Five top tips to review your financial position

4 April 2018

Do you know what your financial position is? Have you calculated the total of what everything you are invested in and own is worth?

Many people think they know what their financial position is, but on closer inspection realise there are things they have completely missed.

You might, for instance, have assets you didn’t even realise are assets, such as art work or other collectibles. Or you could have savings you didn’t realise had tax liabilities. It is surprising just how many people underestimate their net worth.

But if you are underestimating your worth, then you are likely to be undervaluing your liabilities too and that could mean you get caught out by a tax bill you or your family didn’t expect, and find it’s too late to make a change.

Here are my top tips on how to get on top of your financial position:

1. Get organised

If you file your statements, schedules, policies in a cupboard, plastic bag or even a shoe box then it’s time to bring them out into the light and get organised. Box files may not be the most fun purchase you’ll ever make, but they are incredibly helpful.

You need to make a file where you can store your will, lasting powers of attorney, expression of wishes, trust documents and asset schedules. Get set up somewhere spacious – perhaps on the spare bed or dining room table – and sort through all your paperwork. It can be daunting, but the results are empowering for you and helpful for your family and executors should the worst occur.

2. Prepare an overview

Prepare a balance sheet listing all of your assets and liabilities, and be sure to update it regularly and note any changes. You may find it helpful to save a new version separately when you update so you can refer back and track your progress.

Doing this forces you to be thorough; many is the time clients have found something they had forgotten about worth five or even six figures. The Unclaimed Asset Register is a testament to the fact sometimes the best of us lose track.

3. The devil is in the detail

Run through each policy you hold and make sure you understand all the detail. For example: whose name is it in? When did you purchase it? If it’s in trust, have you got the trust deed? How much did you put in? What are the charges?

If you have life cover – what kind of life cover is it? Where you have a ‘whole of life’ policy, is the premium guaranteed? If not, is it sustainable? When is the next review due? What is the cash-in value?

With personal pensions, some older plans may have guaranteed income streams. One client of mine had a pension which, at face value was worth £23,000, but the guaranteed income attached to the policy meant it was worth many times this if you tried to replicate it on the open market.

4. Reduce tax

It’s important to understand that the value you see on a statement may be reduced by tax due when the investment is cashed in. Capital gains die with you but gains on insurance bonds do not.

There is a common misconception that insurance bonds are tax-free – they are not. You need to understand if they are onshore or offshore and whose lives they insure. Insurance bonds are nimble beasts, as you are able to choose when the liability occurs and to whom, which with careful planning can minimise the tax payable.

With investments held outside of tax shelters, ensure you keep track of the capital gains tax (CGT) position. It may become challenging to manage if you don’t utilise your CGT allowances each tax year or use any spouse exemptions.

5. Check your investments

Finally, ensure you are on top of your overall asset allocation and individual shares and funds. Make sure they are consistent with how much risk you want to – and can afford to – take.

If all of this sounds daunting it may well be worth speaking to a financial planner who can help you make sense of everything. There is a cost attached to doing so but it can be a one-off outlay and the value at the end of it is clear because you will fully understand what your financial position is and any liabilities that you face.

Anne McClean is a senior chartered and certified financial planner at advisory firm Charles Stanley. She has been awarded a Fellowship of the Personal Finance Society and is an associate member of family law organisation Resolution and a member of STEP, the professional association for practitioners who specialise in family inheritance and succession planning.