NEW YEAR, NEW START – BUILD FINANCES INTO YOUR FUTURE

• Portafina shares tips on how to organise finances for the year ahead

If your list of New Year’s resolutions is similar to many others, it probably includes saving more money. But, like vowing to get fit, this one is easy to fail at, especially if the plan of action is a little vague.

Success is much easier if you have a plan to follow. So, to help you get on the right track, here are seven ways to change your financial situation in 2018.

Split your income and outgoings into percentages
It sounds simple, but going back to basics and actually sitting down and working out what income you have coming in, and what is going out, will give you a clear picture of what is left over to enjoy or save.

Consider all your bills, including rent or a mortgage and utilities; this may eat up around 50% of your income. Then there is your mobile phone, petrol, broadband, food and other subscriptions to think about, which for a lot of us comes to around another 20%. That would leave you with close to a third left over. If you chose to save a half of this remaining income, you could build a very useful rainy day or emergency fund. For example, for someone earning the UK average annual salary of £27,600¹ this would add up to over £3,000 per year.

Tackle any debt
This one always tops the list, and for good reason. Loans and credit cards often have high-interest rates, making them incredibly expensive. Reducing or even clearing monthly repayments can feel like a huge weight lifted. Plus, it means you have extra money at your disposable and the really savvy thing to do is to put some or all of this cash into savings and investments.

Quick and effective ways to help you clear debts faster include consolidating multiple debts, reducing your interest rate by switching to a different provider, and avoiding making the minimum payments only.

Put money away straight after you have been paid
If you earn £10 an hour, every £10 you spend is one more hour that you have to work before you can retire. That’s a pretty big incentive to save! 

Many people try and save at the end of the month, hoping there is enough left after bills and spending. The problem is there usually isn’t money left – when we consider it available, it will be spent!

To overcome this, pay yourself first. You can put the money into an easy-access account so you can use some of it is absolutely necessary, until you adjust to having less to spend

To really make the most of savings you will want to get the highest interest rate possible and not lose the growth to tax, so high-interest accounts and ISAs should be considered.

Don’t forget about your pension
Pensions are one of the most efficient savings vehicles at your disposal, offering tax-free growth, and tax relief on all your personal contributions. Plus, if you have a workplace scheme then most of the time your employer will also make contributions, which is effectively free money.

For example, from April 2018 a person on the UK average annual salary will be required to contribute £55.20 per month to their workplace pension. If they are a basic rate taxpayer then this contribution rises to £115 once tax relief and the employer’s contribution have been taken into account².

This supercharges your saving efforts and can make a huge difference to the eventual size of your fund. Better yet, thanks to the new pension rules the money can be accessed in full from the age of 55.  

Considering switching service providers
In this age of digital banking and direct debits, much of our spending is automated and it is easy to overlook where money is going. Looking into switching utility, mobile phone contract and broadband providers could save you considerable sums across the year.

There are often good deals in the new year but do check renewal dates as some providers charge an exit fee.

Plan ahead for bigger expenses
Some expenses in life are unexpected, but there are others that we know are coming. Christmas happens at the same time every year, as do birthdays, anniversaries and even renewal dates for car tax and insurance. Yet, even with a full 12 months’ notice on these, it’s easy to leave it until the last minute to plan for these events and then panic about the expenditure.

To break the cycle, spread the cost over the year.
Decide how much everything may cost you across the year, and divide that number by 12 to see how much you need to set aside each month. This way you will always have the money ready, removing one of the main temptations to spend on a credit card. It’s far better to set aside £50 a month for everything than have to raid the savings for several hundreds of pounds when times are tight!

Jamie Smith-Thompson, managing director at Portafina, concludes: “Sorting out the finances is on so many new year lists for a very good reason, it’s massively important! And to make it work, the best bit of advice to follow is: set realistic targets.

“If you aim sky high and fall at the first hurdle it can be thoroughly demoralising. And that’s when it’s easy to slip into ‘I’ll put it off again until next year’ mode. If you are realistic about what you can do with your finances you will generally meet your goals. This means a double-whammy of feeling good about yourself now and setting up a more secure future for you and your family.”

