New Year, new start to your finances

Taking time to understand your financial plans will really pay off

At the start of every year, we have great intentions, as financial promises are renewed. Getting our financial life in order will be a top priority for many as we enter 2021. Consider focusing on two key areas: goals related to being prepared for the unexpected this year, and those related to what you want to be different at the end of the year.

Money doesn’t buy happiness, but it can certainly help – and the key is building healthy financial habits. Whether you want to stay on top of your bills, pay off your debts sooner, save for a dream holiday or look forward to a successful retirement, taking time to understand your financial plans will really pay off.

10 areas to consider when setting New Year financial goals

New Year’s resolutions can be notoriously difficult to stick by. However, there are a few ways to help make sure you start the year on a positive financial footing.

1. New year, new financial goals

There’s nothing like the fresh start of a new year, which makes it the perfect time to sit down and set some financial resolutions for the next 365 days. Having clear financial goals to work towards will give you a sense of purpose and motivation to spend less and to save and invest more throughout the year ahead. But remember, without a plan in place, a goal is just a dream. So, if you want to ensure you achieve your financial resolutions, then it helps to break the bigger goals down into more manageable bite-sized objectives which you can gradually work through bit by bit to create better financial habits.

2. Go over your budget

Review this past year’s budget. What did and didn’t work for you? If your current budgeting methods and tools aren’t working, look for a better way to track your spending. Assess your income and expenses, looking for places to save money. Revise your budget to reflect any changes to your income or expenses in the new year. If you don’t have a budget, it’s time to make one. What are your priorities? How can you make this sustainable?

3. Review your borrowing

Find out if you could save money by refinancing your mortgage, car loan or student loan. If you have high-interest debt, make a plan to pay it down. If you don’t have enough extra money in your budget to make a big dent, consider these options. Investigate 0% introductory balance transfer offer credit cards. Could you transfer your high-interest balances to a card with a temporary 0% interest introductory period to save on interest? The key is making a plan to pay off the balances before the introductory period ends and you begin paying a standard interest rate. Are you utilising less than 25% of your available credit across all of your cards and loans at any one time? Anything higher could affect your overall credit rating score.

4. Check the interest rate on your savings

Savings rates have been at historically low levels since the financial crisis of 2008, which makes it all the more important to shop around for the best rates. Different types of savings accounts have different rules on how much you can put in and when. Could you deposit money into another account where you receive a better rate of interest? It’s important to check how your savings are growing and at a rate above inflation, and then decide if you need to make changes. When choosing a savings account, you need to think carefully about whether you will need access to your money, how long you are looking to save for, and how you want to operate it.

5. Take a look at your investments

Whether your goal is to create a nest egg for early retirement or to leave something behind for grandchildren, reviewing what they are and whether you’re on track is important. How long should you be prepared to put your money away for? Do you want to invest for income, growth, or both? Are your investments aligned with your values and life goals? How can you grow your wealth? As we enter the new year, it’s important to remember that volatility is also part of investing. But rather than looking at short-term volatility, it pays to look at the bigger picture. Your long-term goals should remain centre stage. All investments come with some level of risk, and you can decide how much risk you want to take. This should be tied to your overall financial position and investment attitude. Differing circumstances and goals may mean that what was once appropriate, no longer is. It’s important that you feel comfortable with the level of risk you’re taking with investments. Should you review your investment portfolio? Is your portfolio sufficiently diversified? Does your portfolio reflect your goals and risk profile?

6. Planning for your retirement

Even if retirement seems a long way off, think about what you want your money to do for you when you stop working. Do you know how much money you may need in retirement? How long will your money need to last for? How much should you be saving today? Planning for your retirement is a great way to prepare yourself for the future, and to make sure that you’ll be financially secure and live the lifestyle you want – even when you’re no longer earning. The earlier you start the process for planning for your retirement, the more manageable it will be, and the less of an impact it’ll have on your daily finances. Are you taking full advantage of the tax-efficiency of your Personal Pension or Workplace Pension? What are you looking forward to doing the most in retirement? How much retirement savings will you actually need? How much can you afford to spend yearly once you have retired?

7. Combining a number of different pensions

It’s not uncommon now for people to have built up a number of pensions during the course of their lives. Over your career, have you worked for different employers and built up a number of different pension pots and/or pension schemes? Do you have personal pensions built up during times spent being self-employed? At some point – and not necessarily near your retirement – you’ll have to decide whether to consolidate them or leave them separate. Pension consolidation could potentially be a way to maximise the value of your investments. It can make it easier to track how well a fund is performing in putting your money to work on the markets to boost your investment returns, and it provides an opportunity to reduce how much you lose paying scheme charges. However, consolidating a pension isn’t for everyone. When weighing up whether consolidating your pensions is the right move, it’s essential to obtain professional financial advice.

8. Make the most of your tax-efficient allowances

Time is running out if you haven’t taken full advantage of your tax-efficient allowances before the end of the tax year on 5 April. Every tax year, commencing on 6 April, you receive new Individual Savings Account (ISA) and pension allowances. These have valuable tax benefits that are designed to encourage you to save what you can and help you make the most of the money you put aside. Have you fully maximised your contribution levels for the current 2020/21 annual £20,000 ISA allowance, and annual £40,000 pension allowance? Can you take advantage of pension carry forward to make extra pension contributions? Are you fully using your Personal Savings Allowance for tax-free interest payments? What is your financial gifts tax allowance? Can you use your Capital Gains annual allowance to create tax-free returns?

9. Review your estate plan

There is never a good reason to not have a Will. How can you write your family’s future? Have you written a Will, or does your existing Will need updating? Making a Will is not a task that many people look forward to. It can easily slip down the to-do list – for a number of reasons. If you were to die without a Will in place, your estate would be shared out according to certain rules – known as ‘intestacy rules’ – and this could create a tremendous burden on your family and loved ones. A Lasting Power of Attorney for Health and Welfare (LPA) will also allow you to give someone you trust the legal power to make decisions on your behalf in case you later become unable to make decisions for yourself. How can you leave money to charity? How much money can you give away each year in gifts without tax implications? Can you make regular gifts out of your surplus income? Should you put your assets into a trust during your lifetime?

10. Check when your next review is

You’re not sure what to prioritise – your pension, mortgage or your ISA. You’re starting to lose sleep over whether you’re saving enough for your children’s education. And you can’t quite recall whether you have accumulated four, five — or was it six? — pension pots from previous jobs. Now may be time to consider your next financial review to discuss your immediate and future plans and talk through your financial goals.

Helping you towards your goals

Most of us have an idea of the life we would like to live. But without a goal and a strategy for reaching it, these ideas may never become a reality. The beginning of a new year is the perfect time to consider your existing financial goals and decide if they still align with your priorities. It may also be a good time to check if you have the right systems and support needed to achieve these goals when you want to. If you’d like to know more about how we can help you achieve your financial and life goals, please contact Reeves Financial on 01403 333145 or email areeves@reevesfinancial.co.uk.

A PENSION IS A LONG-TERM INVESTMENT AND IS NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028).

THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, AND YOU MAY NOT GET BACK THE FULL AMOUNT YOU INVESTED.

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