Why personal financial planning matters more than ever (in an age of personal finance apps)
In recent years there has been an increasing trend for investors to use personal finance apps for investing such as Moneybox, Nutmeg and Pensionbee and some basic financial planning tools e.g. Moneyhub, Money Dashboard and Moneyinfo. It strikes me that this is an irreversible trend especially for Millenials and even younger generations.
Whilst I understand that it is quick and easy to buy investments and invest in pensions using apps there is a distinct lack of comprehensive financial planning apps which are needed. Let me explain why.
It’s all very well investing on an app but what about taxation, lifetime cash flow planning, asset allocation, investment risk management and financial coaching? There appears to be very little available in the form of apps on these subjects. This is where a financial planner and a taxation specialist helps in the offline world. However, it is missing in the apps world.
No doubt more sophisticated financial planning apps will appear over the coming years. In the meantime you could use HapNav which was featured in my Wealth Magic blog last month. It is an early stage personal financial planning tool which will be integrated with the personal finance app Moneyhub in January 2022. There will then follow a series of integrations with other advanced personal finance apps over subsequent months. So even though it isn’t the finished product yet, the early signs are that HapNav could potentially bridge that gap between personal finance apps and personal financial planning.
A recent experience of mine serves as a good example of the shortfalls of personal finance apps. A young man I know for the first time is on target to earn more than £100,000 this tax year. Your Personal Allowance goes down by £1 for every £2 that your adjusted net income is above £100,000. This means your allowance is zero if your income is £125,140 or above. You’ll also need to do a Self Assessment tax return. This young gentleman is 30 years old. He has never used a financial adviser before and doesn’t intend to appoint one any time soon. He doesn’t have an accountant either. However, he does want to keep his personal allowance. As his income for this tax year will be around £120,000 he is aware that he will potentially lose most of his personal allowance. His income above £100,000 is being taxed at an effective rate of 60% Income Tax. He is going to pay a personal pension contribution to get his income back below £100,000 in order to keep his full personal tax allowance. He isn’t entirely sure how much to pay into his personal pension to maximise his tax savings. This is clearly an issue that most, if not all, current personal finance apps cannot solve.
So watch out for the next generation of personal financial planning apps which will no doubt start to emerge to solve such financial planning and taxation issues in the future. In the meantime, you may wish to engage a financial planner instead. You know it makes sense.*
*The Financial Conduct Authority does not regulate tax advice.
The contents of this blog are for information purposes only and do not constitute individual advice. You should always seek professional advice from a specialist. This blog is based on my own observations and opinions.