Money experts reveal their financial resolutions for 2021
The coronavirus left the UK a financially divided nation. While many people lost their jobs or had to rely on 80% of their normal salary due to being furloughed, thousands of others were able to spend less and save more.
If you need some inspiration for your New Year’s financial resolutions, here are some money management tips from some of the UK’s top money commentators to give you a bit of inspiration.
Moira O’Neill, head of personal finance at interactive investor:
Build an emergency fund
My top resolution is to quickly build up my family emergency fund after a major spend on building work has left us very depleted financially. I will start to feel more relaxed once our family has six months’ outgoings saved up. I intend for us to live as frugally as possible until that’s done. I’ll probably put it in a mixture of cash ISA, plus Premium Bonds – while interest rates are so low, the appeal of winning a major tax-free prize is good.
Invest in a stocks and shares ISA
My second resolution is to start seriously investing in my stocks and shares ISA again. We had to cash in flexible access investments to pay for the building work. It demonstrates flexibility of ISA and how it can be used at different life stages and for different needs. But I really want to retire (or at least have the opportunity to scale back on work) at 55, and now the government has announced plans to move the private pension age up to 57 for people of my age, I need to plug the two-year gap before I can access my SIPP.
Sarah Coles, personal finance analyst at Hargreaves Lansdown:
Stop frittering money through direct debits
We waste an average of £39 a month on direct debits we don’t get any value from – which amounts to an eye-watering £30,000 during our lifetimes. This could be the year you put a stop to it for good. Online banking makes it easy to scroll through your direct debits and weigh up whether they’re worth the money. Then, if you’re at the end of any minimum contract, get in touch with the company and cancel it.
The best way to avoid this in future is never to sign up for something in the hope it changes your behaviour, because if it doesn’t you’re tied into something you don’t use. It’s best to make the lifestyle change first and, for example, only join a gym once you’ve exercised regularly for a couple of months.
Switch your cash
2020 has been a year of brutal savings rate cuts. It’s easy to miss announcements and skip emails, so it’s no wonder that around half of us have no idea what we’re making on our savings. When you take a look, you’re likely to be in for a nasty surprise. The average interest rate on easy access savings has plunged to 0.12%.
More than half of us say we have no plans to switch, and the most common reason is that rates are too low to bother with. But if you’re earning a high street rate of 0.01%, you could earn 60 times the interest in a competitive account, and over 100 times the interest on savings you can tie up for a year or more.
Make a will
Nobody likes to think about their inevitable demise, which is one reason why over half of Brits don’t have a will. Without it, your assets will be divided according to a specific list, which leaves key groups – like long term partners – out in the cold. If you have children, you miss the opportunity to name guardians if both parents pass away too.
We should all have a valid will in place, and while we’re at it, draw up Lasting Powers of Attorney for our health and money matters – which allow people we trust to step in to make decisions for us when we’re no longer able to. Neither of these things are cheap, but if it protects you and your loved ones, they could be the most valuable documents you ever draw up.
Tom Selby, senior analyst at AJ Bell:
Make a plan to pay off debts
The first thing to do when paying off debts is understand what you owe and how much you are being charged on this money. This might mean spending a bit of time digging through paperwork (or emails/online accounts).
Once you have done this, aim to prioritise paying off debts with the highest interest rate attached. This will usually be denoted with an ‘APR’ or ‘annualised percentage rate’ and just indicates what it would cost you over a 12-month period.
Assess whether your pension plans are on track
You should be able to able to view your private pension (or pensions) online. Usually these sites will show a range of information including the value of your fund, how much you have paid in, how much investment growth you have enjoyed and the costs and charges you have paid. Some will also have tools which allow you to estimate how much your pot could be worth at your chosen retirement date, based on assumptions around investment growth and contributions.
As a very rough rule of thumb, aiming to save roughly half the age at which you start contributing as a percentage of your salary is a good place to start. So, for example, if you start contributing to a pension at age 25 that implies a total contribution of 12.5%, while delaying until age 30 means you might need to set aside 15%.
If that rule of thumb sounds overly ambitious, saving something is better than nothing, as your contributions will be boosted by upfront pension tax relief (as well as matched employer contributions in your workplace scheme).
Review your retirement income
Engagement is crucial for those taking a retirement income while staying invested in order to ensure withdrawal plans remain sustainable.
For those in the early stages of drawdown, large withdrawals coupled with significant poor investment performance can quickly turn a sustainable retirement strategy into an unsustainable one. As a rough rule of thumb, anyone taking more than 3 to 4% of the initial value of their retirement pot – rising each year in line with inflation – risks running out of money early.
It is therefore crucial regular reviews – at least once a year – are undertaken and investors are willing to reduce withdrawals if necessary. Sticking your head in the sand is not the answer and could leave you facing serious financial hardship later in life.