Christmas is a struggle financially for many, and come January the “hangover” begins to kick in. You can, however, ease it if you can apply a few simple personal finance resolutions.
Here are my eight top personal finance resolutions for 2019!
1 – Budget and Be Brave!
So many people that we deal with, from all walks of life, simply have no idea where the money they earned at the start of the month has gone by the end of it.
What does your life cost? Figure out a monthly budget. It’s got to be realistic to last the whole year, so allow for emergency spends on breakages, one-off spends like car servicing, irregular term costs like school fees and school trips (!) and especially budget in treats and holidays. Be honest with yourself. Your plan will be all the more feasible and you’ll be able to stick to it. Ideally you want to spend less than you earn, so you can’t go too generous in the “treat yourself” department – but by deciding in advance where you will spend your money, you should make it easier to avoid the temptation to spend on the ridiculously frivolous items.
“Safety” and “Survival” money should always be priority though, and rearranging monthly standing orders and direct debits really helps with this. Schedule them to be taken from your account on the same day you’re paid. For example, when you’ve made your monthly mortgage payment and guaranteed a roof over your head for the month and got the bills covered, you know that you can use the leftover cash however you deem necessary for everything else in your budget.
2- Short term debt
For many, the repayment of short-term debt is not only a huge drag on finances, but a terrible source of stress. Store cards, credit cards, payday loans, and overdrafts all come with sky high interest rates so you end up paying a lot more than you borrowed. For this reason, my ultimate tip would be to avoid short term debt completely if possible – budgeting for things that would otherwise be covered by overdraft or credit cards, and just saving up for household items that would be put on store cards.
Where short term debt cannot be avoided, it is best to make paying it back a priority in your monthly budget so it is gone as fast as possible and you’re not liable for more and more interest.
3 – Review your mortgage
Your mortgage is likely to be your biggest financial commitment. Even with sustained low interest rates it remains important to review your mortgage regularly. Nobody can say for certain where interest rates will go next, but it certainly pays to ask at your next review the following questions:
- If you are on your lender’s standard variable rate (SVR) then you might be able to access a better product
- If you are on an interest only mortgage, consider switching to repayment, or have a plan for when the redemption date all of a sudden arrives!
- Also consider whether your mortgage allows you to “overpay” each month, or on an ad hoc basis to save interest and become debt free sooner.
4 – Make the most of tax allowances
Nobody enjoys paying tax but it is the social responsibility of those who earn to pay it. However, many of us fail to take the simple steps that enable us to pay less tax and maximise our allowances.
You can make tax relieved contributions into pensions either personally or via an employer arranged scheme. By sacrificing salary by paying directly into such a scheme, not only do you receive income tax relief at source, but you may also get National Insurance (NI) Contribution savings for both you and your employer – who in turn may consider adding their NI saving into your pension as a further enhancement.
5 – Plan for the future
Starting or continuing a pension should be a big priority for nearly everyone in 2019. We constantly hear that we will need to save more and work for longer. This has a lot to do with us living longer, and lower interest rates (which broadly determine pension annuity rates). As a result, you need a larger pot of money to generate income to live off. You cannot solely rely on the State for a sustainable level of income in retirement so this means you need to use a pension or other investment vehicle to create your own sources of income for later life; if you ever want to stop work that is!
Also see our recent article about back filling additional UK state pension years if you’ve worked for three or more years there at any time. http://www.thorntonfs.com/857-2/
6 – Make a will
If you don’t have an Isle of Man Will, make one.
Some simple points to note are that:
- You can write your own Will but there are some major risks involved with a DIY approach, so meet with an advocate to get this organised.
- If you die without a Will, i.e. ‘Intestate’, your estate will not be distributed according to your wishes; in many cases where remarriages have occurred, the family structure can be more complex (it is worth pointing out here that marriage voids existing wills unless made in contemplation of the marriage).
- Anyone making a will, especially with any connection to the UK should ask their advocate to consider the tax consequences of making such a will (or transferring ownership of assets when you are alive for that matter), not only to you personally, but to your beneficiaries. Ensure you obtain financial and/or tax advice in this area to avoid giving your loved ones an unwelcome tax bill.
- Don’t make the mistake of thinking a Will made elsewhere ‘will do’ if you have Isle of Man assets.
It’s unpleasant to think about the risk of such bad things happening, but creating a will and organising insurance protects your family from worrying about money should the worst case scenario unfold.
7 – Always shop around
An easier and more light-hearted tip is to always shop around – for everything! The Internet makes it quick and easy to find out how much you should be paying for something so that you don’t get ripped off.
However, the cost effectiveness of shopping online should be balanced against the benefits of shopping ‘local’; you’re keeping someone in a job who supports the same economy in which we all participate. The 20% VAT on the goods also stays on island.
Additionally, the local food growers don’t rely on Irish sea conditions to deliver it, and deliver excellent sources of organic and grass fed produce.
Depending on how you’ve allocated your budget from our first tip, you can decide which areas you need to look for a deal on, and areas you’ve allocated more money to enjoy quality local goods and services.
8 – Get professional help
Out of the 340+ evenings remaining in 2019, use at least one of them to sit down and get organised by putting some of our tips to the test. While you’re at it, research whether it would be of benefit to you to carry out a comprehensive review of your personal finances with an impartial Financial Planning professional.
Professionals in Financial Planning (like us) have access to the tools and knowledge needed to improve your current and future position. Most regulated firms offer a free initial consultation with no obligation – including us. We use this time to identify areas that we can help you with, and we encourage you to take the opportunity to learn more about your prospective planner and their qualifications, experience and charges.
Founder and Managing Director Sharon became the island’s first Chartered Financial Planner in 2009 and the immediate past national President of the Personal Finance Society.
About Thornton Chartered Financial Planners
Established by Managing Director, Sharon Sutton in 2000, Thornton is a Chartered Financial Planning Firm providing Multi-jurisdictional Financial Planning Advice and Regulated Investment Advice to private individuals, trustees and business owners on the Isle of Man.