We all want to protect ourselves, our income and our families. To ask someone if these are important is silly. The two most important questions surrounding financial products must be WHAT and WHEN.
I would like to give you my guide on what products to obtained and when you should obtain them. There is absolutely no need to buy all the products at one time. Take things in easy stages.
- A Will: The first thing to do is write a Will. To do this you need to be over the age of 18 and you don’t need a solicitor. So this is the first thing you must do. Write a Will today and have two people witness that Will. You may not have a lot to put in the Will but you do have a body and probably a preference for burial or cremation. You may even have strong feelings about organ donation. Everyone should have a Will if they are over the age of 18.
- A Trust: Put a Trust in the Will you have just written. You can start a pilot Trust with just 5. Everything you own can go in that trust and having one is a wonderful foundation for protecting your future wealth for your future family. This can be the start of your Inheritance Tax Planning.
- Income protection: If you are working you should protect your income in case you become long term ill or are have an injury. That should go without saying. Many employers provide this free, in the form of six months full pay and six months half pay. If income protection is not part of your employment package then you need to address this shortfall quickly.
- Critical Illness Cover: Once you have protected your income the next logical step is to protect your health. If you are unfortunate enough to be diagnosed with a critical illness then this type of policy would provide you with either a lump sum or an income. Most people start with a policy which lasts until State Retirement Age. These policies have no surrender value and should be viewed as a life policy which pays out while you are still alive. You don’t need any life cover at this stage unless you have financial dependents such as elderly parents or relatives who are ill.
- A Pension: It is a good idea to start funding for retirement as young as you can. Many employers will provide you with a pension paid for from deductions from your pay. If you want a bigger income in retirement than the one provided by your pension then a discussion with a financial adviser would be beneficial. Not funding for retirement is a folly. Sometimes, as with many public sector schemes, there is Death in Service benefits built into the pension. If this is the case it is a good idea to ask that the payout is made into the Trust within your Will. Remember the pilot trust above. This will reduce tax liability and speed up the payout. Instantly you should now see the benefit of writing the Will and starting the Trust.
- Marriage and a Family: At this stage many people are thinking about getting married and starting a family. As far as protection is concerned the foundations have been laid and the first priority is a home. Protection is now for the family and not just for yourself.
- Mortgages: If you are buying a home you will probably need a mortgage. There are only two types of mortgage, Repayment and Interest Only. Seek professional advice from an independent mortgage broker before choosing a mortgage. It may be difficult to explain why many first time buyers opt for repayment mortgages but many do. I would suggest that you opt for a mortgage which lasts until State Retirement Age and possibly discuss never completing your mortgage. It is always wise to seek advice.
- Life Cover: You don’t need life cover for a mortgage. Many lenders force borrowers to have life cover to protect the loan, but it is not necessary. Life cover is there to protect a family and not a lender. As a rule of thumb the level of life cover should be about ten times your income. Don’t worry, it is cheap. Please try to avoid any form of joint policy and ensure that the policies are written in trust. Once again you would be wise to seek advice.
- Investments: Once again, seek advice. Remember that your investments should match your attitude to risk. Try not to put all your eggs into one basket because spreading your investments over several investment options is lie spreading the risk. There is so much to choose from. Examples include bank accounts, buildings society accounts, bonds, ISA’s, Unit Trusts not yo forget pensions and property.
- Please Remember: I would suggest that you should start you financial portfolio as soon as you leave school and begin with the writing of a Will which includes a pilot Trust. From there, protect yourself and your income. Take advice when choosing a mortgage and never buy a joint life policy. Make sure when investing that the products your choose match your attitude to risk. Always try to seek professional advice. It is usually free.
These are the personal preferences of the author and in no way represent the strategy of any particular financial institution. They are my personal preferences and should not be regarded as global recommendations. Each person’s financial requirements are specific and thus require a fact find to be carried out by a qualified and authorised adviser before any recommendations can be given.
Thank you for reading this article.