Lose weight. Take up exercise. Find love. Get rich! As the New Year begins, many of us feel the pressure to make ambitious resolutions which inevitably fall by the wayside before January is even out.
But making smarter financial decisions should be a lifelong commitment that becomes a habit. According to our Head of Investment Consultants Chris Rudden, towards the beginning of every year people put an enormous amount of pressure on themselves to suddenly change everything. But it’s the everyday, little choices with your money that will be the cornerstone to lifelong financial wellbeing.
At Moneyfarm, we believe that the key to achieving your financial goals is by spending time reviewing your current situation and then taking small but achievable actions. By consistently making manageable financial choices, over time, you can build a solid foundation for a prosperous future for you and your family.
Here are five suggestions from Chris to help you achieve your financial dreams.
Every little helps
The best thing you can do to set yourself up for financial success is saving and investing 10% to 20% of your salary each month. This increases your chances of being able to retire with an adequate amount of savings. Doing this means that you can still afford to treat yourself now and then while knowing that you are also saving for your future.
A good way to practically implement this into your life is by following the 50/30/20 rule of thumb. This means setting aside 50% of your income on necessities, 30% on wants and 20% for your savings. This way you do not feel like saving is taking away from your everyday wants and needs.
Being consistent in doing this each month means that over the course of a year, though the market may be volatile, you can invest more at lower prices, with the expectation that markets will rebound. Investments made during downturns could drive the greatest returns over time.
Stay on top of your pension options
For many people, their pension may be the last thing on their mind. However, it is best to stay on top of this so you can reap the rewards later in life.
It’s never too early to start paying into your pension pot. It is a great way to invest in the life that you may want to lead during your golden years. Making small contributions now is a lot easier than playing catch up and making larger financial sacrifices later down the line.
Even if you start small, pension pots can benefit from compound interest as they are long-term investments. For many people, this is achieved through auto-enrolment in the workplace. However, with most individuals holding multiple jobs over their working lives, some pensions can end up being ‘lost’. Recent research from Moneyfarm revealed that the average Brit estimates they have around £13,000 spread across three ‘lost’ pension plans. Why not use the new year as an opportunity to track some of these down? You can also try our free Find, Check & Transfer service – we do all the hard work finding and combining your lost pensions into one simple plan.
Make a plan that you know you will stick to
Financial planning helps you take control of your money and makes sure that you reach your goals, whether that is enjoying a dream retirement, buying a house, or passing down wealth to your loved ones.
It is tempting to set overly ambitious goals when making financial plans. However, it’s best to start by setting out your life goals and consider the type of lifestyle you want to live, calculating your current assets – cash savings, any property, pensions and any other investment that you hold – and projecting your future assets. Once you have worked out how much this is, you can plan around this and set saving targets.
Regularly reviewing your progress ensures you stay on track. With a good plan in place, you’ll have more confidence and security for the years ahead.
Make the most of tax wrappers
The 2024 Autumn Budget introduced an increase in capital gains tax. To minimise the impact and make the most of your investments, consider maximising your use of tax-efficient wrappers such as ISAs, Junior ISAs, and pensions. These tools can help shield your investments from both capital gains and income taxes. Every year you can invest up to £20,000 tax free in an ISA, £9,000 in a junior ISA and up to £60,000 in a pension.
You could also consider investing in tax-exempt options like UK government bonds or gilts, especially those below par, for assets held outside of tax-free accounts.
Finally, you should stay informed about capital gains tax changes and proactively structure your finances to minimise liabilities, as lower allowances and higher rates now impact more people.
Don’t forget to enjoy the journey!
Financial planning is key to reaching your financial goals, but this does not mean you cannot spend money on yourself and loved ones along the way. Life is meant to be lived, so while you set new targets and commit to smart financial decisions, make sure to leave room for things that bring you joy. Rewarding yourself with occasional treats or experiences can make the process more enjoyable. Life is all about balance – and this does not change when it comes to your finances.
*As with all investing, financial instruments involve inherent risks, including loss of capital, market fluctuations and liquidity risk. Past performance is no guarantee of future results. It is important to consider your risk tolerance and investment objectives before proceeding.
