside would make me feel? Relieved and much happier, I replied. So he asked me how much I needed and I roughly estimated £200. That’s £50 a month for four months if I started in February and finished in May. Bringing my own lunch in to work would save £25 in a week.

My piggy bank

In case I fail to make my own lunches though, Mellor advised depositing £5 in a jar every day as a separate exercise. He suggested I might enjoy taking the money out of the bank during the day only to put it in the jar the same evening. This, he reckoned, rightly I suspect, would be more satisfying than assigning the money digitally via a new current account. The key was buying the jar, an act of ownership, so at the very least I could empty in my loose change at the end of each day.

The £50 would supplement the £100 we agreed I could afford to put aside each month for the Australia trip.

But I said I was not comfortable ferreting money away just yet. I felt I first needed to make one month’s spending vaguely resemble that of the month before. My worry was that, beyond the fixed costs of bills and rent, there seemed to be mystery expenses that each month left me short.

In reality, there is no mystery: it is all there to see in my bank statements, but I don’t like reading those. Mellor’s advice was to not feel guilty or embarrassed by my spending. If I spent the money, it was on something I needed or wanted. Either way, it was a legitimate decision, he said. However, he said I may want to make different spending decisions in the future and that required reading the statements. Oh, well.

Doing the maths

Mellor has recommended using a software package to help manage my finances. This sounds a bit like cheating from a financial adviser (I’m sure it’s not), but we haven’t talked about specifics yet.

In preparation for this session, I filled out a long-winded questionnaire on all my outgoings. Although the figure I arrived at was lower than my income, even net of tax, I still feel I am overspending. This means there are costs I am not keeping track of. Adding up cash machine withdrawals should provide the answer, though I haven’t done this yet. As I said, I don’t like bank statements.

My progress

The tone is now much more informal between Mellor and I and I am more relaxed and open with him. The meeting took place over coffee in a quiet bar rather than the office meeting room that hosted our previous two encounters. The sessions are meant to be personal and Mellor had offered to visit my home to ensure comfortable surroundings. The café was a good compromise.

One issue raised was whether I felt I had created the goals being set or that he was setting them for me, albeit based on what I was telling him. I wasn’t immediately sure.

This point lies at the very core of life planning. Unless the goals originate from me, according to Kinder, I’ll lack motivation to follow them through. As I see it, there must be a fine line between originating goals myself and my life planner guiding me towards choosing them.

Mellor said the ideal was for the planner to create an environment through questioning and listening techniques for these goals to spring forth from the client. This, I think, is what Kinder refers to as lighting the torch. These are the moments of inspiration that life planners evangelise about. However, I think some people will need more guidance and signposting than others.

The next session is the ‘K’, for knowledge, stage and will hopefully teach me some important lessons in how to manage my personal finances.

The new year began with many of the same overriding preoccupations that characterised 2011 although share prices were boosted during January amid rising optimism the global economy would manage to weather the worst effects of the eurozone’s ongoing sovereign debt crisis.

Nevertheless, there appears to be little room for complacency. The International Monetary Fund (IMF) believes the global economy is “deeply into the danger zone”, with the organisation’s managing director Christine Lagarde warning: “No-one is immune in the current situation. It is not just a eurozone crisis it is a crisis that could have spill-over effects around the world.”

January also saw Standard & Poor’s (S&P) downgrade the credit ratings of nine eurozone member countries, including France, which lost its coveted AAA rating. Austria, Cyprus, Italy, Portugal, Slovakia, Slovenia, Spain and Malta were also downgraded, with the ratings agency citing “insufficient” measures taken by European policymakers to address the debt crisis.

S&P furthermore downgraded the rating of the European Financial Stability Facility as, having cut back the ratings of France and Austria, there were insufficient AAA-rated guarantors for the European bailout fund to retain its top status. In Germany, the DAX index rose 9.5% during January, while in France the CAC 40 index rose 3.3%. At the end of the month, a new European Union treaty, which is aimed at strengthening fiscal discipline, was signed by every member state with the exception of the UK and the Czech Republic.

In the UK, the FTSE 100 index rose by 2% during January. Hopes of a resolution to the eurozone’s debt crisis were tempered by fears over another UK recession, following the news the UK economy had contracted by 0.2% during the final quarter of 2011. In the US, the Federal Reserve announced that it does not expect to increase US interest rates until late 2014. The Dow Jones Industrial Average index rose 3.4% during January while the S&P 500 index rose 4.4%.

In China, the Shanghai Composite index rose 4.2% during January, boosted by optimism that policymakers might start to loosen their monetary stance. China’s government has taken extensive steps to cool the country’s expansion and promote a more sustainable rate of long-term growth. Meanwhile, the Nikkei 225 index rose by 4.1% during January, although sentiment was tempered by the news Japan had posted an annual trade deficit for 2011, caused by the effects of the Great East Japan Earthquake.