The new year is a great time to make changes. Whether you want to exercise more, lose weight, or change your diet, January gives you the perfect opportunity to do things differently.
While many resolutions focus on health and fitness, the new year is also the ideal time to develop some new habits when it comes to your finances. Making small changes could have significant benefits, so here are ten financial resolutions to consider this January.
1. Get a handle on your budget
It may sound like an obvious place to start, but how closely do you monitor your income and expenditure?
Budgeting is one of the financial planning basics. Spend less than you earn and save the difference is a simple way to build your wealth. So, take some time to check your bank statements, cancel everything you don’t need or use, and make sure you’re in ‘profit’ every month.
2. Pay off expensive debt
If you have any debt, the new year is a great time to start tackling it.
The higher the interest rate, the more the debt will cost you, so it’s usually a good idea to pay off expensive debts first. You might want to start paying off credit cards and overdrafts, then personal loans.
Paying off your debts means you may be able to save more for your future, improve your credit score, and give you peace of mind that you don’t have any creditors to keep you awake at night!
3. Increase your pension contributions
If you do have surplus income, or you recently received a pay rise, it could be worth increasing your pension contributions.
Each time you pay into a pension the government tops it up with 20% tax relief, making it a great way to save for your future. If you’re a higher- or additional-rate taxpayer, the tax benefits are even more attractive.
4. Pay yourself first
A common way that people save is to see how much surplus cash they have at the end of the month, and transfer this into their savings, investments, or pension.
Instead, get into the habit of paying yourself first. Set up a payment that comes out of your account on payday, and then manage your monthly expenditure based on what is left.
5. Check your money is working as hard as it should be
The way you invest your money has a significant impact on your ability to reach your goals.
In November 2020, analysts Moneyfacts revealed that just 28 variable rate savings accounts in the UK paid interest higher than the rate of inflation. The chances are that money you hold in cash isn’t keeping up with rises in the cost of living, meaning it’s actually losing value.
Investing in equities gives your money the opportunity to benefit from stock market growth. Analysis by IG shows the FTSE 100 produced an annualised total return of 7.8% between 1984 and 2019. You can’t rely on historical performance, but it’s worth noting this period included Black Monday, the dot-com bubble, the global financial crisis and the EU referendum.
Remember that investing in the stock market carries risk and there’s a chance you could get back less than you initially invested. Equities are generally only suitable for long-term financial goals.
One way to reduce risk is to spread your money across different asset classes, regions, and sectors. This brings us to…
6. Create a diversified portfolio
You’ve probably heard the old saying, ‘don’t put all your eggs in one basket.’ When it comes to your money, this is a vital piece of advice.
By diversifying your money across a range of assets, including shares, bonds, property, and cash, you can reduce the impact of stock market falls on your overall portfolio.
Your ‘asset allocation’ – the amount of money you invest in each asset – will depend on your individual circumstances. Working with a financial planner can ensure that you have the right asset allocation for you, and that it is updated and rebalanced as required.
7. Make the most of your ISA allowance
Nobody wants to pay more tax than they have to. That’s why it’s so important to make the most of your ISA allowance – particularly as the Chancellor is widely expected to implement tax reforms in 2021 and beyond.
Investing in a Cash ISA means you don’t pay any tax on the interest you receive. If you invest in a Stocks and Shares ISA, your money grows free of Income Tax and Capital Gains Tax, and you can withdraw money whenever you like without paying tax.
You can pay up to £20,000 into ISAs in the 2020/21 tax year. And, as they are ‘individual’ it can pay to use both allowances if you’re a couple.
8. Make a will
Making a will is a key part of your financial plan, yet research by Royal London suggests 57% of UK adults don’t have a will in place.
If you die without a will, it could cause immense stress and financial hardship for your family. Your assets may not pass to the people you wish, and your loved ones could end up disputing ‘who gets what.’
When you make a will, you can ensure:
- Your assets go to the people you want
- Your children will cared for by people you trust
- You make provision for an unmarried partner and stepchildren
- Your family can continue to live in their home
- Your estate won’t be liable for unnecessary Inheritance Tax.
If you don’t have a will, or you haven’t updated it recently, resolve to do this in 2021.
9. Protect yourself against the unexpected
The last few months have shone a light on the devastating impact that ill health can have on both our mental and financial wellbeing. While it’s not always possible to prevent illness or death, we can make sure it doesn’t have an adverse financial impact on your loved ones.
Recent research by Legal & General suggests the average household’s savings would last just 24 days if they lost their income. If you’re worried about whether your family could continue to live in the family home, whether your children could have the life you want for them, or you’d be able to pay your bills if something happened to you, make the new year the time you put the right protection in place.
We can make sure you have the right cover for your needs. Get in touch if you’d benefit from expert advice.
10. Speak to your financial planner
The best way to get your finances in shape for the new year is to speak to a financial planner.
We can help you define your goals and then create a comprehensive, personal financial plan that helps you achieve those goals.
Whether you want to make sure you can live the life you want in retirement, help your children onto the property ladder, or just get the moat from your savings, get in touch. Email firstname.lastname@example.org or call us on 01189 876655.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.