As we begin a new year, it’s the perfect time to reflect on our financial habits and set new goals for the months ahead.
Just like resolutions for personal growth or health, financial resolutions can significantly impact your overall well-being. Effective financial planning involves not only making smart choices but also understanding how to prioritise and allocate resources for long-term stability and growth.
If you haven’t yet considered making financial resolutions, here’s why you should, and how you can start.
- Review and Reflect on Your Current Financial Situation Start by assessing where you stand financially. Do you have a clear understanding of your income, expenses, savings, and debt? If not, it’s time to track these factors. Creating a budget is essential for getting a realistic view of your finances. Knowing where your money goes each month is a critical first step in creating a comprehensive financial plan. A spreadsheet can simplify this process, allowing you to analyse your spending habits and identify areas where you can make alterations.
- Set Clear, Achievable Goals Once you have a clear picture of your finances, it is important to set goals which are specific and achievable. Whether it's saving for an emergency fund, paying off credit card debt, or investing for retirement, having goals keeps you motivated and on track. Start with small, manageable goals that can gradually lead to bigger financial achievements. For example, aim to save 10% of your income each month or cut your monthly expenses by 5%. Small steps can make a big difference over time.
- Build an Emergency Fund One of the most important financial resolutions you can make is to build or strengthen your emergency fund. Making yourself financially resilient is one of the most crucial parts of developing a financial plan. From a recent survey completed by the Bank of England, up to 34% of adults have either no savings or less than £1,000 in a savings account. Almost two-thirds (65%) of people believe they wouldn’t be able to last three months without borrowing money. It is recommended that you save three to six months' worth of living expenses to protect yourself against unexpected events. Start small and build your fund over time. Set aside a portion of your income each month, and keep the fund separate from your regular spending account to avoid dipping into it for non-emergencies.
- Debt Repayment If you’re carrying high-interest debt, such as credit card balances, focus on paying this down as part of your financial resolution. The longer you carry debt, the more interest you'll pay, which can quickly eat into your savings. As your debt decreases, your financial stress will also reduce, leaving more room for savings and investment.
- Invest for the Future Investing for the future is crucial for securing long-term financial stability. Starting early allows your investments to benefit from compound growth, for example, saving £100 per month for 25 years at a 5% annualised return could accumulate c.£59,130. (£30,000 total invested). Selecting the most appropriate investment wrapper to invest your funds is an important step in maximising your returns and potentially limiting the tax you pay. Investment wrappers such Individual Savings Accounts (ISAs), which offer tax-free returns, and pension schemes (workplace pensions or personal pensions), which provide tax relief and retirement savings. By diversifying your investments, you can manage risk while ensuring your financial security for the future.
Conclusion
In conclusion, financial resolutions are an essential part of securing long-term financial health. By reviewing your financial situation, setting achievable goals, building an emergency fund, paying down debt, and investing for the future, you can ensure that the upcoming year is one of financial growth and stability. The key to success is consistency, and by following these simple steps, you’ll be well on your way to a prosperous future.
MHA can help
To discuss any of the issues raised in this article, please contact the author Adam Norris who will be happy to assist.
Should you need assistance with your financial planning, please contact our wealth management team.
Risk warnings
The information provided within this article should not be construed as a personalised recommendation. Whether or not the investments highlighted are suitable for you, will depend on your individual objectives and circumstances. You should not take any action without seeking formal advice.
MHA Moore and Smalley is the trading name of Moore and Smalley LLP. Moore and Smalley LLP is regulated by the Financial Conduct Authority, FCA registration number 448716.
