5 Ways To Stop Life Messing Up Your Financial Plan

By Sam Harley.

So you have taken steps to start investing and maybe set some financial and life goals for the future, you have made a plan! This is an achievement that should be celebrated as many don’t even take the first step. It’s essential to have an initial plan in place, and to be regularly investing will give you the feeling that you are making progress towards those goals.

But a plan is only that. No financial plan lasts long when hit with the unpredictable nature of real life, which is why we need to review and adapt our plan to reflect our ever-evolving life situations.

How can we ensure that we can course correct when life gets in the way?

Here are 5 points to consider.

When should you conduct a review?

It makes sense to review regularly, such as yearly and whenever a significant or unexpected life event takes place. This could be exciting events new birth in the family, a new relationship, which may mean factoring in more future expenditure. But also, events such as divorce or the passing of a family member should trigger you to review your financial situation to ensure you are aware of your position and any potential vulnerabilities.

Past Spending, Future Planning

The term financial review suggests we should be looking back at the past to see what we spent or how our investments performed. Some consideration should be given to the past – Were you on track with our plan? If not, why not? But don’t ponder too much on what has already passed.

Put more energy into planning for the future. Are there any major events upcoming that you know you need to factor into your spending plan in the next few years, such as family weddings or home deposits? Also, be sure you factor in spending on yourself for whatever you enjoy doing. A financial plan or budget shouldn’t restrict you to the point you are sacrificing too much of your current living standard. As long as you are making sufficient contributions for your future, you should still enjoy the present.

Tax Position

While the low tax regime in Hong Kong leaves less need for tax planning than other countries, there are still tax considerations necessary no ensure there are no surprises to your budget.

If your income is fixed throughout the year, it is quite simple to get an income tax estimation on the Hong Kong government website.

If your income fluctuates or you are unsure of your position, submit your tax return as early as possible so you can plan in good time to make the payment. If you are often scrambling last minute to pay your Hong Kong tax bill, you can better prepare for this by contributing monthly into the Hong Kong Tax reserve certificate scheme so it feels like you are paying your tax monthly and can avoid taking out a tax payment loan.

If you own assets in other countries, you should do an exercise to establish any potential tax liabilities

A sensible step would be to record the value of all of the assets you own every year at least. From this point, you can do an exercise to determine your capital gains tax liability if you are planning to sell down assets and calculate your potential inheritance tax position. If appropriate, you can put in place solutions to mitigate these liabilities. This is particularly important if you are planning to relocate to a different country and tax regime, as you could get caught out if you have not made provisions in good time before leaving.

Tax planning can be complex depending on your personal situation and what kind of assets you hold. This is where a financial planner can really add value to ensure you get this right.

Review Costs

Investing has become much more accessible to the masses thanks to the progression in technology and reducing barriers to entry. There are still, however, costs to invest as there is with any product or service. The key question to ask here is, are you getting value for money?

Compare your platform fees and fund fees to what else is on the market and ensure you are not paying over the odds.

The same goes for advice fees. The potential value that an adviser can add more than justifies the cost in terms of improved investment returns and the much more valuable intangible benefits. You can download a value of advice case study here.

However, not all advisers provide the same quality of service, so you should ask yourself, is your current adviser providing value for the price you are paying?

 Asset allocation

As different types of assets grow at different rates over time, the initial allocation in your portfolio can drift away from how it was initially set up. It’s important to review your asset allocation over time to ensure it’s still appropriate for your circumstances. For example, you may start with a portfolio that is 60% held in growth assets such as equities and 40% held in fixed income assets such as bonds.

Over time, equities would be expected to grow higher than bonds, resulting in your portfolio having a higher weight in growth assets. For somebody risk-averse or somebody close to retirement, this may not be appropriate. It would be sensible here to rebalance by selling some equities and buying some fixed-income assets to return to the allocation set out in the original plan.

Life will always throw things at you that were not planned. Reviewing and adapting your financial plan systematically is just as important, if not more so, than getting started. Get in touch today to get back on track. info@pyrmontwm.com.