• Portafina shares tips on how to organise finances for the year ahead

If your list of New Year’s resolutions is similar to many others, it probably includes saving more money. But, like vowing to get fit, this one is easy to fail at, especially if the plan of action is a little vague.

Success is much easier if you have a plan to follow. So, to help you get on the right track, here are seven ways to change your financial situation in 2018.

Split your income and outgoings into percentages
It sounds simple, but going back to basics and actually sitting down and working out what income you have coming in, and what is going out, will give you a clear picture of what is left over to enjoy or save.

Consider all your bills, including rent or a mortgage and utilities; this may eat up around 50% of your income. Then there is your mobile phone, petrol, broadband, food and other subscriptions to think about, which for a lot of us comes to around another 20%. That would leave you with close to a third left over. If you chose to save a half of this remaining income, you could build a very useful rainy day or emergency fund. For example, for someone earning the UK average annual salary of £27,600¹ this would add up to over £3,000 per year.

Tackle any debt
This one always tops the list, and for good reason. Loans and credit cards often have high-interest rates, making them incredibly expensive. Reducing or even clearing monthly repayments can feel like a huge weight lifted. Plus, it means you have extra money at your disposable and the really savvy thing to do is to put some or all of this cash into savings and investments.

Quick and effective ways to help you clear debts faster include consolidating multiple debts, reducing your interest rate by switching to a different provider, and avoiding making the minimum payments only.

Put money away straight after you have been paid
If you earn £10 an hour, every £10 you spend is one more hour that you have to work before you can retire. That’s a pretty big incentive to save! 

Many people try and save at the end of the month, hoping there is enough left after bills and spending. The problem is there usually isn’t money left – when we consider it available, it will be spent!

To overcome this, pay yourself first. You can put the money into an easy-access account so you can use some of it is absolutely necessary, until you adjust to having less to spend

To really make the most of savings you will want to get the highest interest rate possible and not lose the growth to tax, so high-interest accounts and ISAs should be considered.

Don’t forget about your pension
Pensions are one of the most efficient savings vehicles at your disposal, offering tax-free growth, and tax relief on all your personal contributions. Plus, if you have a workplace scheme then most of the time your employer will also make contributions, which is effectively free money.

For example, from April 2018 a person on the UK average annual salary will be required to contribute £55.20 per month to their workplace pension. If they are a basic rate taxpayer then this contribution rises to £115 once tax relief and the employer’s contribution have been taken into account².

This supercharges your saving efforts and can make a huge difference to the eventual size of your fund. Better yet, thanks to the new pension rules the money can be accessed in full from the age of 55.  

Considering switching service providers
In this age of digital banking and direct debits, much of our spending is automated and it is easy to overlook where money is going. Looking into switching utility, mobile phone contract and broadband providers could save you considerable sums across the year.

There are often good deals in the new year but do check renewal dates as some providers charge an exit fee.

Plan ahead for bigger expenses
Some expenses in life are unexpected, but there are others that we know are coming. Christmas happens at the same time every year, as do birthdays, anniversaries and even renewal dates for car tax and insurance. Yet, even with a full 12 months’ notice on these, it’s easy to leave it until the last minute to plan for these events and then panic about the expenditure.

To break the cycle, spread the cost over the year.
Decide how much everything may cost you across the year, and divide that number by 12 to see how much you need to set aside each month. This way you will always have the money ready, removing one of the main temptations to spend on a credit card. It’s far better to set aside £50 a month for everything than have to raid the savings for several hundreds of pounds when times are tight!

Jamie Smith-Thompson, managing director at Portafina, concludes: “Sorting out the finances is on so many new year lists for a very good reason, it’s massively important! And to make it work, the best bit of advice to follow is: set realistic targets.

“If you aim sky high and fall at the first hurdle it can be thoroughly demoralising. And that’s when it’s easy to slip into ‘I’ll put it off again until next year’ mode. If you are realistic about what you can do with your finances you will generally meet your goals. This means a double-whammy of feeling good about yourself now and setting up a more secure future for you and your family.”