Nine signs you need a financial MOT
What’s that rattling sound? Every driver knows the feeling. But in this case, it’s your money rattling around in forgotten corners, losing value. Maybe it’s time for your financial MOT.
If something is important, you give it regular maintenance. So, just as you would ask a mechanic to sort out that puzzling dashboard light shaped like a pencil-sharpener, it can help to consult an expert from time to time about your money. Here are nine warning lights that your finances might be due for a service.
You can’t remember how many pensions you have, or how much is in them
If you’ve had several jobs that provided a workplace pension, it can be hard to keep track of them all. Up to one in ten pension saver have actually lost track of at least one pension, according to research from Friends Life. You can track down a lost pension using the Pension Tracing Service (call 0845 6002 537). As for the rest, ask a financial adviser about whether you should consolidate them (sometimes a good idea, sometimes not).
Someone asks how much interest your ISA pays, and you hum and haw before guessing, ‘About three per cent?’
If you don’t know offhand the interest rate of your ISA, you’ve probably had it quite a while. Many people don’t realise that the interest rate they start upon may only be a temporary special offer (which is why you should always read the small print). So your initially generous rate may plunge to almost nothing after a couple of years. Keep checking, and switch if necessary.
Your current account is fattening up nicely, and the balance rises every month
This is a good sign, right? No, it’s not. Money sitting in your interest-free current account is losing value all the time, thanks to inflation. You should aim to keep your monthly balance as static as you can, with just a few hundred pounds as a cushion against unexpected costs. Any obvious excess should be regularly siphoned off into savings (e.g. an ISA).
Letters arrive at your house from a financial provider, but you bin them as junk mail
Ask yourself, why is this bank / lender / credit card company writing to you? Did you used to be a customer? Do you still have savings with this bank that you’ve forgotten about? Do you still have a credit card with that provider which you no longer use? (This can adversely affect your credit rating and put mortgage applications at risk). Investigate these mysteries – they could end up being significant.
Your ISA provider writes to you about changes in your stocks & shares fund, but it’s all gobbledegook to you
Your ISA provider has a duty to keep you informed, but you also have a responsibility to yourself to understand the information they provide. Don’t just assume that everything is all right, and do read the regular reports that they send you. Actively monitor what is going on, and discuss any issues with your financial adviser if you’re unsure. You need to know when to leave your funds where they are, and when you need to start checking out the competition.
Your mortgage repayments seem suddenly much bigger
When you took out your mortgage, you probably got a limited term offer: a fixed rate, a tracker rate or a discount. But these generally last only for between two and five years (depending on the deal), after which the rate reverts to the lender’s standard variable rate (SVR). You should always set a reminder to remortgage once your deal expires, but planning several years ahead catches many people out. Play it safe and review your mortgage annually, and get a better deal if you can escape without a penalty.
Your home has gone up in value
More good news! Well, not exactly bad. But it could mean that you’re now paying more than you need to on your mortgage. If the value of your home has risen, then you could be eligible for more competitive mortgage deals – e.g. lowering the rate of interest that you have to pay. So you can remortgage to arrange lower monthly payments, or even better, a shorter mortgage term.
A major change has taken place in your life
Different lifestyles demand radically different saving and spending plans. Getting married, moving house, starting a family, a major career change or starting a business are all what might be called ‘advice moments’ – pivotal points in life where you need to rethink your financial affairs, ideally with professional help. Bereavement features on this list too, with the potential issues of inheritance and/or loss of family income to consider.
Something out there has changed
We don’t live in a vacuum, and it only take one upheaval in the economy or legislation to redraw the playing field. Prime examples include stock market movements, house prices, interest rate changes or – most recently – the introduction of pension freedoms. The old pension rule book has been thrown out of the window, and how the retirement landscape will develop in years to come is still being hotly debated. This means that if you have any retirement plans currently in place, you will need to go back to the drawing board and reconsider your new range of options – even if you end up making the same decision.
All of this boils down to one key point: your financial affairs, like a car on the road, are in constant movement. You cannot expect anything to stay the same, or any vital components to look after themselves. It’s only sensible to book in a regular overhaul from an expert – in this case, a financial adviser.
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