“A man is only as good as his tools” — the quote is attributed to the enigmatic Emmert Wolf and rings true just as much today as it did a 100 years ago.
At Grey Parrot, we don’t typically work with hammers or screwdrivers (although we don’t mind sipping on the latter while on our holidays). Instead, we utilise a toolbox full of financial tools to help our clients reach their objectives.
Read on to discover six financial tools we use that could help you unlock your desired lifestyle, navigate any short-term challenges, and reach your long-term goals.
1. Cashflow modelling
The first step is to assess your current situation and tolerance for risk. Once we establish your background and financial circumstances, we can begin advising on budgetary issues and developing a plan for your future using cashflow modelling.
We consider cashflow modelling to be an integral part of our approach. It enables us to forecast your future finances in line with a wide range of potential contributing factors, such as:
- The sale of your business
- Paying for school fees
- Getting married
- Early retirement.
We use all the information we gather to build a specially tailored, bespoke plan that is intended to help you:
- Make informed decisions
- Have a clear understanding of your ongoing situation
- Achieve your goals as soon as possible.
Once a plan is in place and your budget is operating as efficiently as possible, it is time to consider ways we can protect your wealth and generate growth over the long term.
2. Mortgages
One way to protect your wealth is by reducing its exposure to the negative effects of high inflation and rising interest rates.
As interest rates rise, it is likely that the mortgage market will become trickier to navigate. This might be due to several factors such as:
- New mortgages being more costly with higher interest rates and overall costs
- Variable- and tracker-rate mortgages likely seeing their rates increase
- Existing fixed-rate agreements that are coming to an end having to be renegotiated on worse than existing terms.
It is important to seek out the best possible deal for your mortgages, so that you are able to keep outgoings down, and free up funds to invest elsewhere.
3. ISAs
While rising interest rates can be detrimental to debts, such as mortgages, they can be beneficial for your savings.
One particularly useful savings tool is an ISA. In 2022/23, you can save up to £20,000 into ISAs.
Cash ISAs can have desirable interest rates on savings with Moneyfacts reporting best rates of 3% on easy-access and 4.25% on one-year fixed-rate accounts (as of 26 January 2023). The interest generated is tax-free.
Meanwhile, Stocks and Shares ISAs invest your savings in funds, bonds, and shares.
Stocks and Shares ISAs also have a range of tax-efficient benefits such as:
- All dividends from stocks and shares within an ISA are tax-free
- Any profit made when selling investments in your Stocks and Shares ISA is free of Capital Gains Tax
- Any interest garnered from investments is free of Income Tax.
If ISAs were a tool on Batman’s toolbelt, they’d be his infamous shark repellent. But instead of repelling Great Whites, they repel unnecessary taxes.
4. Protection
Protection can take many forms, but the end goal remains the same – to provide for you if the worst occurs.
If insurance was in a toolbox, it would likely be a heavy-set pair of gloves or some extra thick goggles. It is intended to reduce your exposure to risks and provide a healthy safety net.
You might want to:
- Ensure your loved ones receive financial support if you pass away
- Have access to a tax-free lump sum if you’re diagnosed with a serious illness, to help you if you have to take an extended period off work
- Ensure you receive a regular income if you can’t work due to illness or injury.
Having protection in place can cover your plan for unfortunate scenarios and give you added peace of mind.
5. Pensions
Pension schemes are one of the most important vehicles used to provide you with your desired level of comfort during retirement.
They’re your power drill, making precise holes in your wall, ready for you to hang things up when the times comes.
Aside from your State Pension, contributing to a workplace pension can have a lengthy list of benefits:
- An employer’s contribution of at least 3% (which may be increased in line with your own contributions dependent on your employer), which is effectively “free money”.
- Tax relief from the government on all pension contributions up to the Annual Allowance, which stands at £40,000 (or 100% if earnings are below this threshold), for the 2022/23 tax year.
- “Compound returns” that can arise from the long-term growth of your pension investment, a benefit that is likely to increase over time.
According to Unbiased, a high-quality retirement is expected to cost a single person at least £31,000 a year and £41,000 for a couple. Adding to your pension contributions can be a major step in the right direction.
6. Evidence-based investments
After you’ve streamlined your budget, and set aside enough money for a rainy day — it could be worth saving an emergency fund of at least three months’ worth of essential outgoings — you should consider investing your surplus funds.
At Grey Parrot, we use an evidence-based passive investing strategy that aims to “buy-and-hold” investments over the long term.
Our approach reduces the time wasted when actively investing and frees up more time to focus on our clients’ needs.
Passive investing can also:
- Have fewer risks
- Reduce costs
- Generate higher compounded returns.
It also allows us to successfully reach your long-term goals, when we can turn around to you and say “Stop! You’ve got enough!”, and let you start spending your hard-earned money on the life you wish to live.
Get in touch
If you have lifestyle goals you want to unlock and a desired level of comfort you aim to hammer home in retirement, it might be worth working with a financial planner and their toolbox.
The first step is starting a conversation. Contact us by email at info@grey-parrot.co.uk or call us at 02039 871782.
Please note
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
Buy-to-let (pure) and commercial mortgages are not regulated by the FCA.
Think carefully before securing other debts against your home.
Note that life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.
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