Ten must do financial new year resolutions
- Budget. Review your income and outgoings by listing your direct debits and see where you are losing out. Look at comparison sites such as www.uswitch.com and www.moneysupermarket.com to see if you can get a better deal or renegotiate with your current provider. This goes for utilities, your banking, gym membership, mobile contracts, broadband, TV etc.
- Review your mortgage. This is likely to be your largest expense. Can you save on your current bank? Are there penalties for moving? If you are on a tracker rate, are you saving some of that money for when rates increase again? It might not be in the next 6 to 12 months but it’s going to happen. Have you considered an offset mortgage? If you’ve got savings you could use them to reduce your mortgage term.
- Use your ISA allowances. Make sure you use your ISA allowances. You can invest £7,200 this tax year, £10,200 if you over 50. The maximum you can save in cash is £3,600 or £5,100 if you’re over 50. If you’ve only been making use of the cash option, consider maxing out your allowance by investing in stocks and shares ISA. This doesn’t have to be invested in the stock market if you are of a cautious disposition, although this is where you will get the best return long term.
- Review your retirement planning. At today’s pension annuity rates, an individual would require a pension fund of more than £340,000 to generate a pension income equal to £25,000 a year. As general rule of thumb you need to invest 15% of your gross income throughout your working life to provide a pension of two thirds of your employment income. Check the FSA pension calculator to review your current provision http://www.moneymadeclear.fsa.gov.uk/tools/pension_calculator.html. 90% of pension savers originally invested in a managed fund and have never reviewed their choice since they started their policy. Now would be a good time to look at your current fund choices. Global and emerging market equities are likely to be the long term winners so make sure you have some exposure within your pension funds. Investment in with-profit funds is another key area to review.
- Check your cash deposits. You should have a cash emergency fund and any money required for spending that will not come from income in the short to medium term. Cash above and beyond that you should consider for investment. Again check the current rate of interest you are receiving on your savings currently and keep up to date with comparison websites, http://www.moneysavingexpert.com/savings/savings-accounts-best-interest keeps up to date with the best rates. If you don’t want to keep chopping and changing Investec offer a good option for balances of £25k + http://www.investechigh5.co.uk/?gclid=CNHuuK2hl58CFYIA4wodeheGHQ
- Check you have adequate insurance. Review your levels of cover in relation to life cover and that any benefits are in trust to ensure they are paid to the right person and promptly. Many people are underinsured. Death in Service is not enough if you have a partner and children dependent on your income. Make sure you have cover above and beyond your mortgage being paid off. Also see what you might receive in the event of ill health, don’t assume that your employer will pay for extended sickness - ill health can be more devastating financially than death.
- Make a will. Over half the population have not made a will. If you have not made a will your spouse will not automatically inherit everything. If you die intestate (without a will) then your estate is distributed as per the laws in intestacy. HMRC http://www.hmrc.gov.uk/cto/customerguide/page14-1.htm provides further information on how your estate will be distributed. All sorts of unpleasant situations can occur after someone has died so make your wishes known. If you have children you should record who you want to look after them in event of both their parents dying.
- Inheritance Tax (IHT). There are lots of different ways of mitigating IHT, and this is not just a tax on the rich. Each individual can leave £325,000 tax fee, a married couple £650,000. If you think that a family home is likely to take up the bulk of this allowance then it is always good to look at the options. On an estate of £1,000,000, there would be a tax bill of £140,000. It took a while to earn that money so perhaps you might like it to go to your family or the charity you chose as opposed to the Exchequer. Take advice from a reputable, independent specialist about your options.
- Pay off expensive debt. The average interest rate on overdrafts and credit cards is a whopping 18%. If you have money laying in savings earning 3-4% and debt at 18%, use the savings to pay off it off eg £5,000 in savings at 3% will earn £150 per annum vs £5000 credit card debt at 18% will cost £900 per annum. The following website http://debt-obesity-scale.realise.com will give you an indication of whether your debt is reaching critical levels.
- Take Independent Advice. A Financial Planner can help you establish where you are currently, where you want to get to and a plan to take you there, which should be reviewed over the longer term. This might involve restructuring your current arrangements, pointing out potential risks, saving tax, and liaising with other professionals. Be clear on the options for and how you are paying for your advice.
Date: 14th January, 2010
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