There’s a big dose of uncertainty out there as we approach the New Year — about Brexit, about the impact of climate change, about what Mr Trump will say or do next.
With so many confusing signals, how can we get the clarity required to make decisions for our personal finances in 2020?
The best advice is to focus on what you can control and not to worry about things that you can’t do anything about. With that in mind, here’s a list of things to think about as we enter the new year.
1. Don’t put off until tomorrow what you can do today
Your first task for the year should be to review your finances. First, understand your current situation. Second, write or review your budget. Third, set some new goals for 2020. Having goals makes budgeting much more fun. To do: check out a budget planner on an independent money site.
2. The sooner you start, the better
When it comes to savings and investments, time is your friend. The miracle of compounding growth is the most powerful investment principle that means the earlier you start to save the more your savings will grow. Over time, interest or growth is earned not only on your original investment, but on the interest or growth you’ve already achieved. To do: if you need a bit of a nudge to save more for your retirement, play around with a retirement savings calculator to see the impact of even a small increase.
3. What goes up might come down
Always bear in mind the worst-case scenario, no matter how unlikely it may seem at the time. It’s easy to be an optimist about taking on debt when interest rates are low. To do: stress test your finances, e.g. how long could you cope if your income was interrupted?
4. A pound saved is a pound earned
By not spending a pound you not only have that money in your hand but also the potential to turn it into more. Let’s say you have a car lease and it’s ready to be rolled over. When you’re not paying upfront it’s much easier to go for the 2020 model with all the extras. But perhaps you’d be better off financially buying a more ‘sensible’ model and putting the money left over to work elsewhere. (Did we mention retirement savings?) To do: as a first step, divert as much of your pay packet as you can afford to a high interest online savings account.
5. Neither a borrower nor a lender be
You’d be surprised what debt collectors see: people going to the wall not for a £500,000 mortgage but over relatively small credit card debts. People tend to understand what their mortgage commitment is but can be a bit sanguine about smaller debts. Be mindful when you use your credit card. Think about whether that purchase, and the associated debt, is something you really need. To do: obtain a copy of your credit report and check it not just for blemishes but for accuracy.
6. No pain, no gain
If you do have credit card debt, don’t be lulled into a sense of complacency by the minimum repayment on your credit card statement. If you’re paying just 2% or 3% off your card when the interest on the debt is close to 20% (yes, really), it could take years to clear. To do: work out how long it would take to pay off your credit card paying only the minimum here.
7. You get what you pay for
Insurance should be part of the picture when you review your finances. But whether it’s income protection, life, health or even car and travel insurance, don’t select a policy just because it’s the cheapest. A cheap travel policy may seem a bargain until you find that you can’t claim for stolen cash or the full value of your camera, for instance. To do: do you need more insurance this year to cover increasing liabilities, or less because you’ve paid off the mortgage and the kids have left home?
8. Be prepared
Why have an emergency fund when you’ve got a credit card? Because if you use the plastic all you’re doing is putting the problem off for a month (and a bit). You should consider having at least three months’ living expenses set aside, or even 12 months’ worth if your job is insecure. To do: check the terms of your income protection insurance – when does it kick in, and when does it stop?
9. If it ain’t broke, don’t fix it
Lastly, it’s great to review your personal finances at least once a year, or whenever circumstances change. But don’t feel like you have to change something just for the sake of it. If everything’s working, there’s nothing wrong with doing more of the same in 2020.
Happy New Year!
The value of investments and the income derived from them can fall as well as rise. You may not get back what you invest.
This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue & Customs practice. You are recommended to seek competent professional advice before taking any action.
Tax and Estate Planning Services are not regulated by the Financial Conduct Authority.