If 2020 taught us anything, it is that you never know what is around the corner. And while the vaccines offer some level of positivity, many of us may still be a little unsure about making plans for the foreseeable future.
While visiting friends and family more or going to the gym one more time per week are New Year’s resolutions you may be unlikely to accomplish any time soon, there is no time like the present to consider ways to rebuild or reposition your finances to better position yourself for whatever economic events could be in store in the coming weeks or months.
According to a survey by GoCompare Money, cutting back on spending and saving more for the future are top resolutions for many in 2021. If getting your finances in order is on your to-do list, here are some tips to help you get started.
One way to curb overspending is to set yourself a budget. After calculating how much your essential living costs are, you can then work out how much you can afford to spend on luxuries. Once you hit that limit, stop. This will help you to resist the temptation to run up debt or run out of money before month end. If the item you want is more than your budget, save up for it for over several months. The reward will feel much more deserved if you wait for it.
Once you have mastered your budget and spending habits, you can start to plan for other financial goals.
As well as treating yourself to non-essential items as mentioned above, excess income could be used to pay down debt or increase your savings. It is a good idea to move any money allocated to savings or paying off debt as soon as your salary comes in; that way you will not be tempted to spend it elsewhere.
Depending on the types of debt you may have, be sure to prioritise those with higher levels of interest. You may also be able to consolidate credit card or overdraft debts without incurring any penalties but be careful not to run up more debt on them, or you could end up worse off than when you started.
If you do not already have a pension or opted out recently because of financial pressure from the pandemic, then resolving this as soon as possible should be a priority. While the past year has thrown many financial challenges our way, it is important to ensure you do not run out of money during retirement.
If you are already in a pension scheme, ask yourself is it enough? If not, can you save more? If you have several workplace pensions from previous employers, make a point of tracking them down. By having some clarity on what you have saved up until now, you can calculate what, if any, shortfalls there could be based on your future planned contributions.
If some of your pension pots are quite old, you could also look to transfer those funds to your existing provider, which could provide more flexibility for accessing it, better charges, and greater investment choice. As always, it is important to check if there are any penalties or guarantees attached to existing pensions before transferring them out – we advise you to speak to your financial adviser before doing so to avoid any hidden pitfalls.
Having calculated your essential household outgoings as part of your budgeting exercise, are there any bills that could be reduced? As we move to increased remote working and spending more time at home, costs such as gas and electricity might be starting to rise significantly.
In addition to being more energy conscious ourselves, such as switching off lights when out of the room, using energy-saving light bulbs or closing the curtains at dusk to reserve heat, you can also save substantial amounts by switching suppliers. Ofgem reports that a typical household can save up to £305 a year by switching from a default tariff to a cheaper deal.
If improving your health is higher up your list of priorities than taking control of your finances, adding a financial element can help you achieve both. Good examples include working out the savings of giving up smoking, cutting back on shop bought coffee, reducing food waste, or abstaining from alcohol for a set period. By seeing how much you can save, your motivation to succeed will receive a big boost along with your bank balance.
For more tips on how to make the most of your money, please contact your Finura adviser.
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