As we welcome a new year, many of us vow to make it a year in which we improve our financial habits. But without a credible plan it is easy to slip back into our old ways without making a real difference.
With inflation rising, being really disciplined with your money is more important than ever this year. For many of us it is the only way to work towards future goals whilst balancing the budget in the present. Here are five top resolutions to ensure you get into the best financial habits this year.
Resolve to: Analyse last year’s spending, and cut back
Taking a look through your 2021 bank statements can pay dividends if you want to feel richer in 2022. If you use an app such as Chip, Emma or Money Dashboard, then it can analyse your spending for you, but otherwise looking through your monthly statements can help you to see where your cash is going and whether there are places where you can trim it.
Cancelling subscriptions for items you don’t use, such as magazines or television streaming services is one way to save money, while bills such as broadband and your mobile phone bill can often be cheaper if you switch at the end of a contract.
Making sure you don’t spend more than you have to on these basic items will give you more cash to save for the future and to enjoy the present.
Resolve to: Pay your savings account at the beginning of the month
Building up savings for the future is an important part of financial resilience, but if you wait until the end of the month, you’ll find you’ve already mentally ‘spent’ the money before you can tuck it away.
Instead, set up a direct debit that syphons money into your separate savings account as soon as you have been paid, and before anything else has been taken out. That way, you’ll create a rainy-day fund without even thinking about it, and it will build up over time.
Resolve to: Make 2022 the year when you sort out protection
Life insurance and critical illness cover – insurance policies that pay out if when your family is hit with a sudden crisis – have traditionally been some of the least popular types of insurance.
However, since the Covid-19 pandemic there is evidence that more people have become interested in protecting their family from the unexpected.1
Everyone’s need for these types of policies, known as protection products, will be different, depending on their financial circumstances and dependants.
However, if you have a family and wonder how they would cope without you financially, or how you would meet your financial obligations if you were unable to work due to illness or accident, it may be worth considering these policies. A financial adviser will be able to help you to work out the type of policy you need.
The cost per month of different protection options varies significantly but it could give you and your family a great deal of financial peace of mind.
Resolve to: Invest, not just save
Galloping inflation is not just something that is felt on your weekly shop, it can decimate your savings too. With interest rates at a very low ebb, your cash savings are likely to be losing value, so it makes sense to ensure that the money you are saving for the long term is exposed to the stock market.
Historic studies suggest that, over long time periods, investing outperforms saving. However, given the current uncertainty created by the pandemic, it is sensible to ensure that you invest in a diversified portfolio of different stocks, assets and sectors. If you are unsure of how to do this a financial adviser will be able to help.
Resolve to: make a will
Making a will may not sound like a financial decision, but it is a vital part of multigenerational financial planning. Without a will, your money may not go to the people who you hope will receive it, and it may also not be distributed in a tax efficient manner.
Making sure your wishes are clear is also really helpful to your family in the event of your death, ensuring that there is less uncertainty at a difficult time. Free Wills month allows you to have your will drawn up for free in March if you are over 55, but if your affairs are at all complicated or you fear your estate may attract inheritance tax then you may be better to ensure that you use a financial adviser as well as a solicitor when deciding on how you leave a legacy, as they will be able to see the tax ramifications of your decisions and make decisions that will benefit your family.