Q. I am quite a highly paid Consultant earning around £113,000 pa in the NHS.

Looking at my latest payslip I was surprised to see that my NHS Pension contributions have risen markedly.

In March they were £565 per month, but in June they had gone up to £800!

I remember reading something about this, but is this correct?

A. Yes this is correct.

As part of the overall review of the NHS Pension Scheme, NHS Pension 
contributions increased in April. You have been used to paying 6%, but at
your level of earnings this will now be 8.5%.

The scales are 6% up to £19,682 - 6.5% up to £65,002 - 7.5% to £102,449 - 8.5% thereafter. Although these are banded, you pay the full amount at   whatever your salary is - sorry!

You can get full details at the NHS website

When we meet a new client or review the financial affairs of someone we have known for some time, the first thing we automatically concentrate on is what goals in life do they have?

For a new client - how can we as planners really encourage them to think about what they want to do with their lives?

For existing clients - we know their goals and so where are they on this journey? Are there any new factors to consider?

We can think of many examples here, but let’s take three that seem to come up time and time again:

•  buying a holiday home
•  going part time age 50-55
•  taking time out, a sabbatical

Holiday Home

Now straight away let’s get to the nub. A client who says this to us is not really saying I would like some bricks and mortar in Spain/France etc.

They are usually saying:

• We love the life and culture in this country and want to have a secure base to explore
• We want to have somewhere we feel really at home on day one of our precious holiday
• We have had some fantastic holidays in the last 10 years here. The children are getting older and we hope they bring their children as family life to us is what it’s all about
• As we create more time for fun in our 50s, we want somewhere we can pop over to within a couple of hours and have long weekends.

Of course, it’s not to say that the investment angle is not important. It may well be a welcome secondary benefit, but drinking that nice glass of dry wine on your first night at your very own home abroad is quite special!

The big question that these clients quite often have though is that, given the financial demands on us, can they afford it? #

Going Part Time

Many of our clients have interests and hobbies - sailing - walking - sports - reading/writing - travelling etc. The thing is, these activities take time out of your working week.

To be able to go for a days sailing or travel to London to see the sights and go to the theatre, you'll probably need a few days out of your diary. 

Whether you are a dentist of doctor in general practice or in a hospital, we find that going part time is a superb way to live in your 50s (so our clients tell us!).

The big worry for a lot of medics and dentists is of course, can they afford to do this? What about your pension? Will you run out of money before you die? #

Time Out - A Sabbatical

Another option for a stressed NHS doctor or dentist is simply to say that some time out is needed. A three or six month break can recharge the batteries, and allow you to return to the fray refreshed.

This can be the most difficult thing to arrange. After all, you will have family issues, commitments to honour, colleagues to take into account, and perhaps local politics to navigate.

Then of course, what about the costs? The locum to arrange? What about your pension? All the above could result in someone giving up before they have started! #

A common denominator with all the above is that many clients do not feel they will be able to realistically achieve these goals. There is a real fear of 'biting off more than they can chew' financially. But in an ideal world, they really want to do these things.

So how do we help clients reconcile all these factors and get what they want?

#  Well, we build their own Financial Sat Nav.

If you live in London and want to get to the Isle of Skye, you need a tool that knows where you are starting from, knows where you want to go, and works out the best route to get you there regardless of traffic jams.

This exactly applies to Financial Planning. Goals and objectives mean little unless you measure where you are in relation to what you want to achieve, and then devise a strategy to get there. You then review this to make sure that you don’t end up in Edinburgh!

By asking what goals people have, measuring them with the Financial Sat Nav and working out a risk assessed strategy, we have in the last few months:

• Arranged the money for a Consultant to buy his Spanish Villa
• Helped a dentist to rearrange his finances to enable him and his wife to have the facility to buy their dream holiday home in Scotland#
• Reassured a dentist that he will be able to go part time at 55 to pursue sailing
• Measured that a Surgeon can go to a three day week age 55 when his wife is 47 to spend more time together
• Worked out that a Consultant can cut down NHS work and keep working privately to enjoy his hobby - and not to buy additional NHS Pension as did not need it
• Reassured a GMP that she could take a 3 month sabbatical to take time out with her husband 

 In addition, they wont run out of money before they die!

There is simply nothing more satisfying than achieving these things for our clients, and putting them firmly in charge of their own destiny.

