Wealth Planning

Most of you will have a dream, some will have a plan to achieve those aims and others will be hoping for a lottery win.

Whatever your ambition, whether it be emigrating to some far away sunny place, becoming an international circuit bunny or just simply paying your mortgage, you're going to need the financial resources to support the plan.

This is not about creating pension income, cash savings or property assets—it's about all three. It's creating a balance between them to form a wealth creation plan.

Your Home

The first step in any wealth plan should be to purchase your first property. You have to live somewhere and it's far better to be paying money into your own bricks and mortar than into someone else's. In order to achieve this, you're going to need a steady income and a deposit. (Visit pinkfinance mortgage section for more information). The growth that you make on your primary residence is tax-free. This is the reason that many people buy a home larger than they actually need. This means they can downsize later on and take the surplus money. Many also rent their extra room to help cover the mortgage in the early years. You're allowed to receive £___ per annum under the 'Rent a Room Scheme', without paying tax.

Pension

Pensions have been beaten up in recent years, as many are based upon stocks and shares (equities). With equities under performing and additional tax within the pension fund, they haven't looked quite as attractive.

However, benefits such as tax free cash lump sum and regular steady income in later life can still make them attractive.

If your employer is offering to pay into a scheme on your behalf, match your contribution, or give free life assurance – you should take them up on their offer. This is free money, benefiting you later and forms part of your benefits package

Private pensions are far more consumer friendly than they used to be, with Stakeholder pensions now providing a low cost method of accumulating capital. The government still add tax relief to your contributions at the highest rate of tax that you pay.

Savings

You may need to save a deposit for your first home, and therefore should consider deposit accounts. The rate of return is not the overriding priority with this type of investment, as interest rates are so low. The main purpose is to form a habit and commitment. Having a target such as buying your first home is an incentive. You should set up a standing order, and place the money into a bank account, that proves difficult to access.

For longer-term savings, you should consider an Individual Savings Account. These investments can offer Stocks and Shares (equities), or deposit accounts as a method of generating returns. For longer term planning, equities offer greater potential for growth, but you should be careful to select ones that reflect your attitude towards risk. This style of investment should be held for between 5 and 10 years, to give the maximum opportunity.

Investment Property

Buying property to let has become a very popular method of building wealth. Gearing your savings, as a deposit on a larger asset, can prove very productive. Not only have you the opportunity for the asset to increase in value, but you also receive rent from the tenants. This means that the mortgage is in effect paid for you.

There are now letting mortgages, designed with landlords in mind. These are agreed providing the future rental income exceeds the mortgage interest by a certain percentage. Buying a second property has become as popular as taking out a pension plan, with people having confidence in the housing market over and above the stock market. Property should also be seen as long-term investment, as the entry costs are higher, such as stamp duty, legal and surveyor fees.

Overall Plan

How do all of these areas fit together?

Apart from buying your own residence, which should be the first step, all of the above are as important as each other. Ideally you should be able to call on assets from all of these areas in later life. This gives you flexibility and choice when using the money. If house prices are low, then you can use some of your cash. If your pension fund is not so hot, then you can defer the benefits and live from the return on the extra properties. It's important to attain a balance. You should seek advice from an independent financial adviser, to form your very own 'Wealth Creation' plan. All advisers will have their own views as to which route offers the most opportunity. But, remember, balance is the key!

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