As we approach the end of 2023 and reflect on the past year, it’s worth taking a moment to consider whether you are on track to meet your financial goals. With the excesses (and likely overspending) of the festive period, this could be a good time to think about improving money habits in the new year.
Declutter your Budget
Looking at your bank statement, it’s worth making a list of your essential expenses and working out any areas where you can cut back. This means cancelling unused subscriptions and making more mindful choices when it comes to spending. January is the ideal time to cancel unwanted services and look for better deals on the products you do use.
Don’t forget to check your credit cards as you may have regular payments set up that you have forgotten about. You will need to contact the service provider to cancel these – your credit card company can’t do it for you.
January is also a time for healthier eating, which can help with your budget. Healthy homemade recipes will benefit both your wallet and your waistline. Shopping and cooking in bulk can increase the benefits.
Consider gym memberships carefully, especially if this is not already part of your routine. Rather than commit to a year’s worth of expense, try and build good habits that you will stick to. Go for long walks, exercise at home in front of the TV, or join a class with a friend.
Clear Expensive Debts
Buying gifts using a credit card can be a good idea, as there are greater financial protections if something goes wrong. But you should always clear the balance as quickly as possible. Credit card interest is generally high, and only making the minimum payment each month can take years to clear the debt.
If your credit card balance will take several months to clear, consider switching to a 0% interest deal. There will be a fee for switching, but this is usually outweighed by the saved interest. 0% credit cards can also be useful for large purchases, providing you clear the balance before the end of the promotional term.
Payday loans should be avoided at all costs.
Consider also reviewing your mortgage and any other long-term borrowings. Interest rates are currently on the higher side, which makes it even more important to shop around. You might want to think about making overpayments.
Build a Cash Reserve
Once you have a good grasp of your budget and debts, you should start to build up your cash reserves. This can help avoid the need to go into debt in the first place if you have an expensive repair or unexpected bill.
Keeping a few different bank accounts can really help with keeping track of your finances. For example:
Account 1 – Bills and essentials
Account 2 – Discretionary Spending
Account 3 – Emergency Fund
Account 4 – Savings and short-term goals
Protect Your Family
Would your family cope financially if anything were to happen to you?
It’s a good idea to review your financial protection from time to time, particularly if your circumstances have changed.
Most people have life cover in relation to their mortgage, but very few consider the implications beyond this. Loss of salary, increased childcare costs and help at home can increase financial pressure at an already difficult time. Money can’t replace a loved one, but it’s one less thing to worry about.
Don’t forget to check what would happen if you were unable to work for a long period. Your employer may have a company sick pay policy. If not, or if the benefit term is limited, you might want to consider private income protection. This can ensure that you receive an income for a set period, which could be a few years or until retirement age, depending on the policy.
Use Your ISA Allowance Before 5th April
You can save up to £20,000 per year in an ISA. All growth and interest is free of tax, and you can withdraw money at any time without worrying about capital gains tax.
A Cash ISA can be ideal if you are building up your emergency reserve. However, for long-term savings, a Stocks and Shares ISA provides greater growth potential, which enhances the tax benefits over time.
Check Your Retirement is on Track
If you don’t have a pension, you should start one as soon as possible. Your employer probably has a scheme available – you might have already been automatically enrolled. If this is not an option, or if you would like to make additional contributions, you could set up a private pension.
You might have a number of pensions from previous employment, in which case you may want to have them reviewed. Holding your retirement fund in one place can make things easier to manage, but it’s always worth seeking advice on this, as your old pensions could have extra benefits that would be lost if moved elsewhere.
If you are not sure you are saving enough for a pension, your pension provider may have calculators on their website, or be able to produce a retirement projection. Remember to account for inflation, and that illustrations are not guaranteed.
Alternatively, a financial adviser can help you develop a detailed plan of what you need to achieve and how to get there.
It’s also a good idea to make sure your State Pension is on track.
You need to make National Insurance contributions (or receive credits) for 35 years to achieve a full State Pension. If you have missed any years, you can usually make voluntary contributions to make up the difference. Normally, you can go back up to six years to make up missed contributions, but until April 2025 it will be possible to make up contributions going back to 2006.
Your finances may be the last thing on your mind during the festive season. But you can enjoy it all the more knowing you have a plan for 2024.
Please do not hesitate to contact a member of the team if you would like to find out more.
