It’s that time of year when our thoughts turn to making improvements in our lives and creating better habits for our ourselves. And whilst the rain may already have put paid to that daily jog we promised we’d do, or a glass of red might have proven too alluring to stick with ‘dry January’, putting some real effort into new financial goals is not something to put off.
New research from the Money and Pensions Service has revealed that one in six people in the UK (17%) have no savings, and a further one in ten (9%) have £100 or less put away. This leaves around a quarter of adults living without a financial safety net to help them deal with the cost of living crisis or any unexpected expenses that crop up, meaning they are more likely to become reliant on credit. The research also shows that almost half of the people who do use credit are worried about how much they currently owe.
For most of us, the combination of higher mortgage or rent payments, energy bills, transport costs, and food shopping will have had a huge impact on our personal finances in the last year. So, if you’re kicking off 2023 with a list of resolutions, consider adding some financial goals to that list such as those in this blog post, which will also give you some help to achieve them too.
1. Create a personal budget
This may seem obvious to some, for whom personal budgeting is already a firm habit, but there are many who resist the practise on the basis of it being too restrictive. However, taking the time to track your spending and creating a realistic monthly budget can really help to work out areas where you’re over-spending and where you can cut back. Furthermore, once you’re in the habit, it needn’t take up much time at all and won’t feel like a chore. Begin by logging all your fixed expenses, such as: mortgage or rent payments; Direct Debits and standing orders for utilities, council tax, pensions and savings, mobile phone, credit card repayments etc; food shopping, and any other regular essentials. Once you can see the total of these costs compared to your income, you’ll be able to work out how much money you have left over for more flexible expenses, such as clothing, eating out and entertainment, as well as where you might be able to make some savings. There are apps to help you with budgeting on a daily basis, and you can also view your bank and credit card statements online with most banks using filters and key words to help you track your spending.
2. Manage debt
With the UK average credit card debt at £1,174.62 per person, and an average monthly spend of £333.11 on credit cards, it’s no wonder that managing debt is a key concern for many of us. If you’re noticing your debts creeping up, for example your overdraft is increasing month on month and you’ve been unable to pay it off, then it’s especially important to look at what is contributing to your debt and how you can go about tackling it. Referring to your personal budget will help with this, and should highlight if the issue is simply that your income is insufficient to meet your outgoings, and therefore that you need to identify areas where you can make savings. It may be helpful to consolidate your debt, such as with a balance transfer credit card or debt consolidation loan. It’s also a good idea to make some credit card specific resolutions to form sound habits in order to manage your debt moving forward. Making your credit card payments on time and (ideally) in full each month is a really positive way to help your credit score, and to avoid additional charges. And whilst having multiple credit cards isn’t necessarily a bad thing, if you are looking to manage your debt more carefully, it’s also a good idea to resolve not to take on any more credit cards too.
3. Perform a pension health check
This year will see the arrival of the much awaited Pensions Dashboards, which will allow savers to see what they have saved to date in in their various pensions, in a single place online, whenever they like. Pensions providers and schemes must connect to the system according to a legislated timeline, with the overall aim of supporting better planning for retirement and improving financial wellbeing. For example, you’ll be able to use the dashboard to track down old, neglected company pensions and ensure they are working as hard as possible for you. It could also be wise to check your state pension forecast on the gov.uk website, where the government’s Future Pension Centre can give you a free personalised calculation. It’s also important to check in with your financial adviser if you have one, and ensure that any changes in your circumstances have been taken into account and that your investments are being made the most of.
4. Don’t neglect your credit score
Your credit score is important at all stages of your life, so it’s a good idea to add this to your new year list of resolutions.Credit reports can affect mobile phone contracts, monthly insurance payments, bank account applications and even utilities Direct Debits, so it’s important to keep an eye on yours and do what you can to ensure it’s healthy. In order to predict how good a borrower you’re likely to be, companies look at data such as your past credit and if you’ve paid it off on time. There are a number of ways you can improve your score, such as registering to vote and using a ‘rebuild’ credit card, which you can read about in this blog post. You can also sign up for a credit monitoring service which will send updates and offer regular prompts to check your score, with some also offering identity theft protection too.
5. Look ahead
Financial goal setting is really all about looking ahead, and certainly planning for the future. Whilst it’s not pleasant to think about, it’s essential to prepare for the unexpected: illness or disability, death, job loss, natural disasters, or legal issues can all have huge personal financial implications, so if you don’t already have sufficient assets and insurance to mitigate against these sorts of risks, make this a top priority. Life insurance is especially important if you have a mortgage, and it may also be a good idea to consider income protection in case you’re unable to work, or cover that offers a payout if you are diagnosed with a serious illness. Your employer may include a form of life cover in your benefits package, but the policy will vary from employer to employer. Even if your current employer offers this, it’s still a good idea to think about whether the level of cover meets your personal needs, and you should also consider what would happen should you lose your job. Looking ahead also means considering how your assets are protected after your death, which you can read about in our blog post here. Those with a mortgage should bear in mind when their fixed rate (if they have one) expires, and leave plenty of time to speak with their broker before it’s time to remortgage to ensure they get the best product available.
Taking this opportunity to set some financial resolutions will stand you in good stead for the coming year, but be careful to be realistic with your goals. Keep a written list of your resolutions though and check back on them throughout the year so that you can see your progress and ensure you’re on track. Don’t forget that you can always talk to one of our down to earth, experienced advisers, to work on your financial goals and ensure you’re heading in the right direction.
