The start of a new year is a great time to take stock of your finances and make sure your money is working as it should be.

This is especially important after a year like 2020, in which many people’s health and finances suffered.

From defining your goals to protecting yourself against the unexpected, here are my five top tips on getting your finances in shape for the new year.

1. Define your goals

The first step in organising your finances is to define your short-, medium- and long-term goals. 

Your goals will be completely personal to you. Some of my clients’ goals include:

 

•      Having confidence to live the life they want without running out of money
•      Making sure their spouse is financially organised and secure in the event of their death
•      Saving enough money for a comfortable retirement
•      Leaving a legacy for children and grandchildren.

Your goals will be the foundation of your financial plan. They’ll help you to determine the best place to hold your money and give you something concrete to work towards.

Even if you’ve already set your goals, the new year is a good time to make sure they still reflect your needs and aspirations.

2. Create a diversified portfolio

You’ve probably heard the old adage, ‘Don’t put all your eggs in one basket’. When it comes to your money, this is a vital piece of advice to follow.

If you have a long-term financial goal, such as saving for your retirement in five or more years’ time, it might be wise to invest some of your money in shares. This will give your money the opportunity to benefit from stock market growth and hopefully grow ahead of inflation.

Investing in the stock market carries risk and there’s a chance your money could fall in value. By diversifying your money across a range of assets, including shares, bonds and cash, you can reduce the impact of stock market falls on your overall portfolio.

Your ‘asset allocation’ – the amount of money you invest in each asset – will depend on your individual circumstances. Each year, it’s worth checking that your asset allocation still reflects your needs and goals and that it hasn’t become skewed by one asset performing more strongly than another.

Deciding which assets to invest in isn’t easy, so please get in touch if you’d like some assistance. I can help you create a diversified portfolio that reflects your needs today and in the future. 

3. Make sure you aren’t paying too much tax

There are several tax reliefs and allowances to take advantage of each year. The new tax year begins on 6 April 2021, so you have until then to maximise the current tax year’s allowances.

A straightforward way to save tax is to place your money in an ISA. You can put £20,000 into ISAs in the 2020/21 tax year and shield it from Income Tax, Capital Gains Tax and Dividend Tax.

Money inside a pension also grows free from tax. Each time you make a pension contribution, the government adds 20% tax relief, making it an efficient way to save for retirement. Higher-rate and additional-rate taxpayers can save a further 20% and 25%, respectively.

In 2020/21, the most you can save into pensions and benefit from tax relief is £40,000. This figure is generally limited to your earned income and might also be lower if you have a high income. For every £2 your ‘adjusted income’ goes above £240,000, your pension Annual Allowance reduces by £1 to a minimum of £4,000.

I can check whether you’re using all your available allowances and advise you on which ‘tax wrapper’ best suits your goals. 

4. Protect yourself against the unexpected

The coronavirus pandemic has shone a light on the devastating impact that ill-health can have on people’s mental and financial wellbeing. Although we can’t usually prevent illness or death, it is possible to reduce their impact on your family’s finances.

Recent research by Legal & General suggests the average household’s savings would last just 24 days if they lost their income. Income Protection can provide a monthly payout if you’re unable to work because of illness or injury, ensuring you’re still able to meet your daily living expenses.

Another type of protection is Critical Illness Cover, which pays out a lump sum if you’re diagnosed with a specified critical illness. This could help you pay off loans or adapt your home to make it easier to live with your condition.

Life insurance pays a lump sum to your dependants if you die during the policy term. It can give you peace of mind that your family won’t suffer financial hardship if the worst happens.

Finally, writing a will is an important way of ensuring the right people inherit your assets when you die.

5. Speak to your financial planner

The best way to get your finances in shape for the new year is to speak to a financial planner. 

A financial planner will help you define your goals and then create a comprehensive, personal financial plan that helps you achieve those goals. I’ll look at every aspect of your finances – from your investments and pensions through to your protection and estate planning needs.

By ensuring your finances are on track, you can rest assured that your current and future needs are taken care of.

Get in touch

If you’d like help organising your finances, please get in touch. Email graeme@macfp.co.uk or call 01349 832849.

Please note

The value of your investments (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.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.