Most of the decisions that shape our lives aren’t purely financial, and yet they almost always have a financial impact. Throughout our lifetime, major financial decisions could be buying a home, starting a business, or taking a career break. Every choice we make requires us to consider what we can afford and what we actually want from life. We explore the key decisions that usually have the biggest impact on our long-term happiness and finances.
Buying a home
When you’re purchasing property, affordability isn’t just about being able to cover the mortgage. There are several associated costs with moving house, such as Stamp Duty Land Tax, ongoing maintenance and insurance policies. When you’re thinking of moving house, weigh up the additional cost burden against your desired lifestyle. If your dream house is likely to have a significant impact on your daily spending habits, this could mean a sacrifice.
Your mortgage is likely to be your largest monthly payment. A fixed-rate mortgage can offer certainty, while a variable rate brings flexibility but more risk. Saving for a large deposit can help to reduce borrowing costs, although it might mean waiting longer to buy. And it’s worth remembering that while money is tied up in property it’s unavailable for other investments.
Starting or selling a business
A new business usually means swapping a stable salary for variable income. You will need enough cash reserves to help you manage this uncertainty until your business grows. There are tax considerations too, such as dividends, Corporation Tax, and when you come to sell, Business Asset Disposal Relief.
Many business owners focus on expanding their business at the expense of their pension contributions. However, certain pension schemes offer opportunities for tax-efficient profit extraction, property investment, and commercial borrowing. If you’re planning to sell, then the timing and structure of the sale could also make a big difference to your wealth.
Marriage and divorce
Whether it’s getting married or filing for divorce, major relationship changes can have a big impact on your money. If you’re tying the knot, then it can be more tax efficient to combine your financial strategy and spending habits. The Marriage Allowance can provide a useful boost if one of you is earning below the Personal Allowance.
Discuss any existing debts openly and early on so you are both informed of each other’s financial position. Prenuptial and postnuptial agreements are becoming increasingly common in the UK. If the relationship doesn’t work out, you’ll need to factor in legal fees, asset division and pension splitting, which can have a big financial impact. Due to the gender disparity in pensions, middle-aged women are particularly at risk of losing out after a divorce.
Taking a career break
Many people enjoy an extended period away from work, but this can mean a gap in your pension contributions and a dip in your lifetime earnings. You’ll also need to factor in the challenge of returning to your role after your break. Build a financial buffer beforehand to make your career break easier to manage.
Helping children financially
Whether you’re gifting money or treating it as a loan, the financial structure matters in relation to Inheritance Tax. You’ll need to be mindful of the seven-year gifting rule and the annual allowances to make sure your generosity doesn’t compromise your retirement plans. From an emotional viewpoint, you may need to think about fairness between children too.
Timing your retirement
At present, the minimum age for private pension access is 55, rising to 57 from April 2028. You’ll need to decide when you can claim your State Pension too, as this can affect your future income. Assess whether your savings will support the lifestyle you want for as long as you intend. People are living longer, and this is stretching the number of years we spend in retirement. Also, plan a thoughtful withdrawal strategy to help keep your tax bill down.
Relocating to another area or country
Moving to a new area, or even abroad, is an exciting aspiration for many people, especially after they retire. However, this major life change can incur additional costs and taxes, especially if you plan to keep property here in the UK. If you’re moving overseas, residency rules can affect your income, pension and Inheritance Tax position. From a personal perspective, consider how the move will affect your support network and overall well-being.
Making meaningful financial decisions
Every decision you make in life has one thing in common: timing. The financial choices you make earlier in life allow more compound time for your savings, investments and pensions. Everyone’s appetite for risk is different too, and this could impact your returns.
Big life decisions, such as buying a home or starting a business, may reduce your flexibility, while other choices could give you more opportunities. It’s also vital to safeguard your life against the unexpected with protection policies like life insurance. Keep your will up to date and arrange Lasting Powers of Attorney to ensure decisions can be made if you’re unable.
Financial Advisor, Nottingham
Whatever life choices you’re facing, always get professional financial, legal and tax guidance as early on as possible, so you can make informed financial decisions. If you’d like to talk through a big life event, our financial planners are here to help.
At Balance Wealth Planning, we support our clients throughout their lives. Using our cash-flow planning tool, we can help you model certain “what if” scenarios. We’ll help you align your financial decisions with your lifestyle goals, family priorities, and future plans.
Do you want to make more informed financial decisions? Get in touch to book a call with our financial planning team.
Sources:
https://www.gov.uk/marriage-allowance
https://www.gov.uk/deferring-state-pension
https://www.gov.uk/early-retirement-pension/personal-and-workplace-pensions
https://www.nhsbsa.nhs.uk/career-break-guidance
