Managing career and financial uncertainty in volatile times

With ongoing volatility related to President Donald Trump’s trade policies and a UK government which is looking to enact some significant change domestically, there’s renewed scrutiny on tax policy, tax effective allowances and the long-term reliability of wealth building tools like pensions and ISAs.

With this in mind, it’s more important than ever to bring the right structure to your financial decision-making. That means not just reacting to headlines but planning proactively for ‘what ifs’ around your career, income and retirement plans.

Senior executives are often remunerated with variable pay structures. On top of base salary can be performance bonuses, carried interest, stock awards and more. In uncertain markets these income streams can be disrupted, even if your overall job security remains relatively strong.

This variability can make it hard to adjust without understanding the impact on your long-term plans, or knowing exactly how long the disruption will last.

Here, cashflow modelling can be a powerful tool. By forecasting different income scenarios, you can:

• Assess how long your existing savings and investments could support your current lifestyle
• Explore the possibility of major changes, such as moving to a new role or taking up self-employment
• Consider the long-term impact of any short-term variation in your overall compensation package
• Understand the impact of deferring bonuses or utilising salary sacrifice

This type of planning can give you insight and reassurance, helping you make decisions from a place of clarity, rather than pressure.

Ultimately, the better you plan for these periods of volatility, the better placed you’ll be to manage through it. As you well know, while it’s impossible to predict exactly what the source of future uncertainty will be, it's practically guaranteed that there will, at some point, be uncertainty to deal with.

There are many strategies and best practices you can employ to build a resilient financial plan, such as:

• Maintaining a strong emergency fund. Holding 6 to 12 months of essential living expenses in accessible cash gives you breathing room if there’s a short-term change to your regular income
• Protect against the unexpected. While we’re talking mainly about economic volatility, unexpected health issues can have an even greater impact on your family finances, potentially affecting your ability to pay for things like school fees or mortgage costs. Ensure you’ve got adequate protection in place, such as income protection and life insurance, so that your financial future isn’t reliant on your current health
• Diversify your income sources. Look to build up multiple income sources over time. This could be a mix of salary, consulting, dividends or rental income, as a few examples
• Stress test your finances. We’ve already mentioned it, but cashflow modelling is incredibly important for planning for the unexpected. For example, understanding the potential impact of short-term volatility can help guide you as to whether you need to increase your emergency fund or review your expenses 

While much of the focus on the topic of uncertainty is around managing risk, it’s worth mentioning that volatility also provides plenty of opportunities for those able and willing to act quickly.

Any plan for uncertainty should also include in it the flexibility to take advantage of these opportunities when they arise. These could be wide ranging, including the potential to make substantial career jumps through mergers and acquisitions, launching a new business to fill a recently created gap in the market, or maintaining sufficient liquidity to invest at a time when others are rushing to the exits.

Whether managing risk or acting on new opportunities, it’s the same fundamentals of foresight, planning and diversification that will predict success.

The rules around tax-effective accounts like pensions and ISAs have been in the sights of successive governments, with changes already made to pension treatment for inheritance tax in the last Budget.

There are increasing murmurs that we could also see some changes to the ISA tax-regime, meaning early action to use these valuable allowances may be worth considering.

Using your ISA allowances as early as possible can provide some protection if rules do change in the Autumn Budget (though there’s no guarantee that they will), and if markets rise throughout the year, you may also generate some additional returns. Markets can also go down, however, and you may get back less than you invested over that time frame as well.

The same goes for pensions, with the ability to contribute up to the level of your total earned income for the year (to a maximum of £60,000) and carry forward unused contributions from up to three previous tax years.

If you’d like to understand how your current plan stands up to uncertainty or build more flexibility into your finances, we’re here to help. Book an appointment with an Evelyn Partners financial planner to explore your options and create a plan that’s built for the future, whatever it may hold.