"Recent events have demonstrated the importance of having an emergency cash fund. I urge anyone who currently has a secure income to make sure they put something away every month."
Peter Green
The new tax year began on Monday 6 April, resetting annual allowances and reliefs for a wide range of taxes and financial products. Peter Green, chief executive of the mutually-owned financial institution Healthy Investment, offers the following tips to help individuals and families plan their finances for the coming 12 months.
1. Plan your budget. Work out how much income you have coming into your household after tax, and what assets you have (property, investments, pensions, savings etc). Then identify how much you need to cover essential outgoings. What is left over from your income can then be divided broadly into four categories: day-to-day discretionary expenditure (going out for meals etc, once that is possible again); money for short-term savings (for things like holidays and minor home improvements); money for emergency savings; and money for long-term investments, to top up any existing assets. Plan how much you will allocate to each of these every month.
2. Build your emergency fund. The Money Advice Service, which was set up by the government, recommends households should have emergency savings to cover three months’ essential outgoings. Mr Green said, “Recent events have demonstrated the importance of having an emergency cash fund. I urge anyone who currently has a secure income to make sure they put something away every month – the easiest way being to set up a standing order to go out on payday.”
3. Keep planning for your future. Anybody fortunate enough to have been able to use their entire ISA allowance in the 2019/20 tax year can now start using this year’s allowance. The ISA subscription limit is £20,000 per person for the tax year ending 5 April 2021, or £40,000 for a married couple or civil partnership. Mr Green said, “Money in ISAs can grow free of income tax or capital gains tax which, over time, can make a big difference. There are cash and investment options available to suit everyone so, along with pensions, ISAs should be the bedrock of most people’s long-term financial plans.”
4. Take care of the children. Adults aren’t the only ones who can benefit from ISAs. Parents or guardians can open Junior ISAs (JISAs) for their children, into which they and other family members or well-wishers can contribute on the child’s behalf. As of 6 April 2020 the amount that can be saved into these accounts annually has more than doubled, from £4,368 to £9,000. Mr Green said, “For wealthier grandparents worried about Inheritance Tax, in particular, regular gifts into JISAs could potentially be an effective way of removing money from their estates while giving their grandchildren a great start in life.”
5. Check your life insurance. These are worrying times but, according to the Association of British Insurers, it is still possible to buy life insurance as long as you aren’t currently exhibiting symptoms consistent with coronavirus. Life insurers should also pay out on new and existing policies in cases of death due to coronavirus, although for peace of mind it might be best to check this with your insurer.
Important note: The tips above are opinions and not advice. Readers should always seek qualified, expert financial advice before making significant investment decisions. The value of investments can fall as well as rise and investors may not get back the full value of their original investment.
