Gary O’Brien

21 December 2020

How to get your finances in order for the new year

The start of a new year is a great time to assess the state of your finances and check your goals are on track.

Just like an MOT ensures your car is running smoothly, a money MOT will show whether you’re sticking to your budget, investing your money in the right way, and saving adequately for retirement.

It’s especially important after a year like 2020, which has brought financial hardship to lots of families up and down the country.

To help you get your finances in order, here are five steps to consider.

1. Make sure you’re not overspending

The first step is to make sure you’re sticking to your budget. If you haven’t already created one, a budget will help you to determine how much you can afford to spend each month and how much you can put towards long-term savings.

If you’re overspending, there’s a chance you won’t reach your financial goals as soon as you hoped. There’s even a risk that you’ll resort to expensive credit cards and overdrafts.

Some simple ways to reduce your monthly expenses include cancelling unused subscriptions and switching to a cheaper energy or mobile phone deal.

2. Assess whether your goals are on track

The next stage is to assess whether you’re on track to reach your goals. This could be buying a house in a few years, paying your child’s university fees, or saving up enough money for a comfortable retirement.

If there’s a shortfall, you might need to adjust your goals or look for ways to boost your savings pot. For example, if your retirement savings aren’t as big as you hoped, there are a few steps to consider:

  • Topping up your pension
  • Delaying your retirement by a few years
  • Working part-time in retirement.

Pushing your retirement back will give your money more time to grow and it won’t need to last quite as long. Remember, each time you pay into a pension the government typically adds at least 20% tax relief, making it an efficient way of saving for your future.

3. Check your money is working as hard as it should be

The way you invest your money can have a direct bearing on your ability to reach your goals.

Most cash savings accounts offer very low-interest rates, which are usually below the rate of inflation. If you’re investing for a long-term goal and your money isn’t keeping up with inflation, it could fall in value in real terms.

Investing in shares gives your money the opportunity to benefit from stock market growth. Analysis by IG shows the FTSE 100 produced an annualised total return of 7.8% between 1984 and 2019. You can’t rely on historical performance but it’s worth noting this period included the dot-com bubble, Iraq War and global financial crisis.

Investing in the stock market carries risk and there’s a chance you could get back less than you initially invested. As a result, shares are generally only suitable for long-term financial goals. If you’re buying a house in a couple of years, there’s a chance your money could drop in value just before you need to access it.

Even if your goal is decades away, it’s important to spread your money across different asset classes, regions and sectors. Shares, bonds, property and cash tend to perform differently to one another, so by diversifying your money you can reduce the impact of one asset dropping in value.

4. Protect yourself from financial shocks

No one likes to think about being seriously ill or dying, however, planning ahead is crucial to protect you and your family against financial hardship.

A survey by Legal & General suggests the average household would only last 24 days if it were to lose its income and rely solely on savings. One way of ensuring you can continue to pay the bills is to take out Income Protection. This provides a monthly payout if you’re too ill or injured to work.

Other types of protection to consider include Critical Illness Cover, which pays you a lump sum if you’re diagnosed with a specified critical illness; and life insurance, which pays a lump sum to your loved ones if you die during the policy term.

Protection can provide peace of mind that your family won’t suffer financially if the worst happens.

5. Speak to a financial planner

Making sure your money is invested correctly and that you’re on track to meet your goals can be complex. This is where a financial planner can help.

A financial planner will provide personalised financial planning and advice, based on your lifestyle and aspirations. Some of the areas they can help you with include:

  • Helping you plan for the future you want
  • Making sure your loved ones will be taken care of in the event of illness or death
  • Helping you make the most of your money
  • Providing financial advice when planning for life after work.

A financial planner will make sure your finances are organised correctly – both at the start of the new year and in the years and decades ahead.

Get in touch

Whether you’re looking for advice on pensions and investments, or simply need help getting your financial affairs in order, we can help. For more information, email hello@ardentuk.com or call 01904 655330.

Please note

The value of your investment (and any income from them) 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. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

 

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