Busy Times Under The Money Tree

It’s a busy time Under the Money Tree. For various reasons the final two months in the UK tax year are a busy time here at UTMT HQ. Here’s what’s on the agenda…

Work bonus

As discussed recently I have just received my annual ‘incentive’ bonus. To be honest it is not a massive incentive to work even harder this year when I reflect on the efforts expended and sacrifices made throughout the year, particularly once the tax man has taken his share.

Unfortunately we’re not all as lucky as Antonio, so the Ferrari and  holiday home in the south of France are on hold for another year. Despite the grumbling,  I’m well aware that I’m lucky to get anything and there’s plenty of others out there working harder, in a much worse financial state than me.

Anyway what to do with said bonus? Gone are the days when my wife and I treat ourselves to a weekend away, some electronic gadgetry we don’t really need or some other extravagance. That is not how Money Tree’s are grown. Instead we’ll probably settle for the following:

1. A simple meal out to celebrate/commiserate/grumble/reflect on bonus day
2. Pay another chunk off the mortgage
3. Make some additional pension contributions into our SIPPs
4. Top up the ISAs

All of the above (apart from 1) are very boring really but any windfalls such as bonuses are a fantastic opportunity to give the money tree a spurt of growth.

Regular Cash Savings Accounts

My regular savings account with First Direct is due to expire in the next few days. This is the top yielding regular savings account around at the minute, as it was when I set up the account this time last year.

Interest is paid monthly at a gross rate of 6%. This means that if you pay in the maximum £300 each month you’ll end up with £3,717 before tax, meaning the overall yield on the account is 3.25% gross. You’re only allowed one of these accounts so I’ll be opening another one on the same day my current one expires.

Of course with these accounts you need to be aware that while you have instant access to your money, you’ll lose all of the interest if you withdraw anything during the year. For me they’re a great way to regularly add to my cash savings and get a half decent interest rate while still having access to the money if needed.

ISAs – Fill Her Up 

If you haven’t maxed out your ISA allowances for the year then now is the time to be doing it. ISAs form a key part of the Money Tree and will hopefully form a reasonable proportion of my post work income. As we approach the end of the tax year now is the time to ensure that this years allowances have been maxed out and to plan out how and when next years allowances are going to be filled.

With cash returns so low the entire allowance has been deposited into our stocks and shares ISAs. As there is a reasonable chunk of cash being deposited I’ll also take the opportunity to review my asset allocation and adjust it as i see fit.

Pension Contributions

With the end of the tax year approaching on the 5th April now is the time to start making additional pension contributions. Not only will any contributions help me enjoy the tax breaks on the actual contributions but they’ll also help me avoid the hidden 60% income tax rate.

Capital Gains?

Being a prudent soul, most of my ‘traded assets’ (shares/funds etc) are sheltered away form the tax man in ISAs or SIPPs meaning they are exempt from CGT. However I do have a few shares and other bits and bobs in a regular trading account that were bought before I fully appreciated the benefits of tax wrappers and low fees.

With about 5 weeks of the tax year remaining now is a good time to consider selling any assets that may be liable to capital gains tax and to use the annual allowance before April.

Create The Plan

Up until now, and for the last 4-5 years, all of my financial energy has been based on taking positive steps towards reducing costs, increasing savings and over paying the mortgages. I’ve managed to completely avoid the usual analysis paralysis that many people will face when tasked with such a big thing a ‘retire early’.

While I have built tools that will tell me my net worth and ‘non work income’, I have not yet built a detailed plan that will tell me exactly how and when I will achieve financial independence. Despite being a (non practicing) qualified accountant  I’ve never really liked forecasting. Forecasts almost invariably end up wrong so I generally prefer to focus all my efforts on ‘doing’ rather than predicting something I know that will be wrong. However I feel it is time now to get down in Excel exactly how and when this early retirement is going to happen. Watch this space!