How to help a financial procrastinator

Resetting finances, setting goals and encouraging your clients to take control of their plans.

By 24 January 2024

Many of us enter the new year with resolutions and hopes of self-improvement. But often April comes around quickly: life and business get in the way, and plans to review finances are put off until it’s too late to do much more than take out an ISA before the tax year ends.

The start of a new year is a great time for Rathbones to help your clients assess their finances, set objectives and work out how to create a more secure financial future. It’s a definitive milestone that can be used every year to reassess goals, track progress and make necessary changes. It also leaves plenty of time ahead of the tax-year deadline of 5 April to make the best use of allowances.

The hard part is also the easy part: committing to sitting down for an hour with a financial planner. To help your clients. here are some of the issues for them to consider: 

Money in, money out 

Our financial planners might start by asking your clients to set a budget. As with anything, people need a reference point. We’ll encourage them to consider: 

— How much money they expected to earn versus how much they actually received. 

— Were their expenses more or less than budgeted for, and are there any bills that haven’t been reviewed in a year or more to see if there’s a better deal? 

— How much money are they expecting to receive in the coming year, and are there ways to earn more? For example, through tax planning or by taking on extra work. 

— When do they expect bills to arrive and when do they receive their income? 

Their answers will help to determine a prudent level of short-term savings and decisions about paying down any debts they may have. If any of your clients have particularly complex situations, we can help formulate a cashflow model for them. 


Where do your clients want to go? 

We’ll also encourage your clients to think about the future and the purpose of their financial plans. Are they saving for their children’s education, a deposit for a new home, to retire early or something else? If so, how much will they need and when? 

Reminding your clients of these goals could be what’s needed to make their finances tangible again and to help them engage, especially if they are starting to slip behind. 

When do they want to retire, and how much money will they need to live comfortably? Due to the impact of inflation, are they aware that they may need to save more than what it would cost today? 

What pension savings do they have, are they performing as expected, and are they on track to meet their retirement needs? If not, can they increase their pension contributions? 

The power of making pre-tax pension contributions to reduce tax on income and boost pension pots could be helpful for your clients whose income comfortably meets their expenses. 

It’s important to make the right decisions and our financial planners will help guide your clients through the complexity to help avoid any mistakes that could be expensive later.  


Investing wisely 

After working with your clients to determine a suitable budget, it’s time to think about how much cash they should aim to have and what to do with the rest.  

We’ll encourage them to keep enough money in cash to protect against unexpected costs or to tide them over in case of an emergency, such as losing their job. But holding too much in cash can also be detrimental, which is why one of the Financial Conduct Authority’s goals is to reduce the number of people who have an appetite to invest but are holding more than 75% of their investable assets in cash. 

Everyone’s situation is different, but generally keeping six months’ expenses in cash is recommended. A good portion of the rest can be invested, providing they don’t need it for five years or more, giving their money the opportunity to grow for tomorrow. Albeit investing does come with risk and there's a chance that they will get back less than they invested. 

Although cash savings rates are relatively attractive right now, we’ll ask your clients if they’ve considered the impact of inflation and taxes on returns. Could they move some of the money into investments and/or tax-efficient investment vehicles? 


What could go wrong? 

Life is full of surprises but what counts is how people deal with those challenges. We mentioned having a cash buffer for unexpected events, but it can be helpful for your clients to consider other things that should ensure money isn’t something they (or their family) have to worry about if the worst happens. 

— Have they recently reviewed any existing policies, such as life insurance or income protection, and do they need to make any changes to reflect their situation today? 

— Do they have a lasting power of attorney or does an existing one need reviewing? 

— Have they created a will or reviewed their exiting one recently to make sure it still matches their situation and wishes? 


Do your clients know?

They can’t carry over allowances for adult or Junior Individual Savings Accounts (ISAs and JISAs) to the next tax year. Make sure they’ve used as much of the £20,000 allowance or £9,000 for under 18s as they can before 5 April 2024. 

Following recent changes, you can now contribute up to £60,000 each year into your pension (subject to having sufficient UK taxable earnings), meaning there’s an even greater opportunity to boost your retirement savings if you can afford to. You may also be able to carry forward any unused annual allowances for pension contributions for the past three years. 

Every year clients have a £3,000 gifting allowance and the money will immediately be outside their estate for inheritance tax (IHT) purposes. This allowance can be carried over to the next tax year if unused, creating a £6,000 allowance for the coming year.  

As well as contributing to their own pension, clients can pay into pensions for their partner, children and grandchildren. This can be a tax-efficient way not only to save towards their family’s future, but also to put more money outside their estate for IHT purposes, subject to the usual gifting rules. Typically, to avoid IHT a lump sum gift must be made seven years before a donor dies, and a regular series of payments shouldn't reduce the donor's standard of living. 

Allowances for capital gains and dividend tax are £6,000 and £1,000 respectively, but will be half that from 6 April 2024 to just £3,000 and £500. They will lose these allowances if they don’t use them this tax year. 


Next steps 

Managing money and setting goals after the most expensive time of the year can feel daunting to many people, but it’s better to start sooner rather than later. Sometimes a prompt, helping clients know where to start, can be all that’s needed to set them on the right path. 

We’re here to design and implement financial plans for your clients that make the most of their money now and in the future. If you’d like to know more, please speak to your Rathbones contact or get in touch with us.