Season’s Greetings! Here’s 8 ways to avoid a financial ‘hangover’ come the New Year!
It’s understandable that so many people stick their heads in the sand when it comes to their money and the pressures of Christmas.
If you can apply a few simple personal finance resolutions, it is possible to transform your personal finances and get to the end of 2019 with a much healthier financial position.
Here are my eight top personal finance resolutions for 2018 and into 2019
1 – Find out the cost of running your life!
I am continually surprised by how many people have simply no idea how much money they spend each month – or where this money goes. 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 2019 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 that you are paid also helps with this, so you know how much you have left each month.
Review it on a regular basis so you can compare where you planned to spend your money with where you actually spent it. Start with the ‘survival’ money, then move to the ‘safety’ money before moving onto the ‘Freedom, Gift & Dream’ money!
2 – Avoid being ‘in the red’
Short term debt (credit cards, store cards, overdrafts, etc.) are 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 2019 calendar. If you do, make sure you achieve it.
3 – Review your mortgage
Your mortgage is likely to be your biggest financial commitment. Even with sustained low interest rates getting good mortgage deals is a challenge. It remains important to review your mortgage regularly to ensure you are paying a competitive rate of interest. If you are on your lender’s standard variable rate (SVR) then you might be able to access a better product, saving you money each month which can go towards your other financial objectives. 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 you can take 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, 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 incentive/enhancement.
Also see our recent article about back filling additional state pension years if you’ve worked for three or more years in the UK at any time.
5 – Plan for the future
Starting a pension should be a big priority for many people 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) which means 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.
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 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). 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 in this area 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 make sure they remain cost efficient, relevant and are 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 be to always shop around. The Internet makes it quick and easy to compare prices on just about any product or service.
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.
8 – Get professional help
During 2019 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.