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5 steps to a great financial plan for your business

As we enter a new tax year, we share the 5 key steps in creating a financial plan, including Britain’s top financial goals and 6 saving tips!

1. Nail down your goals and time frames

The head-in-the-sand approach is tempting but it’s useful to plan for what you want to achieve and by when. For instance, do you fancy a retirement income of £25,000 a year in 20 years? Buying that dream home for £400,000 in 5 years? Or just making your hard-earned cash work harder?

For inspiration, here’s the top financial goals that Brits have listed in their financial plans.

financial goals chart
Data source: 8000+ financial plans created by VouchedFor, April 2016 – 2017.

*The ‘Other’ goals included ‘creating an emergency cash fund.

2. Work out if you’re on track

How often do you look at your income/outgoings to see if you’re on track to achieve your goals? Probably not that often (let’s face it……there are more fun things to do).

68% of us are on course to spectacularly miss our financial goals.

For instance, in the example below, Dave Bathgate (aged 50) wants to retire in 20 years with a pension pot of £400,000, which would generate an annual income of around £20,000. He currently has £275,000 in his pension, yet he’s only saving £200 per month. Without changing something, his pension pot will be £323,000 when he hits 70, short of the £400,000 he wants, and producing an annual income of around £16,000.

goals versus reality chart

If, like Dave, you’re falling short of your goals, it’s time for step 3.

3. See if you can save more

For the 68% of people who found they were short of their goals, there are 3 options;
1) change goals or time frames, 2) save more or 3) invest smarter.

For those looking to save more, below is a chart plotting the 6 biggest savings tips in Britain, together with the average amount they save people each year.

6 ways to save money

Remortgaging has risen up the list in recent years thanks to interest rates being at their lowest level in 322 years. If you’re sat on your lender’s Standard Variable Rate (SVR), it’s worth seeing if you could switch to a better rate. For every 1% you reduce your mortgage rate by, you’ll have an extra £80 in your pocket per month on a £100,000 mortgage.

One thing to watch out for is that some lenders have ridiculous affordability criteria in place, meaning that you may be considered ineligible to move to a mortgage that will cost you less than your current mortgage.

TOP TIP: To see if you’re eligible to remortgage and find out how much you could save, you can take this free Remortgage Eligibility Check.

4. See if you can invest smarter

Amidst current uncertainty, many of us are rethinking where we put our hard-earned cash. The best option really depends on your situation, time frame and risk appetite – this is why VouchedFor’s Financial Plan includes personalised tips from a well-reviewed IFA.

Paying down expensive debts is often a good use of spare cash as the interest paid on debts is usually higher than the interest made on savings or investments.

Here are the 3 most popular things that Brits do with spare cash, as defined in the financial plans:

1. Keep it in cash – most people who have a low risk appetite and/or are investing for less than 5 years keep their money in cash. Other forms of investment carry more risk (to your capital and interest) but with greater potential for returns. The best option for you depends on your goals, time frames and risk appetite.

> The average annual return for cash savings over 10 years is 0.93% (after deducting inflation). Not very exciting (but pretty safe).

2. Equities (shares in companies or funds) – usually the greater return you want, the greater the risk. An independent financial advisor (IFA) can guide you on which company shares or funds best align with your goals and risk profile

> The average annual return for equities over 10 years is 5.19% (reinvesting dividends and after deducting inflation).

3. Government bonds (gilts) – investing in gilts is generally considered to be less risky than equities (they are essentially loans backed by the government after all) however they are more impacted by inflation and interest rate fluctuations. Gilts are often used to diversify an equity portfolio.

> The average return for gilts over 10 years is 1.43% (having deducted inflation).

TOP TIP: It’s an interesting exercise to apply the average annual growth figures above to the savings forecast in your financial plan to see if it could get you to your goals. Of course past performance is not proof of future performance.

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5. Conduct regular reviews

Once you have a financial plan in place and you’ve implemented any changes, it’s important to conduct an annual review (or a more regular review if you can fit it in). It’s satisfying seeing the amount you have left over each month growing according to your plan or the % you make on your investments increasing.

To create your own Free Financial Plan through VouchedFor please click here. Each plan is worth £500 but is being offered for free as part of the ‘Plan for Everyone’ campaign. People with less than £20k in savings and investments will receive an automated plan with personalised savings tips, those with larger savings will receive a plan with personalised tips from a rated IFA.

*All figures taken from 8,048 plans requested as part of the ‘A Plan For Everyone’ campaign to give everyone in the UK a free Financial Plan.

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