How do I prepare financially for the New Year?
How do I prepare financially for the New Year?
At this time of year, we often turn to review what we have done this past year, the mistakes we have made and what we aim to improve upon next year. The financial side of our lives and our financial wellbeing should be no different.
What good things have you done with money this year?
To kick off our financial review of the past year on a positive note, we must look at the good things we have done with our money in the last year. Perhaps you have started saving for a house deposit, reduced your expenses or you have overpaid on your mortgage? Maybe you have switched supermarkets and saved money that way. Possibly you've adjusted your pension contribution each month or you've made some good investment choices and seen a better-than-average return?
The key takeaway from looking at the positive financial moves we have made is that we can all find some good news in our stories. Outside forces may have made things tougher, but you have become more financially resilient and proven to yourself that you can adapt and overcome financial challenges. If you can push yourself through hard times, you will thrive in good times.
What bad things have you done with money this year?
We’ve all been there. Everybody has put something on a pedestal and made it the object of their desires for ages. We’ve all said to ourselves, if only I can buy that thing, my life will be better. Whether it be an item of clothing, something for the house (ranging from a new TV to a new kitchen) a new car or a new house entirely; often the idea of something turns out to be better than the reality and there will always be a negative effect on your bank account.
Put it down to consumerism, advertising or just our human desire to improve our station in life but have you felt the pang of emptiness once the novelty of the next new thing has worn off? Do you feel guilty when you look at the unused item or in retrospect think that today you would prefer to have the security of the money rather than the item?
It’s ok to think these things, but the important lesson is to not make the same mistakes again. Try to make a mental note of whatever your ‘idol item’ was over the last year and remember the feeling of buyer’s remorse you had. Tell a friend or loved one the story and ask them to remind you of it when you are next building up to a big purchase. Slipups are fine as long as we learn from them.
You may also use this phase of your financial review to consider the investment choices you have made. We have seen some rather volatile markets over recent times which may have exposed your savings and investments to the downside of your attitude towards risk. Now may be a great time to sit down with your financial adviser and review your portfolio and make the necessary adjustments, where appropriate.
What aspects of money have been out of your control?
So far we have looked at what you can control when it comes to your money. Unfortunately, a lot of things have happened that we can’t control and therefore we can’t beat ourselves up about them. Whether you have been impacted by rapid inflation and rising energy prices, lost income due to government rules and mandates or are going to be worse off each month owing to a change in the tax structure, it’s important to know that everyone is affected in some way and all you can do is adapt and overcome, as best as you can.
This is why, more so now than ever, everybody needs a household budget and an emergency fund savings account. Being able to quickly update your budget to take account of new factors or having the comfort of a sum of cash you can fall back on is truly freeing and can dramatically reduce your day-to-day stress. We’ve written some in-depth articles about both of these subjects, so be sure to check them out.
10 steps to prepare financially for the New Year.
Work out what your net worth is and review your credit report. This will either be pleasing or disappointing, but it will help frame your current financial situation and resolutions.
Make a financial plan and set a financial goal. How much do you need in your pension to retire? How much do you need to be saving in your savings account for your next holiday? Set yourself a set of financial targets and a long-term goal to work toward and be sure to talk to your financial advisor for expert advice on financial planning. We are authorised and regulated by the Financial Conduct Authority and offer a free initial consultation.
Make a household budget and spending plan. Once you know what your financial target is, set your household budget to achieve your goals, whether that's to clear your credit card debt, improve your credit score for a mortgage, save up a deposit or build your retirement portfolio (or, in many cases, all of these!). Budgeting will make a huge difference to your financial wellness. make sure you make the most of separate savings accounts for different categories of savings.
Set aside an emergency fund to improve your financial security. Rather than taking out loans or building up debt on a credit card, be your own bank. Set something aside in your budget each month to build a ring-fenced emergency account then dip into it and replenish it as required.
Make a mental note of the good financial decisions you have made over the past 12 months. What did you do and why did they succeed?
Make a mental note of the bad financial decisions you made in the last year. Again, what did you do and why did that decision not succeed? How did your spending habits make you feel? Set yourself some resolutions to not do them again.
Take steps to understand that not everything is in your control. However, you are 100% in control of how you react to them. Build financial resilience, and knowledge and tackle each challenge with confidence.
Have a clearout. Is it time to get rid of the bad decisions you made? Sell the car you didn’t need, donate or sell the clothes that are languishing in the back of the wardrobe. Yes, you may take a loss, but you deserve a second chance, so convert regret into cash and make positive choices this time.
Learn more about money, investing and personal finance. Financial articles aren’t always interesting, but we are all affected by the decisions we make. We try to break down money into easy-to-understand chunks on this blog, so be sure to subscribe to get them delivered each month to your inbox. Also, have a look at Money Helper.
Try to increase your income. Whether you get a second job (known these days as a side hustle), start your own business or just get that promotion – increasing your income, but not increasing the way you spend money, is the single biggest thing you can do to change your financial position. Once you start saving more, it becomes addictive.
Conclusion.
So there you have it. Some ways that you can financially prepare for the New Year and improve your financial wellness. It’s just a case of reviewing our successes this financial year, understanding our mistakes and knowing what we can control. What new year's financial resolution tips do you have for other readers to help them achieve financial success in the coming year? Did you stick to your last new year's resolution and financial plans? Be sure to let us know in the comments below.
What’s next?
If you need help or advice on your personal or business finances or if you want to consider investing to make your money work harder, you can get in touch with one of our advisors for independent financial advice. We offer a free initial consultation and although we are based in Tunbridge Wells, we advise clients across the UK.
The value of investments, and the income from them, may fall or rise and investors may get back less than they invested. Past performance is not a reliable indicator of future results. Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it. Tax rules can change, and the benefits depend on individual circumstances. Our advice services are aimed at persons resident in the UK. The information contained within this document is general in nature and does not constitute legal, tax, or financial advice.