Some financial resolutions for 2022.
Some financial resolutions for 2022.
With another difficult year almost behind us and as 2022 comes into focus, we consider some financial resolutions for the coming year. These are our top 5 new year financial resolutions for you to consider.
Find out what your net worth is.
This is probably not the most exciting way to spend new year’s day, so it’s probably worth leaving it a day or two, but having a clear understanding of your net worth really helps you to plan your financial moves in the year ahead. Your net worth is essentially what you’d be left with in cash if you were to sell everything you owned and pay off all your debts. This includes your house, all your investments and any significant possessions. Clearly, the aim is to be as solvent as possible as this gives you the ability to ride out volatile markets, rising interest rates and sudden changes in government policy that could affect your income.
Warren Buffet once said “Only when the tide goes out do you discover who has been swimming naked” or in other words, anyone can appear successful when markets are rising and conditions are favourable, but the true test is how you perform when things get a little tougher.
Spending a few moments calculating your net worth is well worth the effort. You can read our in-depth article ‘Why net worth is the acid test of wealth measurement’ for more details.
Make sure your family is well protected.
If there’s one thing we’ve learned from the past couple of years, it is that things can change really quickly. Whether your income is suddenly reduced or your health is in question, knowing that your family will be provided for is true peace of mind and can make difficult decisions easier. There’s a whole variety of different insurance products available, depending on your individual circumstances, however some of the key ones our clients prefer are:
Income protection insurance to provide a regular income in the event of ill-health and even redundancy.
Critical illness cover to provide cash and/or income if you become seriously ill.
Life insurance to provide cash and/or income to your family if you pass away.
It’s also worth considering some form of private health insurance for you and your family as a hedge against the increased waiting lists and reduced services currently available in the NHS. The obvious candidates are firms like BUPA or with a big insurer such as Aviva, but there are more affordable options such as Benenden Health, who have access to many facilities across the UK.
Read more about our family protection and insurance advice service.
Make the most of your annual personal allowances.
We have all read the headlines about how much money the government has committed to support the health service and various sectors of the economy over the past couple of years, unfortunately though, the inevitable hangover from all this spending looms and it will have to be paid back somehow. With nothing having been announced just yet, it’s important to make the most of the current rules as they stand today; before any changes are made in the next tax year.
Some of your annual allowances to consider making full use of include:
Tax relief on pension contributions (especially for higher-rate taxpayers as this is an easy target for the government).
Annual ISA allowance (taxed money goes in, but all the growth and income in the future is tax-free).
Tax-free dividend allowance.
Self-employed income allowance
Rent a room scheme allowance.
Marriage allowance (a small token, but it could be affected).
Make sure you are paying enough into your retirement fund.
Whether you plan to retire early or keep on working until your last days, being able to retire when you want to, without having to rely on state benefits alone, is a real luxury. So, how much do you need to retire? Is it possible to set a financial target for your retirement fund? Yes and no. It all depends on how much you earn before you retire and what your anticipated standard of living is when you retire.
A broad-brush statement to make is that the more you earn whilst in work, the more income you will need in retirement. It's likely that higher earners will live in larger houses that have both higher maintenance costs and attract higher rates of council tax, plus you may be used to taking more frequent holidays and having larger grocery bills.
We put figures against a range of retirement situations in our articles ‘How much do I need in my pension pots to retire?’ and ‘How much do I need in my pension to retire at 55?’ however, as a baseline guide:
Lower earners will need anywhere from 60% to 80% of their working take-home pay in retirement.
Higher earners will need at least 50% of their working take-home pay in retirement.
Whichever way you look at it, nobody is going to complain about having too much income in retirement and the truth is that most simply aren’t saving enough. To put some targets in mind, a pension fund to provide a meaningful additional income in retirement should be worth several hundred thousand pounds at the point of retirement. Again, please read the articles linked above for more details.
Review your legacy plans.
Ok, this one’s not very festive but it is very important. At some point, you need to ask yourself the difficult questions and put in place a legacy folder that holds all your important documents and makes things easy for those you will someday leave behind. Items in your legacy folder should include your will, statement of wishes, life insurance documentation, details of all your accounts and investments and more. We won’t dwell on this, but to get the full rundown of what to consider, our article ‘What is a legacy folder?’ has you covered.
And finally.
We’d like to thank all of our clients and subscribers for their support this year, it’s been another one of ups and downs. Fingers crossed that 2022 has a more positive ending and we can get back to normality sooner rather than later. Remember, our advisers are always on hand to discuss your finances and offer advice on everything from pensions and investments to insurance, business protection, mortgages and much more.
Here’s to a successful 2022!
This article offers information about financial planning and should not be taken as personal advice.