We are living in uncertain times right now, regardless of how much money you have in the bank.
The economy is still in recovery after the pandemic, and events across the world continue to make things unstable. Issues such as inflation and rising living costs can leave people feeling powerless to do much to change their financial situations.
While you may not be able to have an influence on global conditions, you can take steps to control your own circumstances through economic planning. Whether you do that alone or with the help of financial planning services in Chester or wherever you live, it will give you greater peace of mind.
Read on for some tips on how to go about making such a plan.
Budgeting
The chances are, you already have a monthly budget, even if it is not on paper.
However, making a plan is a good time to start putting it down in black and white and revising it to accommodate inflation. Start by looking at what money you have coming in each month on average, and then what your outgoings are – both the variable and the fixed ones.
That will give you a clear picture of what you have left to live on, and from there, you should take the chance to assess what your priorities are.
Perhaps you are trying to put together a deposit for a home, or maybe you want to start saving towards retirement, but budgeting will give you an idea of what you can allocate towards those goals.
It will also let you discover whether you need to increase your income this year in order to have a chance of achieving your priorities. There are options out there for doing so – from taking on extra work to investments – but you must budget first to find out if they are necessary, and how much more will be required.
Building an emergency fund
Periods when the economy is as shaky as it is right now are when it makes most sense to have an emergency source of money.
Therefore, if you have not been putting spare cash into a ‘rainy day’ fund, 2024 is a good time to start doing so. The purpose of an emergency fund is to ensure that you are able to keep your head above water if something unexpected hits you, such as an illness or the loss of your job.
Again, once you have an accurate monthly budget, you will know exactly how much you can afford to put into a fund of this sort. The more you are able to set aside for it each month the better, and it may even be worth prioritising it ahead of other things, so that you are able to build it up more rapidly. This is something that you can speak to your financial advisor about if you are working with one.
Consolidating/paying off debt
The events of the past few years mean that there are now many more people in the UK with debts than before – often as a result of circumstances beyond their control. This debt may be due to something like higher monthly mortgage payments, or just caused by rises in everyday costs, but dealing with it is our next tip for financial planning this year.
Putting together a debt management plan that will outline steps for significantly cutting the arrears will be at the core of that. For instance, if you know that an increase in your income will be happening this year, you could put that extra cash towards any debts you have where the interest rates are especially high. Alternatively, the money could be earmarked for paying off debts it would erase.
The second part of debt management is consolidating any that will still be left. This is usually done by taking out a single loan that is used to pay off debts owed to multiple sources. The point of doing so is to make the management simpler, as you will then only owe money to one company, but also to cut the interest payments you are servicing on the debts. A professional will be able to help you find a reputable company with reasonable rates of interest to take out a loan with.
Maximise retirement contributions
If saving towards your retirement has not been a consideration for you before now, it should become one in 2024.
The amount of money that is needed to be able to experience a comfortable and worry-free retirement is steadily increasing. A study that the Pensions and Lifetime Savings Association (PLSA) carried out found that someone living on their own currently needs £37,000 per year to live comfortably when they stop working. For a couple, the sum rises to £54,000 a year, and it is safe to assume that these amounts will be higher again by the time you come to retire.
The present UK state pension is set to rise to £11,502 per year, but that is less than half of the amount that a single person needs. Therefore, if you are already saving towards your retirement, planning this year should include putting the maximum you can afford into that pot. If you aren’t, you should start to save as much as you can, and look at ways of increasing what you can contribute towards it each month.
Have financial goals
It will be much more difficult to create a serious financial plan if you do not have goals in mind for the future.
The point of such a plan is to determine what you wish to achieve, and find ways of generating the money that will be needed to pay for it.
Talking to someone who offers expert financial advice in Chester or wherever you happen to be based can be helpful in working out what you want from your future. For many people, their goals will be things they want to do after they retire – such as travel or move to the country – whereas for others, it might be to change careers or buy a house. You need to have goals in place to work out how to move forward.
Using a credit card
Credit cards are a common feature of modern life, but they can also be a major cause of debt.
If you use credit cards, looking into what you use them for and how much you spend per month on them will be a big part of getting your finances in order. Any existing debts that you have on your cards should be included in the debt management part of your plan, but this plan should also ensure that such a situation does not occur again in the future.
If financial planning reveals that you are struggling to stay within reasonable limits for credit card spending, one strategy will be to restrict what you spend to cash only for a set period. Take out the sum of money that you would expect to spend using the card and avoid any temptation to go beyond that withdrawn sum.
Credit cards can be useful for short term payments, and using them responsibly can improve your credit rating, but racking up debt on them will not help you with your longer term life goals.
Insurance
Insurance can sound like another unwanted expense at a time when the cost of almost everything seems to be rising.
However, there is a difference between paying out money wastefully, and outgoings that serve a sensible and practical purpose. Insurance premiums fall into the latter category, and that is why any qualified financial planner will encourage you to get the coverage that you need.
The kind of policy that will be the most important will vary depending on the circumstances of the individual. For homeowners, home and contents insurance will be valuable in the event of anything from burglary to damage to the home caused by the elements.
There are other types of insurance though – such as income protection – that can be very important in ensuring that you and any family continue to have money coming in if illness or injury leaves you unable to work.
The particular type(s) of insurance you need is something that a professional will address as part of the planning process. He or she will also help you to identify ways of paying for the monthly premiums.
Planning ahead for taxes
The last of our tips for financial planning this year is to prepare in advance for tax liabilities.
It is far from being the least in terms of importance though, because failing to plan for tax bills can blast a big hole in your finances. It is not just standard income tax either; there are others that you can be liable for.
Those who have large estates worth more than £325,000 will be required to pay inheritance tax on them that can substantially reduce the amount that they have left for their families. There are also business taxes that people who run companies must pay on their turnover.
Working out what tax liabilities you will face is part of putting together a financial plan. That way, you will be able to set aside the necessary sum to pay them, and will not be blindsided by the bill when it arrives – as that can cause debt and even insolvency.
Planning ahead for taxes is also about reducing liabilities through legal tax mitigation strategies. Financial advisors are experts in the UK tax system, and will be able to suggest ways of cutting what you have to pay.
These tips should help you on your way to putting together a solid financial plan for the future in 2024, but talking to a professional is the best way to get started.
