The Best Way to Enhance Your Financial Strategy? Focus on the Tactics.
As professional advisers, we might live and breathe all things finance but none of us are born financial experts.
Take our mortgage adviser and aspiring financial planner, Rowan Howse. Today, he’s an expert in all things mortgage. But in a previous life, he was a professional rugby player.
And rugby, like finance, is a game of strategy. You need to have your eyes on your long term goal. The broad brushstrokes to take you there.
But as Rowan’s coaches used to preach to him – strategy might win you a trophy, but it’s tactics that’ll win you the games along the way.
If you want to enhance your strategy – whether it’s a title race or pursuing financial freedom – there’s an easy way to do it. Pay attention to your tactics.
Because it’s these tactics that keep your overarching strategy on track. That help you adapt to what’s in front of you – however unpredictable.
If you’ve read our blog before, you’ll know we’re big on strategy and long-term planning. But we’re also keen on tactics – and there are a couple of short-term financial adjustments that we’re focusing on right now.
Social Care Tax
We’ve been warning that the post-Covid tax environment could become more punitive for the past year. So the recent announcement about social care tax and the impact on National Insurance and income tax comes as no surprise.
There’ll be a lot to say about social care in future blogs, but for today what’s important is making those tactical adjustments to protect your overall tax strategy.
The 1.25% increase in National Insurance will affect all employers and working adults (even older workers) from April 2022. It will then convert to a separate line of income tax on earned income from 2023.
And it won’t just apply to earned income. The concurrent 1.25% increase in dividend taxation will affect anyone with money invested in shares or investment funds that produce dividends. It will also impact business owners who take their earnings in the form of dividends.
That means that from April 2022, the basic rate of tax you’ll pay on any dividends will increase by 16% (from 7.50% to 8.75%).
And do you know what else? We’re certain this is only the beginning. Capital gains tax and pension tax reliefs are also at risk, so it’s time to deploy a few new tactics.
The most obvious and effective tactic available is to maximise your pension and ISA allowances, shielding you from the proposed and any future income tax rises.
Where it gets complicated is protecting shares and funds held in “unwrapped” investments – such as General Investment Accounts – which will attract the higher rates of dividend tax and put an even bigger dent in your returns.
Luckily, there are a range of tactics we can employ to help you here (as you’ll see in our previous tax blog) – but it’s important to speak to a financial adviser to help work out the best options for you.
Taxes are going up, but mortgage rates are going down. They’re currently at their lowest ever point, with many lenders offering rates below 1%. Which gives us an absolute no-brainer of a tactic (but one that many surprisingly overlook).
It might be time to review your mortgage options particularly if:
-Your previous mortgage rate has expired
-Your current fixed/tracker rate is due to expire in the next 12 months
-You’re curious whether your current rate remains competitive
Finding a better mortgage rate is a simple tactical adjustment and helps make savings that could be invested in other parts of your financial plan.
And it’s important to remember that your strategy won’t change. Your strategy is what’s going to carry you to that trophy – financial security, freedom and options.
But day by day, you should always be on the lookout for those tactical refinements that’ll help you avoid that unexpected tackle and set you flying down the wing towards the try line.
Because as Rowan’s coaches told him. Strategy wins you titles, but it’s the tactics that help you win the games along the way.
Might now be the time to revisit your financial strategy and tactics? If so, get in touch and we’ll see how we can help you on your way.