The start of a new year is a great time to sit down, take stock and consider your new year financial priorities.
It’s always a good idea to plan. It provides motivation and improves performance. The start of the year is a great time to do this as you will hopefully be feeling refreshed from a Christmas break and businesses, banks and governments will be re-setting.
So here are 6 new year financial priorities that are great to be focusing on right now in the month of January.
New Year Financial Priorities to start in January
#1 – Budgeting
In order to save, invest or pay down debt you need to know what spare cash you have available after spending.
The start of the year is a great time to look back at what you spent the previous year and to see if there is anywhere you can be more efficient.
For example, it’s a good idea to go through all your direct debits and standing orders to see if you are paying for something that you no longer use like gym membership, magazine subscriptions, TV subscriptions etc.
Whilst it’s difficult in the current COVID climate, you need to be clear in what expenses you have coming up for the year so they don’t catch you out. Things like car and home maintenance, bills for the kids, gifting etc.
Once you have your spending covered you can be more confident in using your excess income to build your wealth.
#2 – Paying down credit card debt
The 3rd Monday of every January is known as ‘Blue Monday’. Apparently it is the most depressing day of the year as we are cold, guilty about already giving up our new year’s resolutions, summer holidays are a long way away and the Christmas credit card bill is due.
If you have built up debt on credit cards and are currently paying off only part of the sum monthly, then it’s a good idea to prioritise paying them off completely before saving or investing.
Most credit card interest rates are over 20%. You just will not beat this by investing or saving so better to get rid of it first.
There are still plenty of free balance transfers to 0% interest credit cards available so definitely do not pay interest on your credit card debt.
#3 – Increasing your saving
If you can it’s always a good idea to increase your savings. This means contributing more to Stocks and Shares ISAs, pensions and other general investment accounts.
No matter how good the investment return you get, nothing is going to be as powerful as actually contributing more.
Let’s take pension contributions for an example. If you’re a basic rate tax payer, for every £80 you contribute to a pension the government tops this up via £20. It’s called tax relief. This is basically an immediate 25% return on your original investment.
If you’re a higher rate tax payer then the effective tax relief is equivalent to an immediate 66.7% return!
#4 – Consider retirement
If you are unhappy in your current job and have been considering retirement, then the start of the year is a really good time to put the wheels in motion.
Most businesses year end is the end of December so having just completed a full year you should have used all your holiday, qualified for any bonuses and extra pension contributions. You now have a few months to get everything ready for the end of the tax year. See point 5 below and our article ‘Why it’s best to retire at the end of the tax year’.
#5 – Tax year end planning
The tax year runs from the 6th April to the 5th April each year. So the current tax year ends on the 5th April 2021.
This means you now have a few months to make the most of your tax allowances. This could be things like making your annual ISA contribution (up to £20,000 per person) or pension contributions.
You also need to be efficient with your investments. If your investments have done well they could be sitting on gains which eventually could be liable to Capital Gains Tax (CGT). By selling and re-investing now you could use up some of your valuable CGT allowance.
The key thing to remember with most tax allowances is if you don’t use them, you lose them. They don’t usually carry over into the next tax year.
#6 – Invest
If you don’t already, invest as early as you can.
Whilst saving money into a bank account is appropriate for short term spending and emergency funds it is not going to allow you to build wealth over the long term.
Only investing into equities (the great businesses of the world), property, bonds (fixed interest loans to governments and businesses) and other assets is going to give you the power to do that.
It’s all about compound interest.
A bank account paying you 0.50% interest per year means you will double your money in approximately 144 years.
An investment paying you a 10% return per year means you will double your money in approximately 7 years.
Of course, if you are unsure on what you are doing when it comes to investing please get in touch with a Financial Adviser who will guide you through the process, and ensure you are invested at a risk level you are comfortable with and is aligned to your overall plan.
More focused new year financial priorities for you
For more focused new year financial priorities that are tailored for your individual situation please get in touch with us. We offer a free 15-minute initial consultation via the telephone or online where we can help you understand where you are and point you in the right direction to move forward.
Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.