EACH week The Scotsman gives you a top ten guide to pertinent financial issues. With economic turmoil driving interest rates, shares and house prices downwards, it's never been more important to subject your finances to close scrutiny. Andrew Harris of Edinburgh-based Murray Asset Management identifies the top ten issues that your financial review should cover.
1 BALANCING ACT A financial review should begin with some self-critical analysis on what you wish to achieve. If you are a saver, then the battle is already half-won and you should think about readjusting priorities so you can put
something away for tomorrow.
2 KNOW YOUR OPTIONS Take the time to choose the right financial products. High street institutions tend not to take a view of all the options available in the market place and are generally limited to their own products. Instead you may opt for independent financial advice and, if so, decide if you would prefer an adviser who charges a fee rather than one who receives commission on the products you buy.
3 TAKE ALLOWANCES You can contribute a maximum £7,200 to an Isa, including £3,600 towards cash accounts. Where possible use your full inheritance tax and capital gains tax allowances. You can usually contribute up to a maximum of your salary each year towards your pension and still receive tax relief. Even if you have no income you can still contribute a maximum of £3,600 gross, meaning that, with tax relief, you only need to pay £2,880 and the government will pay the rest.
4 STOCK CONTROL Remember that even big stock market losses may not mean a company is in trouble, especially when this is happening across the board. Indeed, for those with the cash to spare this may be a good time to buy shares. Stock market investment should be viewed in the medium to long-term (at least five years) and professional advice is essential. Dipping in and out of the market in the hope of buying up cheap shares and selling at a profit a few months later is very risky.
5 SPREAD RISK Check that any stock market investments are diversified and in line with the risk that you are prepared to take. Each asset class performs differently in different financial climates so a good mix will increase the chances of smoother, less erratic returns. As for savings, get to know the levels of protection provided by the Financial Services Compensation Scheme. If you invest offshore, extra caution is required as there may not be a cast-iron protection scheme in place, as IceSave customers discovered recently.
6 KNOW YOUR LIMITS Shares involve a higher element of risk and anyone uncomfortable with that may be better off investing in more secure assets, even though the overall returns may be less. Set a target for your investments and ask your financial adviser to calculate the likely cost in contributions to obtain that target using factors such as interest rates, investment period and inflation, as well as projected return rates for your attitude to risk. This will help you judge the risk you need to take as opposed to the risk you want to take.
7 FAMILY VALUES In the event of death, sickness or incapacity you may wish to consider the impact on your family. You can buy insurance covering needs such as a critical illness, long and short term incapacity, redundancy and, of course, death.
8 IN LIFE AS IN DEATH Too often the anguish felt at the death of a loved one is compounded when the deceased has left an inadequate will or none at all. And a properly constructed will can create valuable tax efficiencies for the benefit of dependants by addressing potential problems before death.
If your estate (including your home and assets but usually excluding pensions) exceeds the current £312,000 nil rate band it is subject to IHT at 40 per cent. If you are married or in a civil partnership you can use each other's unused nil rate band.
9 RETIREMENT: SURVIVAL OR ENJOYMENT? When calculating the retirement income you would like, consider what you need to live and survive on, what would provide you with a level of comfort and what that level of comfort is. An IFA can help.
10 STAY AHEAD OF THE GAME A review of your finances should take place regularly. New financial products and changes to law and taxation can have a profound effect on your future. Forewarned is forearmed.
