It’s the time of year when we take stock of our achievements from the last 12 months and set new goals for the year ahead. Whilst most New Year Resolutions are set with the best intentions, just 8% of January pledges succeed¹.
Here we outline six personal finance New Year Resolutions to help you keep on track with your goals, and have a more financially secure future.
Consider a financial New Year’s Resolution
Most people try to improve their health and well-being with common New Year’s Resolutions including losing weight, getting fit, eating healthier and learning a new hobby.
With the festive period notoriously stretching the purse strings, money goals are becoming more popular at this time of year.
Yet Brits often line themselves up for failure by setting goals that force them to completely transform their old lifestyle and habits. When the going gets tough, it can be easy to resort back to old ways.
Instead, small changes to your money habits can help improve your financial wellness over the long-term and get you closer to achieving your goals.
Last year, Moneyfarm took to the streets to find out how long Brits kept their New Year’s Resolutions and how they plan to keep to them.
Whether your goals centre around your children, retirement, or perhaps you just want greater financial security in the future, these five resolutions can help you realise them.
Six personal finance New Year’s Resolutions
Prioritise debt and savings
It’s important you prioritise paying off expensive debt and saving up three months of outgoings before you look to make your money work harder for you.
Returns aren’t guaranteed on the financial markets, and there’s always exposing an element of risk, even if you keep your money in cash – inflation can erode the value of your money over time. It’s all about taking the right amount of risk for your financial situation and time horizon.
The interest you owe on any debt can accumulate at a faster rate than the returns you earn from your investments, so it’s important you prioritise paying off expensive debt to put yourself in the best financial position in the future.
Your investment portfolio shouldn’t be your rainy day savings pot either. You should have at least three months of outgoings saved in an easily accessible savings account in case of any unexpected events, like redundancy, a broken boiler, or car repairs.
Dipping into your investments can impact your long-term returns as you’re limiting your exposure to one of the most powerful forces when investing; pound cost averaging. This is when the returns your investments generate are reinvested and make their own returns. Accessing your money sooner than you planned can also force you to sell at a point you’d prefer to avoid, taking you further away from your financial goals.
Get investment advice
Investing your money for your future can be daunting. It takes a lot of time, skill and knowledge to give your money the best chance to grow. You need to invest in the right way to get you to where you need to be within your desired time horizon. Understanding your investor profile is one of the first steps to doing this.
Your investor profile acts a bit like your investor DNA, outlining the foundations of what you should invest in and the proportion that each asset class should make up in your portfolio.
If you want to invest by yourself, you’ll need to be able to objectively analyse your personality, financial background, appetite for risk and time horizon, and build a diversified investment portfolio to reflect this. This takes a significant amount of time to do properly.
Once you’ve started, you need to constantly keep an eye on your investments, as well as global financial market and economic trends, to ensure you’re positioned in the best way for growth even as your situation changes.
Now, investment advice is available at a fraction of the cost of the traditional industry and at the touch of a button, making it accessible to anyone wanting advice on how to build their investment portfolio.
At Moneyfarm, we pride ourselves on providing a unique combination of simple cost-efficient investment advice and fully-managed portfolios to help you grow your wealth over time.
Get a free portfolio review
Investors can easily lose track of their investments, which can mean they end up with a portfolio that is very different to the one they originally set-up if they don’t have access to ongoing investment advice and fully-managed portfolios that are regularly adjusted.
Investors can end up with a return that’s much lower than expected or a riskier plan than is suitable for them.
At Moneyfarm, we’re passionate about helping individuals make better decisions with their money. That’s why we offer a free review of all portfolios, including ones from outside of Moneyfarm, to help you see all your investments in one place.
After an initial consultation that can be done either in person, over the phone or via email, your dedicated Investment Consultant will do all the hard work for you.
You’ll get a personalised review of all your investments, no matter which provider you use, whether in an Pension, ISA, or General Investment Account.
If you’d like a free review of the investments you have outside Moneyfarm, or have any questions about the free service, email email@example.com with the subject line ‘I’d like to discuss a free Portfolio Review’.
Harry or your dedicated Investment Consultant will then conduct extensive analysis of the cost, quality and overall diversification of your investments, to keep you on track.
Make the most of tax incentives with a Moneyfarm Pension and ISA
The government wants you to save for your future, that’s why there are a number of generous tax incentives available to those who invest in a pension and ISA.
By protecting your investments in a tax-free wrapper like a stocks and shares ISA, you can keep more of your money and hopefully reach your goals more quickly. You can invest up to £20,000 in an ISA and any growth in the value of your money, and any income, is tax free.
When you invest in your pension, your money can also grow free from income tax and can be sold without incurring a capital gains tax (CGT) charge. The government gives you tax relief on your pension contributions relative to your income tax band. Basic rate taxpayers get 20% tax relief, higher rate taxpayers get 40%, and additional rate taxpayers get 45% tax relief on their pension contributions.
This tax incentive is a real draw to saving for your future, as it essentially gives your savings a 25% boost. Additional and higher rate taxpayers must apply to HMRC for their extra tax relief.
Once you reach the age of 55, you can take 25% of your pension pot tax-free, with the remainder being used to provide you with an income throughout your retirement – typically through an annuity or income drawdown.
If you have any questions about how the Moneyfarm Pension can help you reach your retirement goals, book a call today and one of our Investment Consultants will be in touch.
Few would advise investors to try and time the market. It’s too difficult and can leave the fingers of the most established and experienced investors rather burnt.
Instead, investors can manage the risk of timing and actually maximise returns by setting up a regular direct debit. Investing regularly smooths out the price you pay for an asset. It can lower the amount you actually pay for it during periods of volatility.
Known as pound cost averaging, this simple trick can help maximise returns over the long-run.
But setting up a direct debit has more benefits than that, it takes the hassle out of investing for people who are too busy trying to juggle their career with the school run. It also allows you to ignore market noise and avoid potentially costly knee-jerk reactions.
Focus on cost
When you’re busy focusing on whether you’re saving enough or how to access your pension to match your lifestyle, it can be difficult keeping up on exactly how much you’re paying in fees and what impact this is having on your money.
It’s important you understand the charges of your investment provider, as fees eat into the value of your investments and the income you’ll get during retirement. When you’re receiving a service, fees are a fact of life, but you don’t want these costs to mean you miss your dream retirement income or have to work longer to reach your goals.
At Moneyfarm we believe you should know exactly what you’re expected to pay for your pension. We only charge a management fee at an account level, which means there are no surprise flat fees or charges for rebalancing, transferring or for meeting targets.
The total cost of investing includes two further costs, the transaction cost (market spread) and fund fee, but these aren’t controlled by Moneyfarm or any provider.
We worked with consumer financial group Boring Money to produce a guide on pension fees.
Whatever your goals for 2018, we hope you have a prosperous year ahead.