With the country increasingly tightening its belt, it's harder to manage our finances day to day let alone plan ahead. But 38 year old London-based chartered accountant, Faiz Gulmohamed, tells us how it's still possible to achieve your aspirations with a little financial know-how.
Planning ahead
The key to Faiz's strategy is that he has separated his money into three distinct pots for long-term, medium-term and short-term savings and investments.
- Long-term
Faiz pays regularly into a company pension scheme to achieve his long-term retirement goals. He could temporarily reduce his pension contributions to make his money more available.
- Medium-term
Faiz invests for things like school fees through stocks and shares ISAs and with a property investment that has benefited from the boom in the sector over the past decade. If he needed to, he could plan to sell the property investment and release the equity.
- Short-term
Faiz also has cash ISAs and tries to put cash in the bank that he can use for luxuries. These are the most accessible sources of extra cash for Faiz.
I try to balance saving and spending. I try to save a bit more than I spend each year
Faiz Gulmohamed
He says, "I need to save over the next few years to afford private school fees for my children, and I'd like to pay down lump sums on my mortgage as well as building up a bit of a financial cushion. One thing that may have an impact on my plans is the loss of personal tax allowance."
Managing changes in tax
In April 2010 the personal tax allowance for people with income above £100,000 was reduced by £1 for every £2 of income in excess of that limit.
Before the change, Faiz had observed, "The increase in VAT is going to affect everyone. We all have our fair share of costs to carry for what's happened in the past. And the capital gains tax rise does not really affect me at the moment. To me, the main concern is the change to income tax."
This year Faiz, his wife Frances and their two children will enjoy three holidays, including one overseas. However, the family is considering cutting back on foreign breaks to concentrate on their other financial goals. "I try to balance saving and spending. I try to save a bit more than I spend each year, but obviously this changes depending on my circumstances. It's a question of getting the balance right".
Top financial facts
- Income Tax on income above £150,000 is charged at 50%
- The rate of VAT rose to 20% on 4 January 2011
- The rate of Capital Gains Tax is now 28% for higher rate taxpayers
- The Capital Gains Tax annual exempt amount is £10,600 for the tax year 2011-2012
The value of investments and any income from it can fall as well as rise and you may not get back the amount you invested. Stock market investments normally need a commitment of at least five years. Pension contributions cannot normally be accessed until retirement age.
The information about tax is based upon our current understanding of HMRC tax legislation. Tax laws could change in the future.
