As 2024 approaches, you may have already started thinking about some big changes you want to make in the new year. Data reported by Statista reveals that some of the UK’s most popular new year resolutions in 2023 were:
- Exercising more
- Losing weight
- Improving diet
While health-related resolutions may dominate the spotlight, January is also the perfect time to review your financial habits.
In doing so, you can gain greater control over your financial security during the coming year, which is particularly important during these difficult times.
Read on to discover five pragmatic financial resolutions to keep in mind as the new year fast approaches.
1. Review your estate plan
Ensuring you have a well-rounded estate plan is necessary at any time of the year, as this can protect you and your family should the unexpected happen.
So, the onset of a new year can be the ideal opportunity to establish, or review, crucial components of your estate plan, namely your Will or a Lasting Power of Attorney (LPA).
For instance, the inheritance process can be challenging for your loved ones, and they could end up embroiled in a legal dispute if you don’t have a Will in place and pass away. This could result in immense stress on your family at a time when they’re already struggling with your passing.
Fortunately, if you have a Will in place and keep it up to date, you can ensure that:
- Your children will be properly cared for
- Your family can continue living in their home and support their current standard of living
- Your money and assets will end up where you want them to
- Your partner will be cared for if you’re unmarried.
This is especially important if your circumstances have changed recently, as your current Will may no longer reflect your wishes, and your assets could go to the wrong people.
While your Will can protect your family and ensure your assets are appropriately divided after you pass away, it’s also vital to ensure that your finances are dealt with in accordance with your wishes if you become unable to manage your own affairs while alive. This is where an LPA comes in.
This is essentially a legal agreement that allows someone you trust to make important decisions on your behalf if you become incapacitated. There are two types of LPA available – one covering your financial affairs, and another dealing with your health and care.
If you already have an LPA in place, the new year could be the perfect time to check whether you’re still happy with how it is written and review any stipulations you made when it was originally drawn up.
2. Clear your debts
Alongside your careful financial review, the new year could also be the perfect opportunity to assess any debts you currently have and consider a strategy to pay them off.
This is especially the case for high-interest debts, such as credit cards, as these tend to snowball quickly and could become even more expensive over time, especially if you only pay the minimum amount back each month.
Before devising a plan to clear these debts, it may be wise to first review your budget. This could give you a clear idea of how much money you have available that could be diverted towards paying off your debts.
Dealing with debt at the start of the new year could enable you to secure your financial future and reduce any feelings of anxiety that may mount through the year.
3. Check you have the right protection in place
The right financial protection is an essential tool to prepare you and your loved ones for the unexpected, ensuring that you can still work towards your goals should the unthinkable happen.
Indeed, it can give you the peace of mind that you’ll receive much-needed financial support when you need it most, acting as a shield against a variety of unexpected events.
This is especially the case if you’re part of the “squeezed middle” – those in their 30s and 40s – as they tend to need more robust safety nets.
Read more: Why is the “squeezed middle” missing out on crucial protection?
Despite this, FTAdviser reveals that only 44% of people have enough life cover to protect their family, falling to 26% of couples with dependent children.
It’s worth considering the different forms of financial protection available, as each offers varying levels of support.
For instance, life cover will provide your loved ones with financial support should you pass away, ensuring they can continue living comfortably without you to provide for them.
Alternatively, critical illness cover offers a tax-free lump sum if you’re diagnosed with a severe illness listed on the policy. You could use this support to help pay off your mortgage, debts, or even private treatment, ensuring that you don’t need to worry about your financial situation at a time when you should be focusing on your recovery.
Similarly, income protection provides you with a regular source of income if you’re unable to work due to an accident or illness. Separate policies can cover you in the event of redundancy.
4. Find lost pensions
If you’ve worked many jobs throughout your life, you may have several pension pots out there that you’re unaware of or have even forgotten about.
This is more common than you’d think, as FTAdviser reveals that there is almost £27 billion sitting in lost or forgotten pension pots, and around 1 in 20 savers could be missing out.
If you suspect you have lost an old pension pot, there are several ways to track them down.
First, it may be prudent to locate any old paperwork your old pension provider may have supplied, such as an annual benefits statement. Using this, you can contact these old providers directly to recover any pots.
If you’re struggling to recall the names of any previous providers and can’t find any paperwork, it’s worth contacting each of your former employers and requesting details of the pension scheme you paid into.
If all else fails, you can always get in touch with the government’s Pension Tracing Service to help you locate any missing pensions. You’ll just need to supply some basic information to access the contact details of your previous pension providers.
By locating your old pensions and merging them, you could potentially boost your overall retirement fund. Even if you only paid into a pot for a brief period of time, the compound growth on those savings could be significant, especially if you contributed to it many years ago.
Moreover, having all your retirement funds under one roof could help you keep track of your savings goals and give you more reassurance that you’re taking the steps necessary to achieve your dream lifestyle when you stop working.
5. Review your pension contributions
On the topic of pensions, the start of the new year could also be an opportune time to consider increasing your contributions.
Doing so can have a significant positive effect on your long-term financial wellbeing and security. Yet, research from the Institute for Fiscal Studies revealed that fewer than 1 in 100 private sector employees increased their pension contributions when they received a 10% pay rise.
If, after reviewing your budget, you decide that you can afford to pay more into your pension in 2024, you could benefit from more tax relief on contributions, allowing you to tax-efficiently save for your future.
As of the 2023/24 financial year, the Annual Allowance stands at £60,000, or 100% of your earnings, whichever is lower. This essentially means that a £100 contribution would only “cost” you £80 as a basic-rate taxpayer, with the additional £20 provided by the government.
If you’re a higher- or additional-rate taxpayer, you could claim an additional 20% or 25%, respectively, through a self-assessment tax return. This would mean that, as an additional-rate taxpayer, a £100 contribution would “cost” you £55 after claiming the extra tax relief.
Moreover, if you increase the amount you contribute to a workplace pension, your employer could also match your contributions. As a result, even a modest increase in your monthly contributions could give you a significant boost to your retirement savings overall.
This is why the start of the new year could be the ideal time to review your pension contributions, as it could help you figure out whether you’re making the most of your retirement savings.
Get in touch
New year’s resolutions are famously difficult to adhere to, so if you’d like help sticking to your goals, then please speak to us.
Email hello@fcadvice.co.uk or call 0330 828 4714 to find out more.
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.
Note that life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.
The Financial Conduct Authority does not regulate estate planning, tax planning or Will writing.
