When life gets in the way, it’s easy to lose track of your money and goals. But the start of a new year can be a good time to take stock of your finances.
Here is a quick list to help you and your family get your finances in order for the coming year.
1. Know your spending plan and balance sheet
“The first step to getting your finances in order is to take a step back and look at what you’ve done with your money “Dean Moore, head of Wealth Planning at RBC Wealth Management in the British Isles and managing director, says this. It may sound simple, but do you know where your assets are and what goes in and out of your bank accounts?
“It’s not uncommon for clients to find regular direct debits and standing orders they’d forgotten about, “explains Moore. “Treat your own money like a business and take the time to learn about your balance sheet, which shows your assets, debts, and cash flow. Keeping track of your spending and getting a better idea of your overall wealth will be easier if you know the status of all your accounts.” This, in turn, makes it easier to set financial goals that are reasonable.
2. Clean up your accounts and combine them.
Over time, you may have opened multiple accounts at different banks, which means you have to keep track of multiple administrations, fees, and investments. You can make this process easier by putting all of your accounts in one place and having that institution handle everything for you, or you can use digital tools to see everything in one place.
3. Create a personal and financial timeline
“When taking stock of your finances for the coming year, it’s important to know what your personal priorities are “Annabel Bosman, who is in charge of relationship management for RBC Wealth Management in the British Isles, says the following.
You might want to grow your business, move to a different country, start a family, or buy a second home. Most of your plans, no matter what they are, will affect your finances in some way. “Knowing what’s important to you can help you make sure your financial plans are in line with your priorities and that you have the money to achieve them “Bosman says.
4. Set aside money for short-, medium-, and long-term goals.
By dividing your savings between short-term, medium-term, and long-term goals, you can figure out how much risk you should take. For example, you should take less risk with short-term funds than with long-term funds, since savings in the form of a pension can be invested to potentially get better returns in the long run.
5. Take a look at your asset mix
How you divide your portfolio between stocks, fixed income, and cash can affect how much you make after taxes. Moore says, “Talking to a financial advisor can help you figure out if you need to rebalance your portfolio to reach your goals.”
In addition to rebalancing your portfolio from time to time, make sure your asset allocation is right for where you are in your life right now. “You need to ask yourself if your portfolio is a good fit for your age, goals, and willingness to take risks. This kind of honest self-evaluation can help you get the money you want in the future “says Moore.
When you look at your money and possessions, it can also be a good time to think about whether you “have enough.” “Knowing where you stand financially can help start a conversation about leaving money to your family “adds Moore.
6. Make sure you have a current will and power of attorney.
“You’d be surprised by how many clients we meet who don’t have a valid will, “says Bosman. “People often forget to make their own wills, so you should talk to your advisor to review your plans or make new ones.” Make sure that both your signed will and your power of attorney (POA) for medical and financial matters are up to date.
In your will, you say how you want your assets to be split up after you die. An enduring POA, on the other hand, doesn’t take effect until a person loses the ability to think for themselves. Situations are different for everyone and depend on the situation. “You never know what the future will bring. Just look at the COVID-19 pandemic “says Moore. Will writing in the UK was 267 percent higher in 2020 compared to 2019 figures, “it’s important to be prepared for all eventualities, ensuring your family can receive maximum benefit from your estate should anything happen,” he says.
7. Use your tax breaks or lose them.
Each April, when the UK tax year starts, Individual Savings Accounts (ISAs), Junior ISAs, self-invested personal pensions (SIPPs), and Junior SIPPs allowances are all reset. An allowance is a limit on how much you can put into these tax-free savings accounts each year.
“The beginning of the year is a good time to make sure you’re using all of your allowances and taking advantage of any remaining pension allowances before they reset in April. Do you have capital gains you could crystallize to use the annual allowance? “says Moore.
There are also alternative investments with higher risks that come with attractive tax breaks. “Enterprise investment schemes and venture capital trusts are two common ways for investors to try to make a lot of money “says Moore. “However, it’s important to remember that these are higher-risk investments, so they should fit with how much risk you’re willing to take and how much you’re willing to lose.”
People who are self-employed or partners in a business partnership should also use the New Year as a reminder to file their taxes. “The 31st of January is the annual deadline for self-assessment tax returns to the UK government. If you don’t do this, you could be fined “Moore states.
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