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Season’s Greetings! Start 2023 with purpose and avoid that dreaded financial ‘hangover’

Season’s Greetings! Start 2023 with purpose and avoid that dreaded financial ‘hangover’

14/12/2022 Posted by Sharon Sutton Blog, Financial Planning & Organisation

Amid a cost-of-living crisis, it would be fair to say that Christmas may look slightly different for some families this year.

However, spending time with family and overindulging will undoubtedly bring us joy!

We don’t want the joys of Christmas to be overshadowed by the thoughts of 2023.

If you can apply a few simple personal finance resolutions, it is possible to transform your personal finances and get to the end of 2023 in a much healthier financial position.

Here are my eight top personal finance resolutions for 2023

1 – Find out the cost of running your life!

Many people simply have no idea how much money they spend each month – or where this money goes. You may think you do; you might even know the total cost of all your regular outgoings but let me ask you – That ‘on paper’ amount that you should have left each month… Have you ever had this!?

Working out, and sticking to, a monthly budget is all about spending less than you earn. If you achieve this, month on month, you will be in a better financial position at the end of 2023 than you were at the start.

By deciding in advance where you will spend your money, you should make it easier to avoid the temptation to spend on frivolous/unnecessary items.

Rearranging monthly standing orders and direct debits to be taken from your bank account on the same day you are paid also helps you know how much you have left each month. Oh, watch for those subscription services – are you still using them?

Review this regularly so you can compare where you planned to spend your money with where you spent it. Start with the ‘Survival’ money, then move to the ‘Safety’ money before moving on to the ‘Freedom, Gift & Dream’ money!

2 – Avoid being ‘in the red’

Short-term debt (credit cards, store cards, overdrafts, etc.) is expensive. Debt is a drag on your ability to meet other financial goals and an emotional drag on your attitude towards money and personal finances.

Make clearing short-term debt a priority before starting to save towards other plans.

In your budget, prioritise debt over savings. Don’t take on more short-term debt. I like the idea of setting and marking a “free-from-debt” day on your 2023 calendar. If you do, make sure you achieve it.

3 – Review your mortgage

Your mortgage is likely to be most people’s significant financial commitment.

As previous low-rate fixed deals come to an end and with interest rates the highest they’ve been since 2008, getting a good mortgage deal is quite challenging.

Reviewing your mortgage regularly to ensure you are paying a competitive interest rate remains important. 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.

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!

4 – Pay less tax

Nobody wants to pay 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 tax allowances.

The simple steps to pay less tax include making tax-relieved contributions into pensions either personally or via an employer-arranged scheme.

By sacrificing salary by paying directly into such a scheme, you receive income tax relief at source, and you may also get National Insurance (NI) Contribution savings for both you and your employer.

All of this with the added bonus of having improved your income potential in retirement.

5 – Plan for the future

Starting a pension should be a big priority for many people in 2023. We constantly hear that we will need to save more and work longer. This has a lot to do with us living longer.

You cannot solely rely on the State for a sustainable income level in retirement, so 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.

6 – Make a will

If you don’t have a Will, make one!

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 may 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).

Don’t risk dying ‘Intestate’. 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 to avoid giving your loved ones an unwelcome tax bill.

At the same time, give some thought to family financial protection, particularly what would happen to your family from a financial perspective if you were to die, lose your income or contract a critical illness such as cancer – we all know someone whose life has been affected by cancer.

It is possible to insure against most risks, but you need to quantify them first.

If you have existing life assurance plans, review them to ensure they remain cost-efficient, relevant, and appropriately structured.

For example, you might discover that the cover you have in place is now redundant or that you are paying over the odds for the level of cover you have.

7 – Always shop around

Your golden money-saving rule should always be to shop around. The Internet makes comparing prices on just about any product or service quick and easy.

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.

Every £1 spent on Manx Food is worth £1.83 to the Manx economy, versus 58p with a non-local business (source: IOM Government).

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.

8 – Get professional help

During 2023 carry out a comprehensive review of your personal finances with an impartial Financial Planning professional who has 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 so they can identify areas that they can help you with, and you can grill them about their qualifications, experience and charges.

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About Sharon Sutton

Having founded Thornton in 2000, Sharon became the island’s first Chartered Financial Planner in 2009 and was UK President of the Personal Finance Society for the year 2017/18 having been first elected to the board in 2012. She was awarded the Chartered Insurance Institute's Award 'Building Public Trust in Life and Pensions in 2019 for her work in leading the PFS Financial Planners Practitioner panel (2017 to 2020).

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