Mastering your money

Time for a financial refresh for the New Year

A new year often provides a perfect chance to review personal goals and update old habits. This year, consider expanding that review to include your personal finances. For many, managing their finances can seem daunting. However, as with many challenges, the worry is often worse than the task itself, and the most challenging part is simply taking that first step.

With just a few hours of focused effort, you can develop greater control and positivity around your finances. No matter your starting point, there are always steps you can take to make meaningful improvements. An annual financial review, especially after the festive excesses of December, is highly recommended. It’s also wise to reassess your finances whenever your personal circumstances change significantly.

Taking control of your debts

If you are struggling with debt, this must be the first and most crucial area to address. Debt is a common part of most people’s financial lives at some point, and it’s essential to distinguish between manageable ‘good’ debt and problematic ‘bad’ debt. However, if your borrowing becomes unmanageable, you need to seek help promptly to regain control of your finances. Debt problems tend to worsen if left unaddressed.

Consider whether you can consolidate or rearrange your debts with a reputable lender, such as through a workplace scheme, your bank, or a building society. Contact your lenders to arrange an affordable, sustainable repayment plan. For help, think about contacting reputable debt charities such as Citizens Advice, National Debtline, or StepChange.

Evaluating your spending habits

A comprehensive review of your expenses is the next step. Examine your bank and credit card statements from the past three months. Are you happy with how your money is being spent, or are there costs that could be stopped, rearranged, reduced, or paused? Even minor adjustments across a few items can make a noticeable overall difference.

Reducing regular expenses can provide greater budget flexibility, freeing up cash to pay off debt more quickly or boost your savings contributions. The largest expense for most households is rent or a mortgage payment. It is advisable to ensure this expense aligns with your lifestyle and finances. Whether you are saving for a first home or planning to remortgage, understanding your options is crucial.

Building your savings and investments

Savings form the foundation for achieving the lifestyle you desire and reaching your primary life goals. There are four key areas to consider when reviewing your savings plan. The first is your emergency fund, an easily accessible savings pot designed to cover unexpected financial shocks. It should cover three to six months of your essential monthly expenses. If you need to use it, make a plan to restore it as soon as possible.

The amount you save depends on your budget, affordability, and specific financial goals. Regularly review your budget to identify opportunities to increase your contributions. Remember that in addition to regular saving, one-off windfalls such as gifts, bonuses, or pay rises can substantially boost your savings plans. Your financial plan should outline your goals and the timeframes you aim for.

Aligning products with your financial plan

Choosing the right products is essential. For savings goals within five years, cash-based options like high-interest savings accounts, Premium Bonds, and Cash ISAs are usually suitable. For targets beyond five years, if appropriate, consider risk-based investments such as a Stocks & Shares ISA. Ensure you are aware of what your workplace offers, as many employers provide pensions, share schemes, or corporate ISAs.

Regularly review your investments to ensure they remain aligned with your financial plan and risk tolerance. It is also important to check that their costs and performance meet your expectations. Remember, the value of investments can both decrease and increase, and you may receive less than you initially invested.

Ready to move forward on your path to financial freedom?

Your financial plan acts as the guiding document for these choices, so reviewing it each year is a sensible practice. Spending a few hours this January could greatly benefit your financial well-being. For more information and to discuss how we can support you, please do not hesitate to contact us.

THIS ARTICLE IS FOR INFORMATION PURPOSES ONLY AND DOES NOT CONSTITUTE TAX, LEGAL OR FINANCIAL ADVICE. TAX TREATMENT DEPENDS ON INDIVIDUAL CIRCUMSTANCES AND MAY CHANGE IN THE FUTURE. A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS THE PLAN HAS A PROTECTED PENSION AGE). THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE. INVESTMENTS CAN FALL AS WELL AS RISE IN VALUE, AND YOU MAY GET BACK LESS THAN YOU INVEST.