During Christmas, many of us spend a little more than we should – and the New Year is the perfect time to get our finances back on track. These 10 financial New Year’s Resolutions are the ideal way to improve your financial fitness for the year ahead.
1. Consider Lisa in April
Who on earth is Lisa, you might wonder? LISA is actually the Lifetime ISA which will be launched in April 2017. This new product allows you to save up to £4,000 a year tax-free – and the Government will top up your savings by 25%. Key things to know are:
You can open a LISA if you are aged 18 and under 40 (note that if you’re a first time buyer and you’re too old to qualify for a LISA, you can still open a Help to Buy ISA until November 2019).
Both cash and shares LISAs will be available.
Both you and your partner if you have one can each open a LISA
If you opened a Help to Buy ISA, you’ll be able to transfer this to a LISA
The Government bonus is paid until you reach the age of 50.
If you opened an ISA at 18 and saved until you were 50, the Government bonus would be worth £32,000 (plus interest).
The bonus is paid on your contributions so, e.g. if the value of your Shares ISA decreased, this would not affect the bonus due.
The bonus will be paid annually for the 2017/18 tax year then monthly from April 2018. You’ll earn interest on both your savings and the bonuses.
It can be used to save for your first home (max value: £450,000) – or for retirement, with funds available at 60 (if you withdraw the money before then, you will have to repay the Government bonus, interest and a 5% charge).
If you are purchasing your first home, you’ll need to keep your LISA open for at least 12 months before you can use it.
NB: The above key points are based on what is currently known about LISAs and may be subject to change before the scheme is launched in April.
2. Check your energy bills
You could save tens or hundreds of pounds by switching your energy deal. Around 6.3 million people are on British Gas’s standard variable tariff – and this group would save £129 a year by moving to the Company’s cheapest tariff. Energy comparison sites such as uSwitch, Energyhelpline and TheEnergyShop can be helpful in identifying a better deal.
Be wary if your energy supplier offers you an attractive tariff at the end of an introductory period. When they say you will save hundreds by switching to the new deal (for which you’ll need to sign with them for another year, two years or five years), they will often be comparing the savings to what you’d pay if you stayed on their standard variable rate – rather than comparing them to the deal you’ve just completed. Perform a search on the comparison sites armed with your actual usage to make sure the deal really is the cheapest for your circumstances.
3. Review your monthly budget
Now is the perfect time to review your monthly budget against what you’ve actually spent. This can mean a little time spent pouring over bank statements and credit card bills but it’s the perfect opportunity to discover if your budget is realistic. You’ll also know whether you’ve been ordering too many takeaways, running up your cards or spending a little too much on nights out. If things don’t add up, you’ll either need to revise your budget or your habits for the New Year.
4. Check your savings
Only 44% of people put money away each month, and the majority of people in Britain have less than £1,000 in savings. Experts recommend we keep between three and six months of expenses saved up in case of an emergency – such as unexpected illness or losing our jobs. If you can’t afford to save, look at your expenditure and see where you can make cuts.
Younger people have a tendency to put off retirement planning, not realising what they could achieve if they started early in life. If a person earning £25,000 a year puts aside 10% of their income from the age of 20, they could retire at 67 with a million pounds – making a few reasonable assumptions (including an investment return of 7%).
Of course, finding a 7% rate of return on investment means looking beyond your basic Bank savings account. Stocks and shares ISAs may be the simplest way to achieve a higher return – with companies such as Nutmeg making it easy to invest with relatively little knowledge. Their Stocks and Shares ISA has outperformed the target 7% rate for the past three years at risk levels 7, 8, 9 and 10. Remember that if you’re under 40, the new LISA could make a large contribution towards your goals.
5. Streamline your investments
If you already have investments, check to see if they are performing as you would expect. Investments change over time – particularly with the changing economic and political environment. It’s essential to review your investments annually – preferably with the help of an expert – and cut away any dead wood.
6. Check for auto renewals
Many insurance policies automatically renew year on year and often, the second and subsequent years are more expensive to make up for discounts offered in the first year. Make sure you get quotes for your insurance when it is due for renewal and switch providers if you could save. Compare the Market and Money Supermarket are good places to start but get recommendations as not all insurers appear on these websites. New legislation from April means that insurers have to state what you paid for the previous year when giving you a quote for renewal.
7. Increase your mortgage payments
Mortgage deals are at an all-time low so it’s a great time to consider switching. Even if you’re locked into a deal with an early repayment penalty you can still potentially save money by changing your plan. You may also want to consider an offset mortgage where your mortgage, savings and current account are all linked.
If you’d like help comparing the cost of staying on your current deal to moving to a new deal, get in touch with our property department.
8. Use cashback sites
Sites such as Topcashback and Quidco are a quick and easy way to save money on daily purchases. Topcashback typically pays higher on a like for like comparison. You’ll get cash back on all sorts of purchases that you would make online anyway – such as items bought on eBay, Asda, Ocado, Morrisons and Etsy. Your cashback can add up to hundreds of pounds and is a great way to give a little annual boost to your savings.
9. Make a Will, or update your existing Will
Surprisingly around two thirds of people in the UK don’t have a Will – perhaps because they prefer not to think about dying or they believe this is something they should do in later life. The recent spate of untimely celebrity deaths should have taught us all at least one thing – none of us know when we’ll go. Putting off making a Will can have terrible consequences for our dependents – so if you do have loved ones who depend on you, make sure this important legal document is in place and keep it updated. Making a Will with a solicitor costs a lot less than you might think and gives you the opportunity to discuss paying less inheritance tax at the same time.
If you’ve already made a Will, ensure the details it contains are up to date. It is recommended that you review it with your solicitor every 3 years.
10. Review your debts
You might have a monthly budget that includes debt payments but do you have a long term plan to reduce your debts to zero? If not, make one. At the same time, review the interest rates that you are paying – sometimes these mean you’ll either pay off substantially more than you borrowed, or you’ll actually never pay the debt off. Try to switch any high rates for a better deal and make high rates a priority when reducing debt.
11. Review your pension
Is your pension performing as well as it should? Will it give you a comfortable retirement? It’s important to review your pension regularly to make sure it will achieve your goals. You may also want to speak to an expert about the benefits of contributing to a pension versus paying into one of the new LISAs. You’ll need to factor in employer’s contributions – these are set to change, going forward, as follows:
- Up to April 5 2018 – employer 1% / employee 1%
- April 6 2018 – April 5 2019 – employer 2% / employee 3%
- April 6 2019 onwards – employer 3% / employee 5%
Note that you can opt out of a workplace pension but you should take expert advice before making this decision.
12. Speak to an independent financial adviser
If you’ve never spoken to a financial adviser before, now is the time to make your first appointment. Don’t immediately reach for the phone and dial your bank – they are unlikely to recommend products from other institutions to you. Speak to an independent advisor about your savings and investments – they can analyse your current situation and provide clear recommendations. Our later life planning team are an excellent place to start if you need advice with retirement planning.