This article was originally published in The Herald Scotland.
We’ve reached that point in the early new year when well-meaning resolutions may be starting to slip. And who could be blamed? This deepest darkest part of winter is probably the hardest time to pass up comfort food or a warming glass of red wine in favour of early starts dragging yourself to the gym. But even if resolutions prove so hard to keep, this is still how many of us choose to start afresh, year after year.
Your finances are probably one of the easiest things to fall to the bottom of the resolution list (we often bury our heads in the sand about money at the best of times). But what if there was another way to look at it? Getting on top of your finances can bring the type of real, lasting, change that we’re all striving for in our new year resolutions and, happily, it doesn’t have to require loads of sustained effort from you over weeks and months.
Getting practical
Arguably one of the biggest hurdles is just taking that first step, or even knowing where to start when getting to grips with your money situation. The good news is there are lots of practical, realistic, actions you can take to help get things moving.
Doing the basics well
You could go right back to basics and revisit your budget - does it still feel realistic and aligned with your goals? Adjusting your spending habits, even slightly, can create room to tackle any debts you may have. At the same time, building an emergency fund is essential. Having a financial cushion can make all the difference when faced with unexpected costs, such as car expenses or household repairs.
Small changes, big difference
Small changes can also go a long way. Modest but regular contributions to your savings or investment accounts can be a great way to grow your wealth over time without straining your current budget. Don’t forget to protect what you have by reviewing your insurance coverage, such as life or critical illness insurance, and ensure your will is up to date to reflect your current circumstances.
Start early
Starting to save or invest early can make a big difference to your future plans, thanks to something called ‘compounding’. This is when you invest money, earning interest or income on your capital. Then next year you earn on both your original capital and the interest from the first year, and so on. Like a snowball, your capital should get bigger and bigger as it ‘rolls down the hill’. And the earlier you begin investing, the more time you have for this to take effect.
Your financial future
Pensions are a core part of anyone’s financial future. The challenge is keeping on top of your pension over time. Helpful and important questions to ask yourself include how much money you are paying into your pension and is this enough? What income is your pension fund likely to give you in retirement and will this impact the age that you want to retire? You may need to seek advice if you don’t know the answers to all of these, so you can devise a strategy to make your money work as hard for you as possible.
Upping your game
Even if you’ve done some, or all, of these things already then don’t switch off quite yet because there are still plenty of potential ways to make your money work even harder.
Find out what your employer offers in terms of your workplace pension as there may be different options to consider. Some employers offer a pension salary sacrifice scheme and if so, and you’re not already signed up, this is almost certainly worth a look, particularly if you’re a higher rate taxpayer. Despite using the word ‘sacrifice’, this type of workplace scheme could actually increase your take-home pay (because you’ll be paying lower National Insurance Contributions), as well as boosting your pension. Whichever option you’re considering, it’s worth taking advice to make sure it’s the right choice for your circumstances.
You may want to consider how to make your savings and investments as tax efficient as possible, even more so for those in higher rate tax brackets. There are different ways to structure your finances for tax efficiency and people typically seek professional financial advice to do this.
Did you know that an estimated £7 trillion is expected to pass between generations in the UK over the next 30 years, according to recent research?1 Generational wealth is complex and challenging for families and a lot can be lost because of poor communication and planning across different generations. This ‘great wealth transfer’ means it has never been more important to think about how you want to leave a legacy and start planning early.
Looking ahead
So, if your current resolutions are at risk of drifting, why not bump your finances back up to the top of the list and you could make some really positive changes before Burns Night rolls in.