Key Considerations:

So, how long is it since you took time out to realy think about what you want?

Have you ever done it?

To get you thinking about this, if you did not have to work from today, how would you fill your time?

It really is worth sitting down and thinking hard about what you need to do to lead the life you want.

Action Point

If you think its time you did this, we are offering you a free goals setting document via email.

This will challenge you to write down your aims in life. Feedback shows that our clients respond well to this document.

Please email - mailto:docden@rwplc.co.uk requesting GOALS and quoting G2.

They say (whoever 'they' are) that you shouldn't talk about politics and religion as it can be easy to offend and end up in an endless debate.

Well, forget that today.

Today I want to talk about the inability of some politicians to listen to the people that voted for them in the first place.

As well as their inability to listen to those at the coalface prior to making huge changes that affect those very people. 

Namely you and I.

If you're a dentist, you'll know what I'm talking about. I'm not going to use dentistry as an example here though as there are many people more qualified than me to speak on the subject of the new contract etc.

Let's think of something I have first hand experience of…

In 2001 Stakeholder Pensions were launched with much fanfare.  The UK Government wanted to encourage those in the lower income bracket to save more money towards their retirement (a good initiative). They decided, after much consultation, that one of the main reasons this target group of the population were not investing in personal pension schemes was because the charges were too high.

The Govt decided to cap charges at 1% pa and it was a requirement that all employers who employed 5 or more staff had to offer their employees access to a Stakeholder scheme if they did not have an alternative in place.

Crucially, it was not a requirement for employers to pay into the scheme on behalf of the employee.    

Now, one good thing to come out of Stakeholder pensions was that it forced pension providers to offer better products as the market became more competitive. As a result, some of the high charging companies were squeezed out of the market.

Here's an excerpt from The Guardian website in August 2001:

The treasury and the inland revenue are fans. The Institute for Public Policy Research think tank thinks the move towards stakeholder pensions is "basically in a muddle". The former welfare minister, Frank Field, says that middle income earners may not be the real beneficiaries. Instead, wealthy people who set them up as tax-free savings vehicles for their families might be the biggest gainers.  

Click here for more on Stakeholder pensions

One of the main points I am trying to make here is that many pension experts warned the Govt that Stakeholders would not reach their intended market. After all, if you are a low earner, why would you now jump at the chance to invest in a pension just because the charges are lower?

Maybe these people are not investing because they can't afford it or just lack the education to make the decision?

Then there is means testing, which basically means you could invest £X into a Stakeholder pension (or any type of pension) and then find out when you retire that the amount of state pension you are entitled to is reduced by the amount you are in receipt from the private scheme.

The 'success' of Stakeholder pensions is hardly talked about by Govt now. In fact, the new Pension Personal Accounts that are being introduced in 2012 are today's news.

The question is…

Will they listen?

(If you've got time on your hands you can read more here or here)

Q. We are looking to move house and, ideally, would prefer to keep our current home and let it. 

We need to know what is possible, based on the figures that we've given you.

A. Ok, let's look at the numbers. 

Your current property is worth approximately £240,000 and you have an outstanding mortgage of £90,000. You also have other unsecured debts of £40,000 (loans and credit cards). 

You have said that you wish to try and repay the unsecured debts when you move home. 

The likely rent from your current property is £700 per month, and the likely purchase price of your new home is £450,000. 

The first step is to work out how much equity can be extracted from your current mortgage if you don't sell. Based on a rental of £700pm, you will be able to increase your mortgage to £117,500, which means that you'll be able to extract £27,500. 

With the current mortgage market, you'll need a 10% deposit for the new property. There ARE some products available from certain lenders where you'll only need a 5% deposit, however the rate you will end up paying will not be very competitive. 

So, you'll need to add the 10% deposit of £45,000 to the other associated costs. These include legal fees, moving costs and stamp duty (which is 3% of the purchase price).

To break it down, you'll need approximately £62,000 to buy the new house as well as retain the current property. So you are £34,000 short. At the same time, you will continue to have £40,000 of unsecured debt and this will need servicing every month. 

The alternative is to sell your current house and wipe the slate clean and repay the unsecured debt. 

Let's look at the numbers. 

If you sell for £220,000 (better to use pessimistic numbers) and repay the current mortgage and debt, you will have £90,000. 

