For many of us, a new year is a chance to reflect on our lives and think about where we could make improvements. Quite often New Year’s resolutions centre around getting physically fit and healthy. But the new year can also be an opportunity to look at your finances and put a plan in place that will get them in good health for the year ahead and beyond.
Here are some simple financial resolutions you can make that could help you achieve your goals in the year ahead and get your finances on track for the future.
Set clear saving and investing goals
Before you do anything else, make sure you’re clear about what you’re saving or investing for. Whether you have a specific objective or outcome, or simply want to build up an emergency fund, having a clear goal makes it easier to stay focused and get your finances on track.
Tackle inflation head on
With interest rates and inflation still high, it looks like increased living costs are here to stay. This means budgets need more attention if we’re to make our money stretch further. Take a good look at your monthly expenditures and think about areas where you could reduce your outgoings and put this money towards saving and investing goals instead.
And with inflation at such a high level, it’s more important than ever to make sure the value of your money keeps pace with inflation – at the very least. Cash savings rates are better than they have been in years, so it makes sense to keep a little cash to hand for day-to-day costs and emergencies. But if you really want to give your money a chance to beat inflation and grow in value, you’ll need to invest it.
Choosing investments can be daunting so it might be worth speaking to a financial adviser if you’re not sure about the best options for you.
Keep an eye on your investments
With most investments, it’s important to remember that you’re investing for the long term. But that doesn’t mean you shouldn’t keep an eye on how they’re doing from time to time. Markets move and things change – something we’ve experienced a great deal of in recent years.
So making sure that your investments are still on track and their objectives are still aligned to your personal circumstances is always a good idea. Just a quick review now and again to check how things are looking or to see if you can top up your investments with a bit of spare cash will set you in good stead.
If you’re not comfortable doing this yourself, a financial adviser can help. They’ll get to know you, understand your investment goals and how much risk you're comfortable taking. They’ll then be able to build an investment strategy that’s right for you, keep it under review and make changes when needed.
Make the most of your tax-free allowances
Making the most of tax relief and tax-free allowances will certainly give your finances a healthy boost.
Let’s start with ISAs
One of the most tax-efficient ways you can save and invest is through an individual savings account (ISA) as there’s no income tax, personal tax on dividends or capital gains tax to pay on any investment growth or interest you earn, or on the money you take from it. Currently you can put up to £20,000 into an ISA each tax year. So if you haven’t yet used up all your allowance, think about doing so before the end of the tax year on 5 April.
And if you’re married or in a civil partnership, you may be able to benefit from using your partner’s ISA allowance, meaning you can save or invest £40,000 tax efficiently. You could also make the most of your partner’s pension allowance if you’ve reached your limit, but they haven’t.
Now on to pensions
A pension is another one of the most tax-efficient ways to save. The government even encourages pension saving by giving tax relief. Tax relief is based on the rate of income tax you pay. For example, if you’re a basic rate taxpayer, you’ll get 20% tax relief, meaning for every £100 that goes into your pension, the government contributes £20. And higher and additional rate taxpayers can claim 40% and 50% tax relief respectively.
Remember though that the most you can pay into a pension each year (known as the annual allowance) is currently £40,000. There’s also a cap (known as the lifetime allowance) of £1,073,100 on how much you’re able to pay into your pension in total over your lifetime without incurring further tax. This is frozen at this level until April 2026.
Tax doesn’t have to be taxing
Tax is undoubtedly a complicated subject and your own circumstances and where you live in the UK could have an impact on tax treatment. If you have any questions about the tax system, how it affects you, or you need help making sure you’re managing your money in the most tax-efficient way, getting professional advice can give you peace of mind. A financial adviser will go through all the options available and work with you on a tailored plan.
Get plans in place to protect your loved ones
For many, this might seem like a task that’s a long way off. But protecting your loved ones from a hefty inheritance tax bill or from financial difficulties if you’re no longer able to provide for them is just a crucial as having an up-to-date will.
Watch our video to find out what you need to know about income protection, critical illness cover and life insurance, and how experts can help you look after your financial future. With a bit of careful thought and forward planning, there’s a lot you can do now to make sure that your family is protected.
There are also a few things you can do to make sure you’re on track to leave as much as you can to the people you choose rather than to HM Revenue and Customs. Find out more in our article Five ways to take control of inheritance tax.
There's support if you need
There’s a lot of free guidance available online. But when it comes financial planning you may want to consider additional advice. There isn’t a generic one-size-fits-all approach as everyone’s situation is unique.
Our financial planning specialists can guide you through the process and help make sure your finances are in order. Together we can set financial goals and help you manage your money better – it’s never too early to start planning for the future. If you already have an abrdn financial planner, get in touch with them – they’ll be happy to help. Or find out more about how we could help you.
There will be a cost for professional advice, but it will be specific to you and tailored to your circumstances.
The information in this article should not be regarded as financial advice. Information is based on abrdn’s understanding in January 2023. Tax rules can always change in the future. Your own circumstances and where you live in the UK could have an impact on tax treatment. The value of all investments can go down as well as up, and you may get back less than you paid in.