Few of us could have anticipated recent events and, whilst many are using the unexpected time at home to catch up on long deferred tasks, perhaps now is the ideal opportunity to consider spring cleaning your finances.
Below we consider some basic steps you can take to evaluate your financial position and check if it’s in line with your expectations, or whether you need to reorganise your affairs.
Working out the cost of your lifestyle is a valuable exercise. One which allows you to review your personal balance sheet to ensure it is robust enough to support your current and future lifestyle and will help guide your investment decisions and estate planning strategy.
The 10 step review
Review your regular outgoings and include unforeseen and variable expenditure.
Typically, you would consider the following when formulating a plan:
What liquid assets do I have available to sustain my lifestyle and emergencies over one to three years?
- If my liquid assets run out, which illiquid assets will need to be realised?
- What level of cash flow is sustainable?
- Do I have sufficient income or protection in place to sustain my lifestyle if I was incapacitated and unable to work?
- Do I need to review my loans and debts?
- What level of income and protection is in place to support my family if I were to die?
- Are my investments structured efficiently?
- Have my circumstances changed since my structures were first put in place?
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- Have I topped up my own ISA, and those of my spouse and children?
- Can I contribute more to my pension/that of my spouse?
- Taking into account steps one to four, can I afford to gift capital sums to loved ones without affecting my lifestyle?
- Can I make regular gifts to my children out of my excess income?
- Is my will up to date and does it reflect my current wishes?
- Does it protect my spouse and children from divorce/unwelcome attention?
- Does it convey how I wish my estate to pass to the next generations?
- Do I want my children to have access to large sums of money at a young age?
- Have I appointed the right executors, trustees and advisors?
- Do they understand my values and how they can support and guide my family?
- Will my family and executors know where to access information on all my assets/liabilities, etc?
- Do I want to leave money to charity?
- Do I want to set up a charitable trust now?
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- Have I set up Lasting Powers of Attorney and are they still valid?
- Are my family ready to assume the responsibility that comes with wealth if I die unexpectedly or in the future?
- What are my concerns?
- How can I prepare them?
- Do I need to put safeguards in place?
Once you’ve carried out your own review you can then have a meaningful discussion with your wealth advisor to consider your strategy with regards to:
- Protection (life and disability)
- Wills and Lasting Powers of Attorney
- Estate planning
- Family Governance
Once you’ve carried out your own review you can then have a meaningful discussion with your wealth advisor to consider your strategy.
While every family's circumstances are different, we all want the transfer of wealth to be as smooth, painless and efficient as possible. Planning in advance is recommended.
Wealth can be more than simply financial assets. Ownership of a family businesses, for example, can complicate matters. It's important to balance the expectations and rights of all family members whether they work in the business or not.
Clear communication between generations – and a willingness to have potentially awkward conversations – is essential. Research shows that parents routinely overestimate the clarity and quality of their communication with their children on family wealth matters1.
A thorough planning process, supported by trusted advisors, ensures full understanding of the issues, helps remove sources of conflict, and retains family wealth through efficient transition.
Do you need help to review your finances and develop a financial planning strategy? HSBC Private Banking's wealth advisors can work with your Relationship Manager and Investment Counsellor to assist you.