Many of us will be familiar with the 12 days of Christmas and the many promises made in the tune – who wouldn’t want 10 lords a-leaping over the festive period?
Realistically the gifts that are given in the song probably won’t be on many people’s lists to Father Christmas this year, but we thought we would give away some fantastic financial tips instead.
So, without further ado, here are our 12 tips for a Merry Christmas and a happy financial New Year.
Time to save
It’s never too early to start saving. In fact, the more you put away earlier in life the greater the returns you may enjoy later in life. It is also always good to have an emergency fund, as the events of 2020 have demonstrated, and it is generally recommended that you cover three to six months’ worth of expenditure.
Let it compound
The benefits of saving sooner are that your returns can compound. What this means is that you earn interest or investment gains on past interest and gains. Even with the low rates of interest we are currently experiencing, this quickly adds up to make a big difference.
Set a budget
Christmas is a time when many people like to splurge a little more, but you must maintain a healthy budget – it is often the key to long-term financial stability. Use the Christmas and New Year break as an opportunity to sit down and go through your finances and assess your outgoings so that savings can be made.
Make full use of your ISA
Every saver has an Individual Savings Accounts (ISA) tax-free allowance of £20,000 per annum. You must take full advantage of this, including looking at the different types of ISA to suit your needs and risk profile. Remember, you can withdraw ISA funds at any time, and there is no Capital Gains Tax to pay on any returns.
Most people would love to be in a position where they didn’t need to borrow money, but this often isn’t the case, especially if you are buying property. Part of a healthy financial life is nurturing your credit score, as this will ensure you can access the best terms and interest rates when you do need to borrow. As a rule, short term debts such as overdrafts and credit cards should be paid off first due to the higher rates of interest, but they shouldn’t be shunned, as using a credit card smartly will allow you to build a better credit rating.
Pay more of your mortgage
It sounds weird paying more than you need to, but overpaying your mortgage could be a great way to reduce the total amount of interest you pay on this debt. With interest rates being so low on so many mortgages at the moment, now is a great time to pay a little more. Even a small increase in payments could reduce the period that it takes to repay your mortgage.
Insure yourself against the future
2020 has demonstrated how fickle life can be sometimes and if you have valuable assets or a family it is time to protect your interests in case the worst should occur. As a minimum, you should have some form of life insurance and you should also have building and contents insurance for any properties you own. As many have found out, often too late, income protection can also be critical.
Build your pension
As with savings, the sooner you start building a pension the better. Again, compounding plays an important role in increasing your final pot, so the longer you save the more you earn. Make sure you are taking full advantage of employer contributions as well.
Ready to retire?
Everyone has dreams of hitting their 65th birthday and retiring, or for some, they may want that day to come sooner. We all too often focus on work, but we rarely consider our retirement. However, having a plan in place will determine lots of factors, such as how much you save, your attitude to risk and how you intend to fund your retirement.
Many people will have delayed big events and treats in 2020 due to the uncertainty of restrictions. Hopefully, 2021 will see the end to strict lockdowns and we can once again get on with life. If you have plans to spend big next year or have a sudden unexpected expense, cashflow modelling can help you understand the potential impact on your income, expenditure and overall wealth.
Months being stuck at home have given many of us a chance to review our life plans, but have you reviewed your finances? If you work with us, we will create a step-by-step wealth plan. This is not static, your circumstances, aspirations and other external influences are very likely to change over time and your plan needs to reflect this. Why not make your New Year’s resolution to conduct a financial review with one of our advisers?
Passing wealth to the next generation
You should have a valid and up-to-date Will in place, especially if you have had significant life events take place in the last few years, such as buying a home, having children or getting married. This will ensure that your assets are distributed as you wish. This is also a good opportunity to consider reducing potential Inheritance Tax (IHT) liabilities.
The gift that keeps on giving
One of the greatest gifts you could give yourself is a financially stable and secure future and the New Year is the perfect opportunity to seek professional independent financial advice.