15 Steps To Improve Your Financial Wellbeing In 2023
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Emma-Lou Montgomery, Associate Director for Personal Investing at Fidelity International, says…
Set New Goals
Having a goal in mind can be a big savings motivator. Budgeting can sometimes feel a bit of a love-hate thing but, if you know what you are saving for, it can really help keep you on track. It might be a weekend away, setting aside a few pounds for a birthday celebration, or longer-term goals like saving an emergency pot of money or holiday. Write these goals down, consider your timeframe and think how much you want to save towards them in 2023.
Choose Where To Save
The second thing you need to think about is where to save your money. And there are a few options, but they fall broadly into two camps: plain and simple cash and investments, like funds, or stocks and shares. Cash is a good option if you are saving for the short term or might need access to your money quickly. Savings rates have improved recently due to the rises in the base rate but, with inflation also high, bear in mind the money you have saved won’t stretch so far right now. The other option you should consider is investing your money. While you can’t access money that’s invested in the stock market immediately, investing it does give you the opportunity to potentially grow your money far more. Of course, there are no guarantees and bear in mind that because your investments can rise and fall, investing is better suited to medium to long-term goals.
Start Small
It can be easy to think that you need to start with lots of money when it comes to saving towards large financial goals. But the truth is that you don’t need hundreds of pounds to put away each month. You can start small. Small sums saved or invested today can make a big difference to your financial wellbeing in the long term. Some savings accounts allow you to start saving from just £1, while it takes just £25 a month to start saving into a stocks and shares ISA account.
Review Regularly
Take the time to review your savings regularly. Your spending will change through the year, so flex your savings levels as you need to. And don’t worry if you slide off track or need to adjust your goals to meet the changing demands on your money – this is about long-term goals, so any blips should be seen as just that. The end goal is what you need to stay focused on.
Be Savvy With Your Allowances
If you are already saving into an account like an ISA, be aware of your allowances and when they reset. For instance, if you’re saving for your child then a JISA has an allowance of £9,000 a year. Or if you’re contributing to your SIPP, you’ll have an allowance of £40,000 each financial year so, if you can, make sure you use your annual allowances before they run out.
Emma Watson, Head of Financial Planning at Rathbones Group, says…
Create A Financial Plan That Fits With Your Goals
While you may be used to budgeting and have a rough estimate of you future spending in mind, it’s hard to know how much you’ll need in 15 years' time. This is where financial planning can help you account for any variables that you might not have considered. This will be key in working out what will be enough, both today and in the future. Using a budgeting forecast will project spending alongside future interest rates and inflation to calculate how much cash will be needed in the long-term.
Consider Investing
Investments tend to outperform cash over the long term, so you may consider investing some of your money this year. You can work with an investment manager to help you put cash that is not needed in the short term to work for the long term. The investment manager can also be on hand to clarify any assumptions made on investment growth to make sure they are realistic or achievable. Plus, they’ll consider factors such as your risk appetite and ability to withstand loss, as well as the charges, fees and taxes payable over time.
Lay Out Your Financial Priorities
You should start thinking about your financial priorities. There are a lot of questions you’ll need to ask yourself and a good financial planner will ask them too. For example, you may want to focus on your grandchildren’s or children’s financial futures, such as education or care costs, or you may simply want to focus on your own. If you start thinking about your financial priorities now, you can start putting together a plan for cashflow and budgeting, which will help you feel comfortable and confident about your financial position.
Will Stevens, Head Of Financial Planning at Killik & Co, says…
Build A Budget
If you don’t know what is coming in and what is going out, you won’t be able to decide what to cut back on or know how much you could save. In this exercise, you may also find direct debits or standing orders that you no longer use, which might bring down your outgoings further – a point of increasing focus as we deal with a cost-of-living crisis. However, it is also important to make a budget realistic, so set yourself budgets for the things you enjoy in life too – whether that be dining out, clothes or holidays – this will help you stay on track for longer by making it feel like less work.
Pay Down Debt & Build A Rainy-Day Fund
Whether it is clearing small residual balances or putting in place a larger plan to repay debt over time, this should help give you peace of mind that your liabilities are under control. Once this has been done, or if you have no debt, build a rainy-day fund of somewhere between three and 12 months’ expenditure to protect you should there be an emergency by giving you some cash to rely on without needing to take out any debt.
Protect Yourself & Your Loved Ones
Financial protection in the form of insurance (whether life insurance or income protection) has historically been at low levels in the UK compared to other major economies. Making sure you have some form of protection in place should the worst happen will give you peace of mind that you can survive any nasty shocks – income protection is particularly poignant here, as it can ensure you are not left short should you be unable to work due to accident or sickness. If you are unsure about any of the above or where to start, speak to a professional in the form of a financial planner or The Money Advice Service to get started.
Switch Your Savings Account
With interest rates rising, now is a great time to be shopping around for the best rate. Some institutions are slower to move their rates, relying on apathy to avoid a loss of customers. As a result, it can be possible to get uplifts by looking elsewhere; however, it is also important to focus on security and ease of access – rather than solely chasing a return on your cash. Comparison websites like MoneySupermarket are a great place to start.
Divide Your Savings Into Three
Split your savings into rainy-day savings, foreseeable expenditures and lifetime savings. The first pot should be the emergency fund (three to 12 months of expenditure) held as cash at a bank with instant access. Foreseeable expenditures are those things you know are coming up in the future years, but you may not have a date for (i.e. a new car in three to five years’ time); this money should be set aside in safer investments depending on the time frame to avoid any volatility of investing in markets – as we saw in 2022. Lifetime savings are then the rest of your savings, which are going to provide an income for you after work or a legacy to your children and grandchildren. These funds should be invested fully with a view to growing them ahead of inflation, provided you have the risk appetite for it.
Keep An Up To Date Will
A Will is a key document to have in place for any individual with assets or dependants. The rules around inheritance are not as simple as they appear, especially when children are involved, so it is imperative that everyone put one in place. A Will ensures your wishes are followed after your death and that any savings or properties are left to those they should be. If you die without putting a Will in place, the rules of intestacy will kick in and default routes will be followed, regardless of your or anyone else’s desires.
Set Up Power Of Attorney
A power of attorney is another must for anyone with any level of financial wealth. It is essentially a living will, allowing the nominated attorney the power to manage your financial affairs should you be unable to. Without one in place, it usually takes at least six months to get a court order in place to take over managing a person’s financial affairs. If you have bills to pay, mortgages or children to look after, this can be a real hindrance. You never know when the worst might happen that could leave you unable to make decisions for yourself – whether that be a car accident or a stroke.
For more advice & information visit Fidelity.co.uk, Rathbones.com & Killik.com.
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