As the new year approaches you might be making plans to change your diet or to exercise more. But what kind of shape are your finances in?
Changes you make now could become habits as you head into the new year.
Here are 10 simple steps for you to consider.
1. Keep a record of your income and expenditure
Cashflow modelling is a key tool in financial planning.
Write down your incomings and outgoings and you’ll find it easier to visualise your finances. It can help identify the disposable cash you have and highlight areas where savings can be made.
Does your bank statement confirm a subscription service you’ve forgotten about or a utility bill that might be switched? Maybe you have expensive debt that could be repaid sooner or a pension that has been neglected?
Rebalancing your incomings and outgoings as you head into a new year could make a real difference over the next 12 months.
2. Be sure to pay your future self first by topping up your pension
Your cashflow model might show that you have more disposable income than you thought. If so, be sure to pay your future self first.
You can do this by increasing the amount you contribute to your pension.
Pensions are tax-efficient. For each contribution you make, the government effectively tops it up by the basic rate of tax (20%) and as a higher- or additional-rate taxpayer, you can claim extra relief through your self-assessment tax return.
You can usually contribute £40,000 (or 100% of your taxable earnings, if lower) into your pension each year and still receive tax relief. Be sure to make the most of it.
3. Be sure to top up your ISA too
The ISAs you hold are also tax-efficient.
You can pay up to £20,000 into the ISAs you hold during the 2021/22 tax year.
You don’t pay tax on the interest you receive in a Cash ISA and the growth of any Stocks and Shares ISA investment is free of Income Tax and Capital Gains Tax.
Make the most of these tax efficiencies and you’ll increase your future financial stability.
4. Check that your investments still match your risk profile
The Bank of England’s base rate recently rose from a historic low of 0.1% to 0.25%. Inflation, meanwhile, reached 5.1% in November.
This combination is bad news for your cash savings and could mean that they are losing value in real terms.
Recent reports suggest that 54% of Brits have made at least a partial move from cash to investments as a direct result of the current economic climate.
A diversified portfolio – aligned to your values, attitude to risk, and long-term goals – stands the best chance of making your investment dreams a reality. If you haven’t checked in on your investments for a while, the new year is a great time to make sure that your money is still working for you.
5. Protect yourself and your loved ones
If you worry about how your loved ones would pay household bills if an accident, illness, or even death prevented you from making payments, make 2022 the year you put protection in place.
From income protection to critical illness cover and life insurance, protection plans could prove invaluable if you are the main breadwinner in your family.
We can help you understand the cover you have and any gaps there might be, so get in touch if you’d like help.
6. Put a will in place, or make sure your current one is up to date
A will is the best way to ensure your wishes on death are known, while also saving stress and worry for those you leave behind.
Also, remember that life events can change your priorities and an existing will may no longer align with your wishes. Check to see if it needs updating.
7. Consider putting a Lasting Power of Attorney (LPA) in place
An LPA allows you to name an attorney to look after your welfare and finances if you are no longer able to. There are two main types, covering your health and welfare, and your property and financial affairs.
You can appoint someone you trust to manage your affairs, giving you peace of mind that the right people will be in place to make important decisions on your behalf.
Get in touch
At Fingerprint Financial Planning, our expert financial planners and mortgage advisers are here to assist you, whatever stage of the estate planning process you are at.
If you would like to discuss any aspect of your estate planning, get in touch by emailing hello@fingerprintfp.co.uk or call 03452 100 100.
Please note
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.
