Invest and plan for the future in 2012
Whether you have unhealthy debt levels or want to plan for your retirement, take the time now to rethink your finances and see the positive side effects throughout 2012.
If you're fed up with paltry returns on savings, investing could be an option. The returns may be greater but this also comes with more risk, so weigh up your attitude to risk before opting where to invest. Ask yourself how you would react if you lost all your money. Are financial commitments or a short timeframe, such as saving for a house deposit, preventing you from investing?
As a rough guide, experts recommend only investing if you're able to tie up your money for at least five years. Putting a small amount of money away each month is a great way of getting into the habit of investing.
You'll also benefit from ‘pound-cost averaging', which means when share prices are low your monthly sum will be able to buy more units of a fund, compared to when prices increase and your money will buy less units. By doing this you will spread the risk of your investment going down.
New investors don't have to start reading up on individual stocks, either. Instead, they should build up a portfolio of collective funds consisting of either investment trusts, which buy a set amount of shares in other companies or unit trusts, which pool together investors' money to buy shares. That way, if one investment is doing particularly badly the whole portfolio will not crumble.
PLAN FOR YOUR FUTURE
Life expectancy for a British male is now 78.1 years and 82.1 years for a woman, meaning many of us are - justifiably - worried about having insufficient retirement funds. Unfortunately, a lot of us are simply burying our heads in the sand: 37% of ‘economically active' 55-year-olds haven't yet planned their retirement, according to Aviva's Real Retirement report.
If you're not already paying into a pension and your workplace offers one, you are missing out on free money. You don't have to pay tax on pension contributions and most employers also make a contribution that, depending on the terms, could match or even exceed your own monthly payments.
The number of Britons without a will is now 29.5 million, according to unbiased.co.uk, including 35% of the over-55s. Writing a will seems to fall to the bottom of our to-do lists, even though failing to do so could result in a legal headache for those you leave behind.
It's possible to buy a will-writing kit from WHSmith and do it yourself. However, this only works if your family situation is straightforward. For the rest of us, it's best to seek professional help. Unbiased.co.uk can help you find solicitors specialising in will writing. Also check out the Institute of Professional Will Writers (ipw.org.uk).
Finally, don't forget that if your total assets (including investments and savings) are valued at more than £325,000 as an individual, or £650,000 for a couple, you are liable to pay inheritance tax of 40% on anything above this threshold. And, according to the government's draft finance bill, this threshold is frozen until 2015 at the earliest. But it's possible to minimise your bill using some clever gifting tactics. For example, you can gift money each year.
However, you will have to live another seven years for the gift to be outside your estate. It's a pretty complicated area and seeking specialist tax advice is recommended.
The tax levied on the total value of your estate after you die. IHT has to be paid by the beneficiaries of your estate before they can receive any of the money from it. The money can’t be taken from the value of the estate _– it has to be paid before any money can be released. There is an IHT threshold – known as the “nil-rate band” – below which no tax is levied (£325,000 in 2011/12). Any amount above the nil-rate band is subject to tax at 40%. If your estate totals £600,000, there is no tax on the first £325,000; however your estate will pay 40% tax on the remaining £275,000, a total of £110,000. Prudent tax planning can reduce your IHT liability, so always consult a specialist solicitor.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.
There are limits to how much you can invest in any tax year. For 2011/12, the limit is £10,680. Of that, the maximum you can invest in cash is £5,340 and the balance of £5,340 can be invested in shares (individual company shares or investment funds). If you don’t take the cash ISA allowance, you can invest up to £10,680 into a stocks and shares ISA.