The purchase price of the new property is £450,000 and we need to add the moving costs of circa £17,000. So, £467,000 minus £90,000 gives us £377,000, which is 83.8% of the purchase price. 

This will mean that you will be able to secure a mortgage at a competitive rate, as compared to the 95-100% route. You will also remove the risk on the rental property; one major one being if you fail to find a tenant you'll still have to repay the mortgage. In addition, you'll have repaid the unsecured debts. 

Perhaps this is not the answer you want, but you may see it as the most sensible option when all the figures are taken into account.

We wish you luck!    

Whether or not you've reached retirement age, you'll need to know what your options are to generate an income from the pension funds that you've built up.

In part one (of two) of assessing your options let's take a look at personal pension funds. The information does not apply to your NHS Pension Scheme as this has separate rules.

So, picture the scene…

You reach that point when it is time to retire: it might seem as though you have done all the hard work in building up a pension pot, but converting this to income will be the most crucial financial planning decision of your life. 

Unfortunately, many people miss out on thousands of pounds in income by not researching all of the options available.

How and when you take income depends on your retirement goals. One of our clients told us that he plans to ride across the US on a Harley Davidson as soon as he retires. You will probably have high income requirements in your 50s, 60s and perhaps early 70s. Usually in your 70s your income requirement goes down.

Take the Tax-Free Cash

The golden rule to maximising retirement income is to take the maximum tax-free cash (known as pension commencement lump sum) from your pension fund. You do not have to take this lump sum, but it can be very advantageous to do so. The maximum you can take is usually 25 per cent of the underlying fund value, possibly more with some occupational pension schemes.

The only exceptions relate to final salary schemes. With these, taking cash might not be such a good deal as it could reduce your final salary income too much.

Once you have taken your tax-free cash, this money is no longer considered to be ‘pension money’. If you want to generate income, you can do so more effectively and tax-efficiently if the funds you use are not deemed to be ‘pension’.

You could, for example, invest up to £7,200 a year in an ISA to generate a tax free income. Therefore, couples can invest £14,400 jointly.

Alternatively, you could buy a purchased life annuity. These are similar to conventional annuities but have extra tax advantages. People don’t tend to use them because it means your capital is committed to the annuity and cannot be ‘reclaimed’. 

A third option is to invest in life insurance bonds. This route allows you to take 5 per cent income from your investment, tax deferred. In effect, what you are doing is deferring the income tax liability. If you encash the bond after, say, 20 years there will be a further income tax liability if you are a higher rate taxpayer. If you are a basic rate taxpayer (after encashing the bond) there will be no further tax liability. As a higher rate taxpayer, you need to gross up the 5% income withdrawal from the bond to calculate the equivalent gross return that you would need from an alternative type of investment, such as a deposit savings account.

Therefore, the rate you would need is 8.33%. If you don’t want to take any risk with the bond investment you can actually invest the money into a deposit account within the bond wrapper. Do take care which bond you decide to invest in, as the deposit rates fluctuate between the providers of these types of products.

Annuities

The traditional way of turning your pension pot into retirement income is to use the capital to buy an annuity, which is an annual income from an insurance company. Annuities are one of the oldest financial contracts and date back to Roman times.

In 1811, Jane Austin in Sense and Sensibility observed: “People always live forever when there is an annuity to be paid to them. An annuity is very serious business; it comes over and over every year, and there is no getting rid of it”.

Once purchased, an annuity contract cannot be changed. There are two important ways to boost your annuity income that many retired people miss out on.

1. The Open Market Option

Seven out of ten people, according to annuity provider Just Retirement, make the mistake of buying their annuity from the company with which they invested their pension. This can mean you miss out on a huge chunk of extra retirement income. 

David Cooper, group marketing director of Just Retirement, says failing to shop around for the best annuity rate might undo much of the effort made in selecting the right fund and pension scheme in the first place. “With so much focus on selecting the right fund managers to add value, allowing funds to roll over into an annuity with the holding provider might be equivalent to throwing away additional returns of 2.5 per cent a year over 10 years before retirement”.

2. Enhanced Annuities

Annuity provider Just Retirement claims seven out of ten people are unaware their health or lifestyle might qualify them for an increased annuity. If you smoke or have a serious medical condition you may be able to get a higher value annuity as insurers recognise these factors can affect your life expectancy.

