New Year is a time for goal setting and objective making, as well as those notorious new year’s resolutions! Just as we make plans for other areas of our lives, so too should we consider what improvements we can make to our financial outlook.
Here are some areas you may wish to consider looking at with a view to improving your long-term financial outlook.
Review your spending
One of the reasons people fail to plan is they don’t feel they have enough to work with.
It may seem obvious but a good place to start when making financial changes is to look at your expenditure and identify areas where savings can be made. As well as looking to save on large areas of expenditure, such mortgage deals or household bills, there are also small changes we can make on a daily basis. For example, the cost of a daily coffee on the way into work (around £2.50 per day, equating to £50 per month), buying lunch every day (around £5, equating to £100 per month) or the cost of a weekly takeaway (around £20, or £80 per month) very quickly add up. Through these changes alone, you could be looking at an annual saving of £2760 per year. This is not an insignificant sum and certainly provides a good starting point to work from.
Have a plan
The world of pensions and investments can seem complex to those that don’t have experience with the industry – and this can, unfortunately, act as a barrier to entry. It is likely that you will only be able to take your financial affairs so far on your own and even if you once had a plan put in place for you, it is important to review this to ensure it is still suitable for your needs and circumstances. Seeking the advice of a financial adviser often gives people an enormous sense of relief; providing peace of mind that their investments and pensions are being managed and overseen by someone who deals with similar matters day in day out.
Review your pension provisions and contributions
Reviewing your existing pension provisions on a periodic basis is always a worthwhile exercise as it helps ensure they remain competitive and suited to your needs. It’s amazing how often we come across clients that have pensions from previous employers they have simply forgotten about! However, advice should be taken before any changes are made because contracts may have some features that would be very difficult to replace, such as guaranteed annuity rates, guaranteed growth rates and enhanced tax free cash entitlements to name but a few. These benefits would be lost if you moved your pension to another provider so care must be taken to ensure you know exactly what you have.
Make sensible choices
If you have been tied to heavy expenditure over a sustained period of time –such as a programme of home improvements or funding nursery or school fees – experiencing a reduction in these outgoings can leave you in the mindset of wanting to ‘splash out’. Similarly, if you have a windfall such as a bonus or receive an inheritance, it can be tempting to increase expenditure on short-term extravagances, such as a fancy holiday or a series of treats for the family. Whilst this is human nature, it is important to remember these are also the key opportunities to make a real difference to your long-term planning. By channelling additional funds into your pension rather than flitting them away you will not only benefit from building a larger pension pot, but also the immediate benefit of tax relief.
Every individual has a set of allowances they are able to utilise in any tax year. If you are in a position to, you should maximise these allowances each year. For example, the current ISA allowance is £20,000 per year and on the whole, the annual pension allowance for individuals is £40,000 per year.
Review your investments
Let’s face it, most people do not have the time, nor the inclination, to review and analyse their investment portfolios. Yet clearly, this is an area that can deliver great potential returns – or indeed losses – where large sums are invested. There is usually a trigger that first prompts someone to contact us with a view to becoming their financial adviser and sadly, this is sometimes because they have suffered the pain of making a poor investment decision. Although financial advice is difficult to quantify, the likelihood is that having a professional keeping a constant eye on the performance of your investments will ultimately leave you less exposed to losses – therefore leaving you better places to be able to make measurable gains.
Be accountable to yourself
Even if you have a brilliant financial adviser giving you the best advice for your personal circumstances, the only person who can actually make a difference to your long-term financial outlook is you. Take the dawning of the New Year as an opportunity to set goals – write them down and hold yourself accountable to them.
Getting to grips with your financial affairs at the start of a New Year not only ensures you are in a better position in the short term, you could also find that you are better placed to make money from your investments in the longer term.
No single action will solve all your financial plans, but rather putting together a few elements in a plan will combine to have a greater overall effect. Financial changes that lead to even the smallest percentage improvement can build up more quickly than you might think.