Ten signs you need a financial health check
Sometimes a bad back is just a bad back. But you might want to get it checked out, just in case. The same is true when it comes to money. Here are the telltale aches and pains that might point to underlying problems with your finances. Article by Nick Green.
Most of us are very well in tune with our physical health. The outside world might not notice, but we know we shouldn’t get breathless climbing one staircase. However, when it comes to your finances, it’s easier to miss the signs. You may not notice anything actually wrong, but without ongoing care and attention your financial health has a tendency to deteriorate. Watch for these ten warning signs most of all.
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). If you have several pension schemes out there, bear in mind that you’ll be paying service charges on all of them, not just one – and that one of them is likely to be outperforming all the rest.
Someone asks how much interest your ISA pays, and you mumble a bit before guessing, ‘About two 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? Were you once 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 jargon 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.
You manage your finances as a couple, but have separate bank accounts
There are many reasons why married or civil partners might want to keep their finances separate, whether for a sense of independence or just to avoid the hassle of moving their current account. However, this can make it tricky to balance the household finances overall. It becomes harder to judge how earnings compare to expenditure, or to keep track of savings, or indeed to tell how ‘fair’ the overall setup is on both partners. This in turn can lead to tensions in the relationship. An impartial overview can help you balance joint finances and improve overall efficiency, without necessarily removing anyone’s independence.
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
Whatever the long-term effects of Brexit on the economy, it only takes one large-scale development like that to redraw the financial playing field. Geopolitical events can send stock markets or the value of the pound falling or rising, and knowing how to respond is key.
Other events that can impact on your finances (directly or indirectly) include house prices, interest rate changes, tax legislation, adjustments in the state pension age, and of course development such as pension freedom. If you have any long-standing retirement plans that you haven’t yet reviewed in the light of the new pension system, you should go back to the drawing board and reconsider your new range of options.
All of this boils down to one key point: your financial affairs, like your physical health, need constant care and attention. It’s only sensible to book in a regular check-up from a health professional – or in this case, a financial adviser.
Nick Green is communications manager at Unbiased, the UK's favourite place to find advice you can trust. He has been writing professionally on finance, business and many other topics for over 15 years.
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