According to research, 64% of us will already have abandoned our new year’s resolutions. Most resolutions set at the start of the year are about diet and exercise that we quickly lose motivation to stick with.
The good news is that there’s never a bad time to make new financial resolutions. Better still, taking the right action and seeing an improvement in your personal finances can help you stick with your new habits.
Read on for seven financial habits to start and keep for a prosperous 2022 and beyond.
1. Define your financial goals
When you’re busy living life, it’s easy to focus on the here and now and forget to think about the future. So, put your weekly to-do list aside and contemplate your future ambitions. What would you like to do with your life? What do you want to achieve in the next 10 years?
Financial goals could be saving for retirement, accruing a healthy deposit for a new home or even a holiday of a lifetime. Or perhaps there are multiple things you’d like to plan to achieve.
By making firm plans and establishing long-term financial goals, you can work out a strategy for how and when you’ll reach them.
2. Keep track of your spending
Draw up a budget to make sure you’re living within your means and can save towards your long-term goals.
Break things down into three categories: money in, money out, money left over.
Having a list of all your regular fixed costs will help you see what you have left over to spend or save each month.
If you need to cut costs, review your bills and direct debits. Be ruthless. How many TV streaming subscriptions do you really need? Are you still paying a gym membership you never get value from?
Now is a great time for a financial spring clean, so cancel anything that no longer serves.
Once you’ve set out your budget, make a habit of reviewing it regularly.
3. Plan to reduce debt
If you have any debts, such as credit cards or a mortgage, setting out a plan to reduce this could save you money.
Having debt hanging over you can harm your financial wellbeing. Expensive credit card debt, in particular, can cripple your ability to save.
Consider whether you could switch providers for a lower interest rate to reduce your outgoings. Alternatively, if you have some available cash, making overpayments may help you repay the debt sooner and reduce the cost of borrowing over the long term.
If you switch providers or take steps to consolidate debt, make sure you end up paying less than you’re currently spending on interest rates, fees and charges, then remain disciplined about making your repayments.
4. Prepare for the unexpected
If the last couple of years have taught us anything, it’s that you can never know what’s lurking around the corner. Illness, an economic downturn, or job insecurity could happen at any time, and any of these things could leave you and your family with a potential financial headache.
To protect your finances against the unexpected, maintain an emergency fund. Ideally, this should contain enough cash to cover between three and six months of expenditure. Keep the money in a separate easy access account so you can get your hand on it if you need it.
This is also a good time to review the protection you have in place. Should the worst happen, is the cover you have still appropriate to meet your family’s needs? If not, get in touch and we can help ensure you have the right level of cover set up.
5. Make saving a habit
Saving money every month is a great habit. Many people focus on the investment returns they receive, but most of your future wealth is more likely to be determined by the amount you save over time, rather than there turn you receive on it.
So, if you aren’t already siphoning some of your income into a savings or investment account each month, now is a good time to start.
Make sure you set yourself a realistic savings goal. You’re more likely to keep saving if you’re not stretching yourself too far. Even a small amount each month can soon add up.
A good way to stick to your savings habit is to pay yourself first. Make your savings and pension contributions immediately after you receive your income and then spend what you have left over, rather than the other way around.
6. Save towards your retirement
The earlier you plan for your retirement, the better off you will be. Compound returns mean that starting early can significantly boost your fund as your money has longer to grow.
Ideally, you’ll already be contributing to a pension but, if not, make sure you take steps to set one up and start making contributions as soon as possible.
In the UK, contributions you make also benefit from government tax relief, which can be a great way to boost your savings. If you’re already paying into a pension, consider if you can increase the amount you save each month.
The Annual Allowance allows you to benefit from tax relief on pension contributions up to £40,000 or 100% of your earnings, whichever is lower, each tax year (6 April 2021 to 5 April 2022).
As we approach the end of the tax year, assess whether you can take more advantage of this tax relief by maximising your contributions before 5 April 2022.
Not everyone likes the way pensions work. Some people prefer to use the tax advantages offered by ISAs (Individual Savings Accounts) or property. If you’re unsure about what is best for your circumstances, get in touch and we’ll help you make a retirement savings plan that’s tailored to your needs.
7. Work with a professional
Studies have shown that working with a financial planner can add value. As well as helping you to define your goals, a financial planner can also help you reach them.
And, if you’re internationally mobile, they can help you navigate complex issues around tax and domicile to ensure you retain more of your wealth.
If you want to get your finances in the best shape during 2022 and would like help to understand what you should focus on and how to achieve your long-term financial goals, get in touch. Email email@example.com or call us on +44 1689 493455.
Please note: The content of this newsletter is offered only for general informational and educational purposes. It is not offered as and does not constitute financial advice.
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.
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.