Whilst the Christmas period is a time for reflection, the New Year is all about looking ahead and making plans. The break between Christmas and New Year is an ideal time to take a bit of a financial stock-check and consider whether your finances are in order for the year ahead.
Here are the Parker Financial Advisors tips for preparing for 2011.
1. Review your investments
Now is a great time to review how your old investments, saving accounts and pensions are performing. Should you be consolidating or moving any investments? Is it time to move out of cash and into tax free savings vehicles for example? Does your investment portfolio match your current lifestyle and life stage? And has your attitude to risk changed, as this could affect which investment you hold?
2. Check your cash
Do you have a cash buffer of three or four months expenditure available should the worst happen and you lose your income? In our view creating this buffer is even more important than paying off loans, although this may seem to be counter intuitive. Let’s think about it; a bank load reduced by £2,000 might save you £80 per month in outgoings but the £2,000 as a buffer would allow you to pay that loan off for 25 months. Try getting a new loan once your income has gone!
3. Save
Make a commitment to saving a set amount each month for the long term future. We’re all full of good intentions when it comes to saving but often go about things in the wrong way – deciding to save what’s left over at the end of a month rather than making a commitment and sticking to it. If you’re like me there’s rarely anything left over at the end of the month, but if I’ve made a commitment to pay £100 into an ISA each month for example I stick to it.
4. Review your pension arrangements
You should review your level of pension contribution at least annually, to ensure your pension will deliver what you want in retirement. How much did you contribute in 2010? What’s your plan worth and does that meet your aspirations for a comfortable retirement?
What do you plan to contribute in 2011? Have you set a regular monthly amount or are you planning a lump sum payment into your pension?
The higher you earn the more tax relief you receive on pension contributions but just because your salary is low doesn’t mean you can afford to ignore pensions.
5. Be smart with your spending
Keeping track of personal expenditure is a good discipline to have, and now might be a good time to review how much you’ve spent during the year on holidays, meals out, household bills and so on. This could help you identify areas where money could be saved or inspire you to go out and look for a better deal on your utilities, for example.
If you are planning a major purchase early in the New Year, a new car, sofa or electrical items, remember the VAT increase due on the 4th January. Buying early will potentially save you 2.5% of the cost.
Our main tip when it comes to financial planning is simply that – to plan! Don’t leave anything to chance, stay on top of your personal finances and get specialist advice when it comes to things like your pension and investment portfolios.
Andy Parker
Chartered Financial Planner Birmingham