Just Retirement estimates up to 40 per cent of people could receive a higher income at retirement thanks to enhanced or impaired annuities. You don’t have to be a particularly heavy smoker – 10 cigarettes a day for the past 10 years will qualify you for enhanced rates. Illnesses that qualify for enhanced annuities include diabetes, liver impairment, heart conditions and many types of cancer, whether or not you are in remission. 

If your spouse is also on your annuity, don’t forget to take his or her health into consideration as this could also improve rates.

Other Annuity Options that Make a Difference

How you maximise income from a pension fund really depends on what your fund is worth. More money means that you may be able to take more risk, and vice versa. 

Anyone with the average pension pot of £30-40,000 should secure a guaranteed income.  But if your pot is £100,000 or more (which many private dentists will have), you may be able to take on additional risk to generate extra income. 

Conventional annuities offer the security of a set level of income for life.  There are several options under the ‘conventional' umbrella. For example, how often you want income and whether to secure an income for your spouse when you die. 

Most couples choose an annuity that benefits the surviving spouse, so that when you die, an income is paid to your survivor for life. The higher the amount paid, the lower the original annuity will be.

An alternative (and addition) to a partner’s pension is using a guarantee period. This ensures payments continue generally for five or 10 years, even if you die within that time. Using a guarantee period can be a good way of providing for financial dependants, but will also reduce annuity income.

Most importantly, you need to choose between an income that is fixed for life or one that rises each year. With inflation proofing, this could make a real difference to your retirement income.

Choosing an escalating annuity will give you a lower starting income than a level annuity (one that doesn’t increase). On the other hand, if you opt for level income, your annuity will provide no protection from inflation. 

Intuitively, most people go for level annuities because you get a higher initial rate of income. Someone with a pension pot of £100,000 would get around £2,000 a year more from a level annuity than from an escalating one. An escalating annuity can be linked to the Retail Prices Index (RPI), in which case your income will change in line with inflation.  Alternatively, you can opt for a fixed percentage of escalation, say 5 per cent a year. 

One specialist financial adviser has conducted an interesting study to find out how long it takes for an escalating annuity to catch up with a level annuity.  If the annuity increases at 3 per cent a year and inflation is 3 per cent it takes more than 30 years for the cumulative payments from the increasing annuity to overtake the total payout from the level annuity.  However, if inflation is 1 per cent higher at 4 per cent per year, the break-even point is brought forward by nearly 10 years.

Higher Risk Investment - Linked Annuities

If you can afford to take some risk with your retirement income, perhaps because you have a large pension fund, consider an investment-linked annuity. This gives you the opportunity to beat inflation while keeping your income at a reasonable rate. But bear in mind that there is a risk that if markets perform poorly your income could drop.  The annuity is linked to a unit-linked or with profits fund. You still get a regular income, but the pension fund you use to buy the annuity is invested with the goal of achieving a higher level of income. 

You are normally required to assume a future rate of growth for the underlying funds. Under a with profits annuity you have to assume a future level of bonus rate. The higher the selected rate, the higher your initial income will be. If investment performance exceeds the assumed rate, your income will increase. If not, your income will decrease.

A Combined Strategy

Those who are concerned about inflation but don’t like the idea of escalating annuities might consider splitting their pot to buy some level and some increasing annuities, plus perhaps an investment-linked annuity. 

If you have enough money in your pot you could buy a level guaranteed annuity income of say £10,000 plus an RPI-linked income of £6,000, which will increase. Use the rest to buy a unit-linked annuity, which will give you an income that fluctuates. You won’t be able to do this if you have a pension fund of £30-40,000, but with £100,000 or more it could make sense to split it.

Key Considerations:

It goes without saying, make sure you conduct research into all your options when you take your retirement income from a personal pension (or 'old' FSAVC) pot. As you can see, there are various combinations when purchasing an annuity so choose from all the providers in the market and you should end up with the best deal available at the time. 

ACTION POINT

Whether you purchase an annuity direct from a provider or through a registered financial adviser, you will end up with the same level of income. The typical commission paid to an adviser is 1% of the total purchase price. If you purchase direct, the provider simply keeps the commission that they would have paid to the adviser.

If you want to do your own research, utilise the many services available online to see which provider is offering the best income. Then use an adviser to organise all the paperwork for you and to double-check that you've definitley got the best rate.

A great win/win strategy for you and your adviser!

Part two will follow next month.

Well, the time had finally arrived.

