As we make our way into 2023, many of us will be thinking about making New Year’s resolutions. But while many of us think about resolutions that will improve our health or appearance, few of us consider that making financial resolutions could have a huge impact on our wellbeing this year.
Here are five resolutions that you will be glad you made when you come to the end of 2023.
Make the most of my tax allowances
The taxman does not hand out cash for nothing, so your annual tax allowances are the most generous help many of us will get from the government, and you can only take advantage if you ensure that you use them before the time runs out.
Make a note of the allowances that you are given every year and how much they could benefit you if you use them. They include:
- £20,000 ISA allowance – meaning you can save £20,000 in either investments or cash each year without paying tax on it
- £40,000 pension allowance – meaning you can claim tax back on £40,000 put into your pension each year
- £6,000 of capital gains tax allowance - meaning you can make £6,000 of capital gains each year without incurring CGT
- £3,000 gift allowance – meaning you can give away £3000 each year without it counting towards your estate for Inheritance Tax reasons if you die within seven years of making the gift.
There are other allowances available, and a financial adviser will be able to help you understand whether these could help you too.
Automate my savings
Growing a savings pot is a major part of becoming financially resilient, and all of us need some money set aside for immediate needs as well as other cash available for helping to meet longer term goals.
But with the cost of living rising, it is harder than ever to set money aside at the end of the month. One solution is to use technology to automate your saving, ensuring you put aside money without even noticing. The good thing about this new year’s resolution is that you can set it and forget it in January, reaping the rewards of your savings throughout the rest of the year.
Setting up a simple direct debit into a savings account on payday is one way to automate your savings. Check you are getting a decent rate for your money, though, as inflation will erode its value otherwise. For small savings amounts, many current accounts have a linked ‘Regular Saver’ which allows you to put away a small amount each month at an advantageous rate.
Finally, using the ‘round up’ feature on some current accounts can help you to automate your savings process further. This feature rounds up each spend you make to the nearest pound and sends the money to a designated account. The money can add up without you even noticing.
Scrutinise my bills and subscriptions
Household bills are rising, but there are still ways that most of us can save in 2023. Simply going through your bank statement to look for subscriptions that you no longer use, including gym memberships, magazines, or memberships of attractions etc, can save you more than you might realise. Many subscription-based services such as Netflix or Disney Plus carry no fee for cancelling so you may as well stop them and then restart if you miss them to save a few months’ worth of cash.
Couple this action with a review of household bills such as your broadband and mobile phone contracts and you’ll begin 2023 in better financial shape.
Protect myself and my family
Nobody wants to think about the possibility of bad things happening but ensuring financial protection for the family can greatly cushion the blow of unexpected illness, accident or redundancy.
Resolve to put power of attorney in place, so that trusted family members can manage your finances if you are incapacitated. There are two types of lasting power of attorney – one for health matters and the other for finances – and having them in place can greatly reduce stress in difficult circumstances. There is more information on how to do this here on the government website. At the same time, it is a good idea to write or update your will, which is also an important family stress buster.
In addition to this, you might want to consider insurance that would protect your income or pay out if you were ill or unable to work. Life insurance or critical illness cover can be a lifeline if your family has one breadwinner or a mortgage that you would struggle to pay if times became tough. A financial adviser will be able to help you decide whether this is necessary for you (in some cases you may be protected through your employer) and if so, will help you to find the most suitable policy.
Find and supercharge old savings
Interest rates have risen, and with them the rates on old savings accounts. This means that money you have had tucked away for some time may be losing value due to inflation and could be working harder.
Make an audit of old savings accounts and ISAs and the rates you are getting on them, and see whether you can find accounts that will pay you more (Raisin or Moneyfacts are two good places to look for this). You will typically earn more on cash savings if you lock the money away for longer but consider a balance between longer and short term savings to ensure you are ready for immediate needs.
For very long-term savings it may be worth considering investment. The value of invested money goes down as well as up, but over long periods of time, the stock market typically outperforms cash savings.
6th January 2023