Be your own financial advisor with our expert money tips...
THINK LIKE AN ADVISER Most people have way too little life cover (if any at all). Go to an adviser and you will be advised to have up to ten times the main breadwinner’s income as cover, a policy to pay off your mortgage and critical illness cover – this is because you are far more likely to be diagnosed with a serious illness such as cancer than die during the term of a policy. The cheapest option is to take out a term assurance policy (this is life cover for a set term) and add on critical illness cover in case you become seriously ill and cannot work (it would be a pity if you had to stop paying your life insurance premiums just when you need cover!). An adviser will talk you through the small print – so you need to do this yourself. Pre-existing medical conditions (unless disclosed) could mean the policy in invalid. Also, if you smoke, be honest.
GO ONE BETTER To find out how much you really need, go to legalandgeneral.com/life-cover/confused-about-life-cover/life-insurance-cover-calculator. Then purchase online at a discount. While cashback sites – giving you up to £200 in cash – may be tempting, go one better? if you pay a £25 fee at sites like cavendishonline.co.uk and moneyworld.com, you will get far cheaper premiums over the term of the policy. For me, the cost of a 15-year policy was £36.44 cheaper a month or £6,500 over 15 years. Opt for guaranteed premiums so you know what the cost will be over the term.
THINK LIKE AN ADVISER The big difference with advice, is you tend to save more as a result because an adviser will not just look at what you want to save, but what you might need in retirement – and it is a lot more than you think. As a result, those who take advice tend to save £100 more a month. Go to standardlife.co.uk/c1/guides-and-calculators/pension-calculators.page and fill in the pension calculator to see what you might need – and how much you will have to invest to reach your target.
GO ONE BETTER DIY pensions are cheaper and give you more control – you can even manage them from your tablet or laptop, checking your fund when you want, adding extra cash when you can afford to. Hargreaves Landsdown (hl.co.uk), bestinvest.co.uk and fidelity.co.uk all charge less than 0.35% and give you free guidance on what to invest in. In comparison, charges for pensions from financial advisers can be 1.5% in the first ten years and then 1%. However, if you are thinking of switching or cashing in a pension, take advantage of the new free guidance from pensionwise.gov.uk
How to get free help
Tap into these free online guidance sites to learn how to manage your money:
moneyadviceservice.org.uk – known as “Ma”, offers free, impartial money help and was set up by the Government.
pensionwise.gov.uk – again, set up by the Government, this gives free impartial help on defined contribution pensions (so most company and personal pensions but not those that pay a pension linked to final salary).
pensionadvisoryservice.org.uk – free guidance on all pensions including final salary schemes.
gov.uk – find everything you need to know about tax.
theinvestmentassociation.org – has videos on ISAs, funds and pensions, and guides to investing.
THINK LIKE AN ADVISER It’s not worth seeing an adviser for savings, the fee you’d pay – around 1% of your funds or at least £100 an hour – would wipe out any extra you’d make in interest, particularly as you have to switch accounts regularly to get the best rates. But this is an area where we need help because nearly nine million households would not last a week on their saving. So make these a priority. An adviser would add up your outgoings and tell you to put aside enough to cover at least three, if not six month’s living costs.
GO ONE BETTER Advisers may talk about savings accounts and ISAs. However, your current account is probably the best buy – with rates of up to 6% and preferential interest rates also offered on savings accounts and ISAs linked to your main bank account (see moneysavingexpert.com). An adviser might also not tell you about peer-to-peer (lending to individuals and small firms for a top rate of interest), which can pay 7% per annum. For best buys visit moneysupermarket.com
THINK LIKE AN ADVISER Go to a bookkeeper or an accountant and they’ll ask you to give them all your financial documents including pay slips, dividend vouchers, annual investment and pension statements? basically the hard part! You then have to pay them simply to fill in your tax return. So why not do it yourself? The way to think like an adviser is to get organised. Store everything you need in separate files then copy into the relevant box while filing online. Then follow the step-by-step help on the hmrc.gov.uk website, which will even calculate your tax bill for you.
GO ONE BETTER Don’t wait until the tax deadline. File early and you’ll have plenty of time to save up for your tax bill (if there is one) but you will get your tax rebate more quickly (for example, if you’ve got extra tax relief for investing in a pension). You’ll also save at least £200 on accounting fees.
THINK LIKE AN ADVISER Most DIY investors follow the herd and invest in the latest must-buy find without thinking how this will fit in with their existing investments. As a result, most of us tend to have a lot of similar funds, which is not good for spreading risk or tapping into a variety of growth opportunities. An adviser will talk about “balanced portfolios” and “mixed asset classes”. Basically – don’t put all your eggs in one basket but diversify with around £1,000 in each fund until you have around five or ten. If you don’t know how, follow the model portfolios at hl.co.uk/funds/master-portfolios, which can be tailored to the amount of risk you are prepared to take.
GO ONE BETTER Go to a fund supermarket and you can buy at a discount to the charges you’d pay a financial adviser. Instead of an upfront charge of up to 5.5% (that’s £550 on a £10,000 portfolio) you can buy funds – such as unit trusts, which are run by professional fund managers and invest in a large number of shares with a particular aim (for example, UK smaller companies) – with no initial fee. The only cost is an annual fee – 0.4% at bestinvest.co.uk – and you’ll get model portfolios to choose from. If you only want to buy funds (not shares or investment trusts), try rplan.co.uk with 0.35% charge.
THINK LIKE AN ADVISER Mortgage brokers don’t just look at how cheap the initial mortgage rate is – they look at the total cost over the first few years. Often the cheapest deal works out more expensive once you add high arrangement fees of up to £1,000 and take into account the rate hike when a cheap rate ends. So add up the total cost of all fees and repayments over the years you expect to have the mortgage and then compare. Go to moneysupermarket.com to look at the overall interest rate (not just the initial one), and at lcplc.co.uk you can look at the average annual cost over the term of the mortgage.
GO ONE BETTER You can often do better if you DIY rather than shopping around through a mortgage broker. Simply talk to your existing lender first as many have loyalty deals – for example, Barclays current account customers get lower application fees and Nationwide offers lower rates for existing borrowers looking for a mortgage. It is also easier to switch accounts rather than switch lender.