The days between Christmas Day and the new year are traditionally ones where we meet up with friends and blow away the festive cobwebs with a trip to the winter sales or sporting events.
However, with the Covid-19 pandemic limiting those to some extent, we’ll all probably find ourselves with more time on our hands than we’re used to.
There’s a limit to the number of turkey sandwiches you can eat, and film repeats that you can watch, so you’ll need to find alternative ways of passing the time! If you have a few hours, it’s a great opportunity to do a simple review of your finances, so you can start the new year on the financial front foot.
Here are 10 steps to take to give yourself a financial MOT.
1. Review your cashflow
If you haven’t done so already, set up a spreadsheet detailing your monthly income and outgoings. The quickest way to do this is to go through recent bank statements and note down all direct debits and standing orders, as well as other regular payments taken via your debit card.
This will give you a clear idea of your disposable income after all regular outgoings are deducted, and will also flag up any discrepancies that you should look into, such as incorrect amounts being collected, and direct debits that can be cancelled.
On the spreadsheet you can also include renewal dates for annual insurance policies, such as motor and household insurance so you can be ahead of the game when it comes to looking for lower rates in 2021 when renewal is due.
2. Review your pensions
On a separate page of your spreadsheet, make a list of your existing pension holdings with the current values.
If you have a series of different arrangements with different providers, you might want to consider consolidating them all into a single plan.
This will make it easier to keep track of the value of your pension fund and could also save you money in reduced monthly charges. However, consolidation is not necessarily the best for everyone, so you should speak to your financial adviser before making any decisions.
Pensions are one of the most tax-efficient ways of saving money, so make sure you’re maximising contributions as much as possible. This is particularly important if you’re a higher- or additional-rate taxpayer, as there are persistent rumours that the Chancellor could remove higher- and additional-rate tax relief in his 2021 Budget statement.
Also, check your current State Pension entitlement – how much you’ll get and when you’ll receive it and include this in your pension figures. Use the government website to get a State Pension forecast.
3. Deal with your unsecured debt
Credit card and personal loan debt can be expensive and if, in the case of credit cards, you’re only paying the minimum monthly repayment, it can take a long time for you to clear the outstanding amount.
The rate of return you’ll get on investments, even in good years, is likely to be less than the interest rate on most credit cards. You might therefore want to think about using some of your savings to reduce or clear your outstanding debts.
Put a repayment plan together and aim to stick to it, starting with the most expensive debt.
4. Check your will
Research by Macmillan Cancer Support has found that almost two-thirds of adults in the UK have not prepared a will. Even among those over 55, the figure is more than 40%.
Only by writing a will can you ensure that you leave your possessions, money, and property to the people of your choice. It also ensures your dependent children will be cared for according to your wishes.
Even if you do have a will, it’s worth checking that the details are still correct and applicable to your current circumstances.
5. Check your Lasting Power of Attorney is up to date
While your will ensures that your assets are allocated in accordance with your wishes on death, your Lasting Power of Attorney will make sure your finances are dealt with in accordance with your wishes while you’re still alive, but unable to manage your own affairs.
It’s worth quickly checking that you are still happy with how it is written and any stipulations you made at the time it was originally drawn up.
If you don’t currently have a Lasting Power of Attorney in place, your financial planner will be able to help you set one up.
6. Check your utility bills
Your cashflow spreadsheet will show you exactly how much you’re paying to utility companies for gas, electricity, broadband and other utilities.
It’s worth using one of the comparison websites such as Uswitch, to see if you can make savings by changing your provider. Assuming you don’t have an outstanding amount on your account, the switching process is usually straightforward and can save you a decent amount each month.
7. Make sure you’re including assets back in Australia
If you have any assets remaining in Australia, make sure you include the value of these in your calculations, and take them into account as part of your financial MOT.
- The Australian Reserve Bank interest rate is at an all-time low of just 0.1%, with clear indications that it’s going to stay at that level for some time. This means that now may be an ideal time to review any business loans you have outstanding and look for cheaper interest rates.
- The Reserve Bank rate should also have a positive impact on mortgage rates, so again it’s worth seeing if you can make savings on any outstanding mortgages you have in Australia.
- Also, check the value of your super funds, and check that the investment profile is still appropriate to your aims and outlook.
8. Check your holiday plans
2020 has been a tough year for anyone used to holidaying abroad. It’s likely, and perfectly understandable, that you may well have already booked your 2021 break to give you and your family something tangible to look forward to.
If you’ve just paid a deposit with the balance to be paid nearer departure, maybe earmark some savings for this, or start saving a monthly amount.
You might also want to start setting aside a regular amount towards your holiday spending money.
One impact of Brexit is that people travelling from the UK to Europe for a holiday may face different rules or restrictions. For example, a European Health Insurance Card (EHIC) will no longer cover visitors from the UK, so you should check the details of your travel insurance policy.
9. Create an ICE document
An ‘In Case of Emergency (ICE)’ document is designed to contain all the information your loved ones may need to know in an emergency. It ought to contain:
- Contact details for your accountant, solicitor and financial planner
- Information about where your important documents are held
- Details of where to find insurance policies and legal documents such as your will
If you haven’t done so already, resolve to put all the important information into one document to make it easy for your family to deal with your affairs should something unexpected happen to you.
10. Set up a review meeting with your financial planner
If you have any queries or thoughts about any of the financial planning issues we’ve outlined here, it may be time to book a review meeting with one of our financial planners. We can talk through your plans and make sure you’re on the right track to achieving your goals.
At bdhSterling we have licences in both the UK and Australia for full financial planning and can help you develop a clear plan. Get in touch to find out how we can help.
Finally, a bonus step
As we approach midnight on New Year’s Eve, pour yourself a glass of champagne, or your drink of choice, and raise a glass in a toast with us. Celebrate the fact you’ve made it through an unprecedentedly challenging year and look forward to 2021.
Please note:
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.
The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.
