The start of a new year is a great time to give your finances an annual health check, take financial control, and make sure everything is on track.
2020 was a difficult year for many people, so an annual review at this stage could give you some useful pointers of things you need to do to keep your finances healthy and ensure you are protecting yourself and your family should the unexpected happen.
To help you, here are seven financial wellbeing tips for 2021.
1. Make sure you are not overspending
The key to financial wellbeing is to make sure you’re sticking to your budget and not spending more than you earn.
If you’re overspending, there’s a chance you won’t reach your financial goals as soon as you hoped. It also increases the likelihood that you will have to resort to using expensive credit cards or unsecured loans to bridge the gap each month.
The easiest way to check you’re not overspending is to look through your recent bank statements and set up a simple spreadsheet showing your income and all your regular monthly outgoings.
This will then help you identify the areas where you can reduce your monthly expenses. These could include cancelling unused subscriptions and using one of the comparison websites to see if you can reduce your utility bills.
2. Clear your expensive debt
If you do have a lot of unsecured debt on credit cards or through personal loans, the key thing is to confront it and put a plan in place to clear it as quickly as possible. You then need to stick to that plan.
Look to pay off the most expensive debts first. These could include credit card and store card debts, payday loans, and unauthorised overdrafts.
Paying off your debts will give you peace of mind and enable you to put more of your earnings into saving for your future. It will also help improve your credit rating, which will make any future borrowing cheaper and easier to manage.
3. Review your financial goals
Once you have a plan in place to clear any outstanding debt, you can then check whether you are on track to reach your goals.
If there is a shortfall, you might need to adjust your goals or look for ways to increase the amount you save each month.
The goals you may have could include saving for your retirement, moving to a new home, or contributing to family costs, such as your children’s or grandchildren’s university fees.
You will know what your priorities are, and this will help give you a steer in terms of future planning. For example, if university fees will not be due for some time, you might want to boost the amount you’re paying into your pension plan now so that if you do need to prioritise fees in the future, you’ll have a decent sized pension fund in place to benefit from potential investment growth during that period.
4. Check your money is working as hard as it should be
The way you invest your money can have a direct bearing on your ability to reach your goals.
Cash savings accounts tend to offer exceptionally low interest rates, usually below the rate of inflation. So, if you’re investing for a long-term goal and your money isn’t keeping up with inflation, it could fall in value in real terms.
Long-term investment in equities gives your money the opportunity to benefit from stock market growth. However, stock markets can be volatile, so are unlikely to be the best option if you’re looking for a short-term investment.
Even if your goal is decades away, it’s important to spread your money across different asset classes, regions, and sectors. By diversifying your money, you can reduce the impact of one asset dropping in value.
You should be aware that investing in stocks and shares carries some risk and there’s a chance you could get back less than you initially invested.
5. Make sure you have an emergency fund
The last 12 months have shown us that it’s impossible to accurately predict what could happen in the future. What you can do, however, is ensure you have plans in place to deal with the financial fall out from unexpected events.
Earmark some savings as an emergency fund. As a rough rule of thumb, you should make sure you have three to six months’ income set aside in a low-risk, easy access savings account. This means that you will not have to access your long-term investments in the event of a financial emergency.
6. Protect your family against worst-case scenarios
You should aim to protect your family against financial hardship in the event of you being unable to work through illness or incapacity.
Two of the most common type of protection that you should consider are:
- Income Protection will pay out a monthly sum if you are unable to work for an extended period due to ill health or injury. It gives you the reassurance that your family will not suffer financially during this time
- Critical Illness Cover will pay out a lump sum in the event of you suffering an illness that prevents you from working for a long period, or ever again. This can give your finances a boost at a time when it is most needed.
You should also make sure you have a will in place and that it is up to date. This will ensure that your wealth will go to the people you want it to in the event of your death.
7. Speak to your financial adviser
Making sure you are investing your money correctly and that you are on track to meet your goals can be complex. This is where a financial adviser can help.
They will put together a bespoke plan specifically designed to meet your needs and aligned with your financial objectives.
They will also meet with you regularly to review your plans and suggest any changes they feel are necessary to make sure you stay on track towards achieving your financial goals.
Get in touch
At bdhSterling, we have a wealth of experience in helping clients with their financial planning.
Get in touch to find out how we can help you.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.