Daughter Charlotte (nicknamed Chalk) was off to Summer Camp aged 10. This was a Sunday to Friday thing just down the road from us (Rothbury) near Hexham in Northumberland.

The packing was interesting - it seemed to be a list that went on and on involving seventeen pairs of this and a dozen of that - in case it’s wet -they WILL get very dirty - don’t forget walking boots (more expense) and seven pairs of socks etc etc!

A big concern was should she take Teddy. Teddy is much loved, and much battered, so she decided to leave him at home. After discussing with other girls who they were taking, Lucy Bear got the nod. It never ceases to amaze me when she talked to Lucy in a very caring way, explaining where they were going, and then stuffed poor Lucy in an already over packed case!

The weather forecast was quite promising amazingly enough, and Sunday lunchtime we hopped into the car to take Chalk (I give in) to her school where they were all meeting.

Around forty excited year 5 pupils make quite a bit of noise, and as we parked up, Chalk's friends surrounded her - yap yap yap yap. There was Annie (Zebbie), Ellen (Melon) and Bethany (BAT).

They all piled onto the coach, teachers counting heads, are we all here? And off they went. Mother had a tear in her eye, and I have to confess so did I. Chalk seemed happy enough waving like mad through the coach window.

A rule was that they were not supposed to take their mobile phone - Chalk did. So we got a letter from her on Wednesday saying that all was well but the teacher had confiscated her phone!

It was a very strange feeling not having our little daughter around, and we would quite often forget she was away and call out for her or check she was ok before we hit the sack etc. Then on realising she was away you wondered what she was up to.

Well, they were up to lots! Fencing - quad biking - abseiling - tree climbing - archery - movies - disco - and more.

The week did go quickly I must admit, and we enjoyed the luxury of a bit of freedom, but by Friday we were chomping at the bit to see her again. I was working until late on the Friday, and so my wife picked her up at 1-30pm.

When I got back at around 7pm, there she was full of smiles and cuddles for her dad.

She had had a great time, but promised us that she was very homesick at bed time, and is not quite ready to fly the nest yet.

Well that’s a relief - I think!

Q. As a single lady dentist in my early 50s, I pride myself on having achieved financial independence. I plan to slow down at work and finally retire at age 60.

What concerns me are the various opinions on what type of investment I should have within my large pension funds. I have around £400k in total with various companies, and the two advisers I use are adamant that I should stick to a purely equity approach, and not have bonds and cash which are surely safer?

Recently, I personally switched most of the funds over to cash, much to the annoyance of the adviser concerned. He says that over 9 years equities will outperform cash and that I have been very silly!

I had to smile when the markets dived again recently, and I felt I was ahead of the game. But I realise that perhaps I am being over cautious with still quite a few years to go, but I am reluctant to use my existing advisers as they don't appear to really listen to my concerns.

What would you advise?

A. Thank you for the query here. We certainly do not feel that you are being silly. After all, this is your money!

It is clear from the information you provided that your funds, before you switched to cash, were nearly all in equities and property. You have also confirmed that you are not sure what impact these funds could have on your finances when you are aged 60 plus, and that the advisers you have used are tied, meaning that they are not independent.

Our advice tends to be simple in this type of query. We would recommend that you employ a fee based planner who will work for you and not the product provider. Get the planner to build you a cash flow forecast as this will give you a context upon which you can make your decsions.

Once you have a clear idea of where you are now and how the future looks the exact make up of what to invest in will become clear, as you will then know how much risk you need to take (or not) to achieve your goals.

Gilts/Bonds in an investment portfolio are really there to act as a risk reducer, but over time should still give solid returns. As an example, here is a comparison between two portfolios between 1956-2007:

100% equities - Return 12.77% pa - Standard Deviation 19.07%*

50% equities & 50% Gilts - Return 10.74% pa - Standard Deviation 9.54%

As you can see, the returns achieved in the second portfolio were less than the first. However, the volatility was halved! If you do not need to take the extra risk involved in 100% equities - don’t!

We wish you well.

*Data is based on UK Treasury Bills and the FSTE All-Share. The Portfolio Return is an annualised figure. All data kindly provided by Dimensional Fund Advisors. Past performance is not a guide to the future. The value of your investment can fall as well as rise. 

I came across this article today from fellow Financial Planner, Dennis Hall, and thought you'd find it an excellent read in light of the current volatility of the stock market.

