The start of a new year is a great time for reflection, in particular when it comes to your finances, and planning how to best achieve your goals for the coming year. Following these 5 simple steps, could help you prepare for having your finances in order.
1. Prioritise your finances – Your clearly defined financial goal
The first step to prioritising your finances is to set a clear financial goal: this should be specific, measurable, achievable, realistic and timely e.g. “Increase my savings by such amount and date and use my full ISA allowance for the year”, or “Clear my credit card down to zero by a specific date”. Be sure to prioritise your approach to achieve your goals, so in this case you could set a weekly target of saving and/or make a list of your debts to pay off first, interest rates against the debt, which could help you plan which to tackle first. In setting a goal, such as making a 10% annual return on savings, there would be no point in having a credit card charging 15% per month on debt, as this would diminish your achievement.
2. Prioritise your finances – Use your tax-free allowances
Whether you are investing in your own SIPP, or in an ISA, make sure to maximise the tax-free allowances you are entitled to. In terms of trying to reduce the tax you are paying, if you are a higher rate tax payer, consider how by paying more into your pension, you could offset some of the tax you are charged.
3. Prioritise your finances – Set your own personal “tax” on your salary each month
Automatic savings plans are an ideal way to get started. Consider this concept – if the government increased your tax rate, you would naturally pay it. So, by setting your own ‘tax rate’ you could automatically save a set amount monthly by transferring into your savings account, to help you reach your savings goal.
4. Prioritise your finances – Out with the old and do what you love
Make sure you close previous old and unused bank accounts and credit cards, as these can impact your credit score rating and access to finance. Then focus on doing what you love, finding a way to turn your passions and hobbies into a profit.
5. Prioritise your finances – Learn and give back
By committing your time to read financial content, you can support your learning, and explore new investment approaches and business metrics. Even if you could only manage 1 hour a week, perhaps on a train journey or as a breakfast reading, you could start to review your financial library with a view to help building a portfolio of diversified investments for the future, or even retirement. Once your savings and investments are underway, or at a level which you feel comfortable with, then you could give back to a designated charity, making your investments and resources even more meaningful by helping others.
Lotuswise Chartered Accountants and Business Consultants can help you find out more about any of these savings opportunities and set your 5 goals. So please contact us now.