Top 6 Tips to get you to Financial Freedom
What does it mean to be financially free?
We define financial freedom as having enough assets – such as investments, savings, pensions, and property to provide you with an income that ensures you can live the life you want.
But first... you have to work out what it is you really want from life.
What do you want from life?
As a dentist you work hard to ensure your patients receive excellent care. The hours are often long, and it can be physically and mentally challenging. If you’re running your own business, it can be hard to switch off. But it is crucial to make time to work out what is important to you personally as well as professionally, both now and in the future.
Perhaps you would like to have more holidays or do some travelling; take up a new hobby or interest; spend more time with friends or family? Or something else that makes your heart sing!
Once you are clear on your ‘life goals’, you need to know whether they are realistic and if you can afford them. So here are our top 6 tips for dentists to consider if they want to be financially free.
1. Work out exactly what your NHS Pension benefits are
For dentists, this is the first step to understanding your finances and what your benefits are likely to be at retirement. The best place to start is to call NHS Pensions on 03003 301 346 and request your Total Rewards Statement.
Unfortunately, the NHS Pension Scheme is not simple and there are several factors that will affect your benefits are retirement, such as dynamisation, scheme pays, the McCloud judgment and the opportunity to take early retirement.
We’ve published a blog on what your NHS Pension statement will and won’t tell you which you can find here.
2. Make the most from your existing savings
The Bank of England recently reduced the base rate to 4.75%, but that is still relatively high when compared to the last 15 years. So if you have savings accounts that are paying you 1-2%, or worse nothing at all, now is a good time to look for alternatives.
Currently, there are instant access accounts that offer up to a 5% interest rate, which means even with £5,000 you would net £250 in just one year.
If you would prefer to easily access all the top savings accounts, you might prefer using a cash platform. These provide access to multiple banks offering some of the best rates available, whether you need instant access or prefer to tie up the cash with fixed term accounts. You can read more about them here.
3. Save on your mortgages and loans
Just like interest rates on savings accounts, mortgage rates are at the highest they have been for 15 years, and some standard variable rates are reaching as high as 9.7%.
Whatever type of mortgage you have, it is important to keep in touch with your lender and mortgage broker. You might find that it is worth remortgaging, even if you have redemption penalties and saving money in the long run.
Many clients with investment properties are now considering selling their properties to a Limited Company, to help manage their tax liabilities and retain capital investment growth within the company structure.
4. Update your insurance package
Dentists have a unique set of requirements with regards to personal insurance and it is crucial to make sure any policies have been set up correctly. To make sure any future claim is accepted, you should check for the “own occupation” small print on your Income Protection or Critical Illness plans.
With insurance, it is important to strike the right balance to get covered for any unexpected events, whilst also not overpaying for insurance either.
If you have managed to pay off your loans, and/or your children are no longer dependent, it is also worth checking whether you even still need the insurances. Chances are your financial and family circumstances are very different now to when you first set up the policies.
5. Review your Will
Many people think that if they are married, their spouse will inherit everything. However, if you do not have a Will and are married with children, your spouse will inherit the first £322,000 of your estate as well as any personal possessions. Whatever is left is divided in two, with one half being divided amongst your children and the balance to your spouse.
So, if you want to leave a legacy and ensure your family are financially secure, make sure your Wills and LPA (Lasting Powers of Attorney) are up-to date and signed.
Wills are easy to set up and only cost around £150-£300 (some charities will even set your will up for no cost if you agree to make a donation). If the above points are not enough to convince you to make sure your Will is valid and up to date, you should read our article here.
6. Create an investment strategy
Saving for the future takes a lot more than the right bank account, and investing is one of the best ways you can put your money to work. Here are some key steps we recommend in creating a sound investment strategy:
Decide on a sensible amount to invest: The value of shares is volatile and goes down as well as up, so it is important to set aside any cash you might need for the short to medium term and only invest what you can comfortably set aside for 5-10 years +
Establish the level of investment risk you are prepared to take: Markets do not always have a steady upward trajectory, so make sure you are comfortable with the likely fall in value you will almost certainly experience.
Diversify your funds globally: Relying on investments in just one market or geographical area can limit the growth on your portfolio, and potentially increase the investment risk, so take advantage of the global market
Keep your costs low: Every additional fraction of a percentage in costs, is likely to significantly reduce your long-term wealth. There is also little evidence that fund managers with high OCF (ongoing charges figure) can outperform the market. You also need to check the custody charge (or platform fee) and any discretionary management fees.
It is important to be aware of the risk when it comes to investing:
· The value of your investment can go down as well as up and you may not get back the full amount invested.
· When investing, your capital is at risk.
· Levels and bases of, and reliefs from taxation are subject to individual circumstances and may be subject to change.
· The Financial Conduct Authority does not regulate taxation and trust advice.
Those are our Top 6 things you should consider if you want to be financially free.
Here at Wealthwide, we help dentists and practice owners get clear on their ‘life goals’, and help them understand whether they are realistic and affordable Even if retirement is many years in the future, the younger you are when you start planning, the more prepared you will be and the more fun you can have in the meantime!
Want a personalised Financial Freedom report? Try out our questionnaire here.