Here it is reprinted in full.

Top Ten Tips for Worried Investors

Are you worried about the markets? Thinking of cashing in your chips at the investment casino? It’s been a dreadful year for most investors, and the last few weeks have been particularly dire. It’s easy to say we’ve been through similar periods yet they provide lessons for riding out the current storm.

Here is a reminder of some the bad times we’ve previously experienced

• The last oil crisis leading to a severe bear market during 1972 – 1974,
• then there was Black Monday - 19th October 1987 - when the US Dow Jones market lost one quarter of its value in a single day,
• the Asian currency problems of October 1997 leading to the collapse of Long Term Capital Management, the hedge fund that nearly created global meltdown,
• the collapse of the technology bubble that bottomed out in October 2002.

We’ve put together a list of Ten Tips to help you through this storm.

1. Stay Calm

All of our clients have been through a psychometric risk tolerance questionnaire and the resulting portfolios have been constructed in accordance with the degree of risk that can be withstood, both emotionally and financially. So if you’re one of our clients; stay calm! 

2. Keep your Eye on the Bigger Picture

The big picture doesn’t come to fruition this year or next year. The goals and objectives that we have set are generally further ahead, and investment volatility is already factored into the plans.

3. Market Timing 1

According to Anthony Bolton, (one of the UKs most successful fund managers who ran the Fidelity Special Situations Fund) the overwhelming majority of investors fared poorly compared to the overall returns from his fund. He blamed this on investors becoming spooked and selling out of the fund during bad times, and buying in during good times. Investment success has more to do with “time in the markets” rather than “timing the markets”.

4. Market Timing 2

Remember, markets can recover almost as quickly as they can fall. On the 19 October 1987 the US markets lost one quarter of their value in a just a few hours! The next trading day the Dow Jones index had its fourth largest single day gain (up 4.7%), and within a year it had climbed back to where it was before the slump.

5. Remember Diversification

Not everything will fall at the same time; conversely not everything will rise at the same time. Property and shares are two asset classes that have taken large falls over the past year. On the other hand cash and government bonds, which were perceived as dull, are proving to be the better performing assets in an investment portfolio. Portfolios need a spread of different asset types to help weather the downturns.

6. Rebalancing

Markets that go down eventually rise, and likewise those that go up eventually fall. A diversified portfolio provides some protection against falling values but it is prudent to rebalance the portfolio at regular intervals. This involves taking profits from assets that have risen, and reinvesting into assets that have fallen. There is no hard and fast rule about when to rebalance, the largest US endowment funds rebalance daily whereas for individual portfolios, annually is probably sufficient, so that short term fluctuations are ignored.

7. Make Rational Decisions

Greed and fear are the two devil-emotions of the market - you either control them or they control you. Greed dominates the good times and we hold rising investments longer than we should; whereas fear presides over troubled times. Over time markets revert to their mean rate of return. Simply tracking the market through good times and bad times should provide long term returns consistent with the long term average, in the case of UK equities this is 9.92% per annum (ignoring charges).

“We simply attempt to be fearful when others are greedy and greedy when others are fearful” – Warren Buffet

8. Crystalise Gains, not Losses

Selling near the bottom - or even in a falling market - will simply create a loss. The market is a zero sum game, for every seller there is a buyer, for every winner there will be a loser. I have watched investors for over twenty years and those that have held their nerve and adhered to basic principles have tended to do well. I am in danger of repeating myself, but buy when others are selling, and sell when others are buying, and hold steady when all around you are losing their head.

9. Avoid Noise

Turn off the financial news and stop reading the finance pages, if for no other reason than it’s depressing! TV, radio and newspapers have to fill space every day, and news, commentary and conjecture helps them do it. It matters less to them if they’re wrong, after all tomorrow is another day and they can say something different. Also remember that we’re conditioned to find information that supports our views and beliefs, be careful what you expose yourself to.

10. Don’t Worry in Silence

These are difficult times and you may understandably be feeling nervous. If you are one of our clients and want to talk about it please pick up the phone. Because our service is around coaching and education we support you through difficult times as well as good times, it’s not about selling you the next “hot” investment.

It certainly looks all doom and gloom at the moment doesn't it?

Open any newspaper or tune into the news on TV and if you are anything like me, you get punch drunk with all the articles on how bad the stock market or property market is etc etc.

