6th January
general
Declutter your Budget
If you can make yourself look at your bank statement, it’s worth making a list of your essential expenses and working out any areas where you can cut back. There are subscription services for everything these days, so you may find some you are no longer using. January is the ideal time to cancel unwanted direct debits and look for better deals on the services 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. Swap the takeaways for home made. Your wallet and waistline will both benefit.
Consider gym memberships carefully, especially if you haven’t set foot in a gym since 2003. 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 goods and presents using a credit card is generally 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 it before the end of the promotional term.
And avoid payday loans at all costs.
Consider also reviewing your mortgage and any other long term borrowings. You may be able to switch to a better deal. Although bear in mind that early repayment charges may apply.
Build a Cash Reserve
Once you know your budget and have a plan to repay debts, you should start to build up an emergency fund. This can 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?
There is rarely a bad time to review your life insurance. Most people have 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 may want to consider private income protection. This can ensure that you receive an income until you retire, even if you can never return to work.
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 may have already been automatically enrolled. If not, you can set up a private pension.
You could have a number of pensions from previous employment. In which case it might be a good idea 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 may have extra benefits that would be lost if moved elsewhere.
If you are not sure you are saving enough into a pension, your pension provider may have calculators, or be able to produce an illustration of what you could receive at retirement. 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.
You can also check that your State Pension is on track at:
https://www.gov.uk/check-state-pension
You need to make National Insurance contributions (or receive credits) for 35 years to achieve a full State Pension. If you have missed any of the last 6 years, you can usually make voluntary contributions to make up the difference. This is often good value for money.
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 2022.
Please do not hesitate to contact a member of the team if you would like to find out more.
