As we wave goodbye to a tumultuous year of double-digit inflation and five interest rate rises, it’s time to reset and make some financial resolutions for 2024.
More than one in three of us will make a financial resolution this year, according to wealth platform Hargreaves Lansdown.
So, to help you on your way to improving your finances, YourMoney.com asked the experts to share their top 10 financial resolutions for the year ahead.
1) Start a monthly budget
Carla Morris, financial planner at wealth manager RBC Brewin Dolphin, says: “The festive season comes with added expenses, from socialising to present buying. Steep price rises mean it’s more important than ever to have a solid budgeting plan in place. Sticking to a budget can help avoid splashing out on things you don’t really need, which in turn may result in more money to put towards savings.”
There are lots of free budgeting tools online but you can just use a spreadsheet or your notebook. Make a list of your household income (after tax) and then deduct all regular expenses including your monthly food shop to get to your disposable income which is yours to save or spend. It’s a good time to reconsider all those monthly subscriptions you never use too to free up even more of your hard earned cash.
2) Set your financial goals
The New Year is a good time to reconsider your financial goals. What would you like to achieve over the short, medium and long-term?
“It’s generally considered wise to have around six months’ worth of essential expenditure in an easy access savings account, if you can afford it,” Morris says.
“If you already have a rainy-day fund and are saving for goals that are at least five years away, you might want to consider investing in the stock market. Although the stock market can be volatile, history shows that it tends to perform better than cash over long periods.”
3) Take advantage of the best cash rates
It’s easy to switch savings accounts. It can be done over the phone or online in minutes. Instant access accounts are paying more than 4% while fixed rate bonds that lock your money away for a set number of years are available at around 5.5%.
Laura Suter, director of personal finance at investment supermarket AJ Bell, says: “It’s highly likely we’ve hit peak interest rates. Peak rates mean that it’s time for savers to get moving if they haven’t yet locked in a fixed rate deal. We’ve already seen rates on some deals drop, which should spur savers into action.”
4) Plan ahead for a mortgage rate hike
Don’t bury your head in the sand when it comes to your mortgage. Almost 1.4 million mortgage deals will come to an end next year according to data from regulator the Financial Conduct Authority.
Even though you can’t lock into a new deal until six months before your old rate expires, Chris Sykes of Private Finance says “it’s never too early to speak to a mortgage broker, even if you just want to prepare yourself for what your new normal mortgage payment will look like to make sure you can afford it and make a plan to prepare for any steep rises”.
His tips include overpaying now to get used to a higher monthly payment and lower your mortgage balance, stretch the mortgage term when you remortgage if your payment is unaffordable. You can always lower your term again if rates fall. Or ask your lender if you can temporarily move some of your debt to an interest-only basis which will lower your monthly payment. You will pay more interest over the lifetime of your mortgage, however.
5) Perk up your pension prospects
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, says: “Pensions should be a key part of your resolutions to get financially fit for the future. It can be tempting to adopt a ‘set and forget’ approach and pay the default level of contributions long-term, but a lack of engagement leads to fear of the unknown.”
To perk up your pension prospects Morrissey suggests increasing your monthly contribution if, for example, you’ve recently had a pay rise. Your employer may also match your new contribution.
Track down old pension pots by calling the government’s pension tracing service on 0800 122 3170. You need to know the name of your old employer or pension provider.
Consider consolidating smaller pensions into one large pension to see clearly how much you have saved for your retirement and cut down on pension admin. But check you aren’t giving up any benefits such as guaranteed annuity rates by consolidating your pensions or incurring any expensive fees.
6) Review your protection
Having the right protection is crucial to ensure you and your family’s finances hold up in the event of unexpected illness or death. The New Year is a good time to check any current protection policies and ensure they are up-to-date.
If the level of cover is too low, your loved ones could be at risk of financial hardship should the worst happen. A financial adviser can help you.
7) Make or update your will
By making a will you are ensuring your assets go to who you want after your death, and that your wishes are carried out as you intended. If you’ve already made a will, consider whether it needs updating – for example, if your personal circumstances have changed.
8) Start estate planning
“While it’s not the cheeriest of conversations to have, estate planning is necessary both from the point of view of saving tax and ensuring there aren’t any loose ends when you die,” says Laith Khalaf, head of investment analysis at AJ Bell.
Estate planning is when you work out how you are going to pass on your wealth, which can be tied up in your home, savings or other investments, before and after you die while minimising your Inheritance Tax (IHT) liability. IHT is charged at 40% on the value of your estate (the combined value of all your assets) above £325,000.
“One way of reducing the value of your estate for IHT purposes is the judicious use of gifting allowances,” Khalaf adds.
You have until 5 April to use your annual gift allowance, which is £3,000 that you can give away with no IHT implications. You can also carry over a £3,000 unused allowance but only for one year, so if you didn’t use your allowance last year you could gift up to £6,000. See help from a financial adviser to find out other ways to mitigate inheritance tax.
9) Reorganise or simplify your investments
“If you’re a long-term investment enthusiast it’s easy for your portfolio to become overly complicated, which makes it difficult to make investing decisions,” says Alice Guy, head of pensions and savings at investment platform Interactive Investor.
“You don’t need to have a complicated portfolio to benefit from the magic of investment compounding. Many investors choose to have one simple global tracker fund which is already diversified across many sectors and geographies.”
If 2024 will be your first foray into the stock market, keep in mind that investing is a long-term game. Funds should be invested for at least five years to ride out any turbulence in the stock market. You can choose your own funds by using an investment platform’s suggested investment lists or you can use a ready-made portfolio of funds from companies such as Nutmeg or Wealthify. Fees for ready-made portfolios are typically higher than taking a DIY approach.
10) Be tax-efficient: Maximise your ISA allowances
“Many people wait until the end of the tax year to maximise their ISA allowances, but the sooner you act, the better your chances are of realising your financial goals,” says Brewin Dolphin’s Morris.
You can invest up to a maximum of £20,000 into ISAs each year to benefit from tax-efficient income and growth. You can withdraw money from ISAs whenever you like without paying tax, which makes ISAs a useful investment vehicle for pre-retirement goals as well as a tax-efficient source of income in retirement.