It may seem perverse then to write an article on savings!

However, as ever, this is an immensely important subject that affects our clients' future security. As we view a Doctor or Dentist’s financial affairs over at least 15/20 years, we can clearly see the effect this has on their overall position.

Quite often the savings and investments they made in the early years were fairly modest, but have now built up very nicely thank you over time. This helps massively towards their 'Financial Independence Day'- the time they can choose to stop working.

Because the service we offer to our clients includes being able to look ahead at how their lives will look in, say, 15 years time (by using cash flow forecasts), we can show how much they need to save/invest NOW so that they do not run out of money in the future.

So, looking at the big picture, are we Brits serious savers?

Well, we certainly used to be. It took some time to recover from the war, but by the mid 1950s, we started to make real progress.

Here is the average UK savings ratio for 1960-1989: #.

60s - 5.65%
70s - 7.95%
80s - 8.65%

The peak came in the difficult winter of 1979, when the savings ratio hit an all-time high of 14.1%, or to put it another way, one in seven pounds.

Now let’s look at how well we saved in the Nineties:

1990 - 1994 - 10%
1995 - 1999 - 8.28%

Yes, we saved hard during the recession of the early Nineties, but our savings habit started to slip when the housing market took off from the mid 90s onwards. However, things have certainly taken a turn for the worse recently, as the final table shows:

The UK average savings ratio, 2000-2008: 

2000 - 2003 - 5.35%
2004 - 2008 - 4.30%

So, a declining trend, and the situation gets even worse.

In the first quarter of this year, the savings ratio collapsed to 1.1%. This is £1 for every £90 earned after tax, and takes us to a 49 year low.

In the past, a squeeze on our disposable incomes would have made us look to cut back and save more. Sadly, after a twelve-year housing and credit boom, it appears that we’ve almost forgotten how to save.

Of course, the purpose of having a bit of a financial cushion was to help when the bad times came. Well, the bad times are here, and for some people it looks like the cushion that has been there in the past is no longer available.

Perhaps the more you earn the more leeway you will have. However it is our experience that the more you earn the more you spend! (It's important to focus on how much income you're left with at the end of the month, not necessarily how large the income is). 

So, ask yourself - are YOU saving enough?

# Savings ratio figures click here

Key Considerations:

It does pay to save. If you are serious about optimising your finances to secure your future, do look at what you can afford to save and invest.

Once this is decided make sure that this money is targeted at fulfilling your goals in life.

ACTION POINT

Ensure you have an up to date expenditure template to identify where your money is spent, and compare this to your income now and in the future by analysing your cash flow forecast (CFF).

This is VITAL.

If you do not have a CFF, ask your adviser to build you one, and if they cannot do this find a planner who can.

Do you have the scope to save/save more? If you have - do it!

It will bring Financial Independence Day nearer!

For more information on holistic planning click here

We've had enough.

Since moving into our new house 14 months ago we decided to bear with the decor until the wedding was out of the way. That in itself was challenging at times as, believe me, you've probably not seen curtains like the ones we've just taken down!

The good news is that it's now full steam ahead.

As I write, the decorator has finished the lounge and dining room and the carpets/flooring has been chosen.

The joiner will be here in a few days to 'revolutionise' the stairs and fit all the new doors.

So in 2 months or so the house should be looking pretty good! Obviously, writing the cheques for everything is painful…

On a separate note, it's all doom and gloom in the media regarding the economy. With the cost of fuel, food and utilities constantly rising, it's all too easy to join in with the negativity.

The way I deal with such news is to simply ignore it on a day to day basis, whilst still being aware of what's going on. After all, all media messages are an interpretation of what the actually facts are. Sometimes this interpretation is accurate, othertimes less so.

Many business people I know, whilst admitting that they've experienced a certain degree of slow down, all agree on one thing. It's at times like this to be more bullish and to work harder to be better prepared when the economy turns upwards again (which it will at some point).

Personally, I've had a close look at all my regular outgoings as when I've done this in the past I've usually been able to make savings without affecting my lifestyle. Examples are cancelling Sky, which I did 7 years ago and I can't say I've missed it, and changing utility provider.

If you have life insurance, it may be worth checking to see if you can 'rebroke' your cover for a lower premium. Even better, check that you actually need the cover. I see some new clients who've been paying for cover for years that they didn't actually need.