Five new year financial resolutions you need to make
With the cost-of-living crisis continuing and with greater economic uncertainty, many people are concerned about the implications on their personal finances.
With 2023 just around the corner it is worth taking the time to take stock and lay down a few financial resolutions that may help protect and grow your finances. Regardless of your situation a new year brings a new start, where we can cultivate good habits and stay on top of our finances.
Emma Watson, Head of Financial Planning at Rathbones Group Plc, shares her five tips for conducting a financial health check for 2023. If you are making any new years resolutions, these should definitely be on your list.
1) Set clear financial goals
A good place to start is to work out what your financial goals are, both for the short and long term (beyond ten years). Take some time to think – and discuss this with the people who are important to you – what you want your money to do for you and your loved ones.
Setting clear goals should help you make the most of your money and establish good financial habits. It’s also important to review your goals on a regular basis to check that you’re on track to meet them and adjust them as necessary.
2) Keep a budget
Budgeting goes hand-in-hand with setting and working towards your financial goals, which may sound obvious, but a budget makes it easier to understand where your money is going. It can help you identify whether you can reduce or eliminate unnecessary expenses, prioritise your spending and re-evaluate your level of savings, and always try to live within your means.
Budgeting should help you feel more in control of your finances and help you prepare for any unexpected bills, events or emergencies.
Good budgeting should include:
- Calculating your expenses, particularly in terms of essential (mortgage/rent, food, household bills, etc) and discretionary spending (eating out, streaming services, gym membership, etc).
- Keeping your essential money and discretionary spending funds in separate bank accounts or pots
- Setting up direct debits for essential bills to go out on, or close to, pay day.
- Reviewing and managing your subscriptions. Many subscriptions auto-renew, so you may be paying for services you barely use or perhaps have even forgotten about.
- Paying off debts as quickly as possible, particularly those with high interest rates.
- Keeping tabs on your income and expenditure by checking your bank statements on a regular basis
- Setting aside an emergency fund for unexpected expenses.
- Making regular contributions to your savings, investments and pension.
3) Build a safety net
The current economic situation and unexpected rise in fuel bills highlight the importance of building a financial safety net. It’s often recommended that individuals have between three to six months’ worth of their regular expenses saved in a ‘rainy day’ accessible savings account as a protection for unforeseen emergencies.
While it’s not possible for everyone to save this much, trying to save a little here and there can build up to a bigger pot over time.
4) Check your bank statements
A good way to keep tabs on your expenses is to keep track of your purchases. With online banking, and many banking apps now categorising spending, it’s even easier to identify non-essential spending and cut back.
It’s also worth keeping in your mind an estimate of your current account balance before checking, many of us underestimate how much we spend!
5) Consider investing
Interest rates on cash are starting to edge up, and with the current high levels of inflation it might be time to review the interest rates being offered on your cash deposits. For those that have built up reserves, it may be worth considering placing some of this cash in longer term investments, as doing so could potentially help your savings to keep pace with inflation.
Before you start investing, establish how much you need to keep in cash for shorter term priorities. Effective planning and budgeting can help with this, providing a much clearer picture of your personal finances and money you could afford to invest.
As a general rule of thumb, any money you invest should remain in place for a minimum of five years, but it could be longer – as you would not want to have to withdraw your investments in a market downturn.
As part of this, ensure you are also putting money into your pension, the earlier you can begin saving for retirement, the better prepared you will be. Seeking guidance from an adviser will help you to ascertain what your investment strategy should be by considering factors such as your financial goals and attitude to risk.
Photo by MChe Lee