January is a time when many people reflect on the previous 12 months and look ahead to what they can improve over the coming year and beyond. One of the most common New Year’s resolutions is to make a clear financial plan.
Here are some tips that I hope will help you to meet your goals for the new year.
Understand what you are spending – it doesn’t matter how much you earn, if you spend too much, then you will never be financially secure. If you never seem to be able to regularly save a meaningful amount, or you are racking up debt, then chances are you don’t know exactly how much you are spending and on what.
Manage debt carefully – although interest rates are abnormally low at present, it’s unlikely that they will stay that way forever. Some types of debt, such as credit/store cards and higher cost loans, charge high interest. Debt repayment represents a risk-free, tax-free return equal to the interest you will avoid.
Stop adding to your debt by getting control of your spending, cut up credit and store cards and close the accounts.
Work out an affordable repayment schedule to repay the most expensive debt first.
If you can, see if a relative or friend is prepared to lend you the funds to repay expensive debt and you to repay them that amount at a lower but still attractive interest rate. A 10 per cent interest rate will be very attractive to them and a lot lower cost than expensive debt for you.
If you have a large mortgage, relative to your income, then think about fixing the interest rate for five years. Although the probability is it will cost slightly more than variable rates over that time, at least you will have the comfort of knowing what your repayments will be.
Make sure you have enough of the right insurance – Insurance is something no one likes paying for but is always happy to claim.
Save more – If you are still working then the chances are you aren’t saving nearly enough for when you can’t or no longer want to work.
Set up a regular but affordable monthly savings amount to a deposit account, to go out on the same day that you get paid.
Join your employer’s pension scheme and contribute as much as you need to obtain any employer contribution – it’s free money.
And most importantly – review all your finances regularly!
with Charlie Kearns
Independent Financial Adviser
[email protected]
