Financial tips for the new year

Zoe Dagless at financial experts Vanguard has some advice for working parents on how to manage your money and make it go further this year.

Business Finance


January is a great time to digest the lessons of the past year and to reassess the way we manage our money and our financial priorities. Are our financial plans and investments still fit for purpose?

With that in mind, here are seven tips from Zoe Dagless at experts Vanguard which you may wish to consider.

1. Reassess your emergency cash fund

Given growing cost-of-living pressures, do you still have enough cash set aside to cover an unexpected major expenditure or dip in income? A rule of thumb is to have enough emergency cash to cover at least three months of your household outgoings. Always ensure you have enough of a cash buffer before you consider investing.

2. Review your budget and make a plan

Look at your household outgoings and expenses. Itemise them all. Ask yourself where and how you could conceivably cut your costs and increase the money at your disposal. Should you be paying off more of your debt – especially high-interest debt? How much wiggle room do you have to save and invest? Plan your finances to get from where you are now to where you want to be. It will help you to focus and to prioritise. A plan is not there to weigh you down; it’s there to clarify your aspirations and to help you achieve them.

3. Re-evaluate your goals

Have your priorities or goals changed this year? Are you on track to reach them? Should you consider investing a little more money each month to ensure you do get there? Remember: even small amounts can add up and the more time you give it, the more it will do so. Invest another £50 a month and, after 20 years, it could be worth an extra £20,000-plus to you. Compounding is a powerful force and it can help to grow your wealth in the face of inflation. Make
sure it’s on your side by thinking about investing more, and sooner.

4. Cut your investment costs

It’s your money you’re investing after all. So keep more of your returns for yourself rather than give it away in platform fees, fund charges and the like. Ask yourself: How much could you save by transferring your pensions and individual savings accounts (ISA) to a lower cost investment services provider? As a yardstick, consider that every 1% saved in costs on a £100,000 total portfolio represents an extra £1,000 invested each year. Were that cost saving to earn an average annual net return of, say, 5%, it would compound within 15 years to £21,578 – that’s comfortably more than two extra state pensions.

5. Use your tax allowances

Are you making the most of the tax breaks available to you? Do you have an ISA, for example? What about a self-invested personal pension (SIPP), or a Junior ISA for your children? All profits made within an ISA, Junior ISA or SIPP are exempt from tax. So too is any income received. In the case of a SIPP, you also get back the income tax you’ve paid on the money you use for your contributions – which for most people is 25p for every £1, and more for higher-rate taxpayers.

So make the most of your annual allowances. These currently stand at £20,000 in the case of an adult ISA and £9,000 in the case of a Junior ISA. Once the tax year ends on 5th April, a new one begins. Gross pension contributions – including those paid into a SIPP – can total 100% of a person’s earnings up to a maximum £40,000 in any tax year. So make the most of the opportunity. Just remember to make the most of any employer-matching on your workplace pension first before investing in your SIPP.

6. Start a new investment habit: invest via direct debit

How do you pay into your SIPP and/or ISA – via irregular lump sums or monthly direct debt? A direct debit is a great way to keep your investment plans ticking away out of sight, in the background. Depending on market conditions, you may also benefit, potentially, from more pound-cost averaging.

7. Do some admin

Are your contact details with your investment provider up to date? Does your pension have name beneficiaries? Pensions, unlike ISAs, do not form part of a person’s estate. As such, they are not covered by a will. So make sure your pension provider knows who they are. Indeed, do you even have a will in place? It’s not something that people like to think about but it’s worth considering, especially if you have children, as no one knows what the future will bring. Similarly, you may want to consider making a power of attorney to ensure that a loved or trusted person is able to make decisions on your behalf if for some reason you become incapacitated.

*Zoe Dagless is senior financial planner at investment advisor Vanguard, Europe.

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