According to timeanddate.com, 17 January is Ditch New Year’s Resolutions Day. Not only are 80% of resolutions destined to fail, but our resolve will begin to weaken just a couple of weeks into the new year.
After a turbulent 2020, you might have considered making some financial changes to help you get back on track during 2021.
Here are five financial new year’s resolutions to consider, plus, how to keep them beyond 17 January.
1. Pay your future self first
Paying your future self first is a great new year’s resolution to build financial stability for later life, especially if you can turn that resolution into a habit. Use payday to contribute towards your pensions and investments and then budget with the amount that remains. Do the same every month and it will quickly become the norm.
Try using the 50/30/20 rule, where 50% of your income after tax goes on needs, 30% on wants, and 20% on saving for the future. Put the 20% aside first and you won’t miss it. If you have disposable income left at the end of the month, direct that into your savings too.
According to a recent Aviva study, 58% of people aged between 45 and 60 are worried they do not have enough money to maintain an adequate standard of living in retirement.
Speak to us if you have concerns about the amount you are putting aside. We can take a holistic view of your finances, putting a plan in place to help you achieve your long-term goals.
2. Start saving for a child or grandchild
Once you’ve paid yourself, be sure to put money aside for your child or grandchild too.
According to the Independent Schools Council, the average cost of private schooling is currently £15,000 a year. A three-year undergraduate course, meanwhile, will cost more than £28,000 in fees alone. It’s never too early to start saving for a loved one’s education.
You might want to help the next generation afford their first home. Inflated house prices, poor wage increases, and a rising cost of living have led to an 8% rise in the number of young adults living in the family home over the last ten years.
Research from Loughborough University found that almost two-thirds of young single adults (that’s over three million people) are currently living in their family home.
You might consider saving money into a Cash, or a Stocks and Shares Junior ISA (JISA). They are tax-efficient, and you can put aside up to £9,000 a year in the 2020/21 tax year.
There’s no tax to pay on interest earned in a Cash JISA and any gains in a Stocks and Shares JISA are free of both Income Tax and Capital Gains Tax (CGT).
3. Find lost pensions
By the time you retire, you might have had a handful of different jobs and have accrued pension funds under several different schemes, on top of any private pensions you have taken out. Have you checked in on these recently? Maybe you’ve lost track of some altogether?
The new year is a perfect time to dig out any old paperwork you have and track down those ‘lost’ pensions. This will help you get a better idea of the amount you could take into retirement.
You might also consider the pros and cons of consolidation – putting all your pension pots in one place.
Consolidation can make it easier to keep track of your pensions. You’ll only have one statement to request and one provider to deal with. You can also consolidate your plans into the scheme that suits you best. The one with the most flexibility maybe, or the lowest charges?
If tracking down lost pensions is one of your resolutions this year, use the government’s Pension Tracing Service.
Remember too, that consolidation isn’t right for everyone. You might be liable for a fee when transferring and you could lose valuable benefits attached to some pension plans. Speak to us if you’re considering it and we can help you decide if it’s right for you.
4. Make the most of your allowances
Savings products such as ISAs and pensions are tax-efficient. Make the most of this by using up all your available allowances this year if you can afford to.
You can contribute £20,000 a year into ISAs you hold (split across the different ISA types) so be sure to make full use of this limit before tax year-end.
You’ll also want to make the most of the available tax relief on pension contributions. You can contribute £40,000 (or 100% of your pensionable earnings, if lower) into your pension each year while still benefiting from tax relief.
Be aware that if you have already accessed Defined Contribution (DC) pension benefits flexibly, or you are a high-earner, different allowances might apply. Speak to us if you’re unsure.
5. Protect yourself and your family
Around half of UK adults don’t have a written will. Make 2021 the year you put a will in place and if you already have one, be sure that it is up to date. It is the best way to protect your family and to ensure that your wishes are carried out after your death.
Also, consider a Lasting Power of Attorney (LPA). An LPA can be put in place by anyone over the age of 18 and comes into force if an accident or illness means you are no longer able to make your own decisions.
There are two main types. A Health and Welfare LPA covers your daily routine and medical care, while a Property and Financial Affairs LPA covers financial matters like paying bills and collecting benefits.
Finally, be sure to complete an ICE document. An ‘In Case of Emergency’ document will help your family deal with your affairs should the worst happen.
Include details of your solicitor, accountant, and financial adviser, plus instructions for finding important documents like insurance policies and your will.
Get in touch
Keeping any new year’s resolution is tough, but making financial changes now could be of huge benefit to your future self. If you’d like to discuss your long-term financial plans, please contact us today.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.
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