If you've had a blast this Christmas, January means one thing only. Detox. Gyms are full to the brim as slimmers chain themselves to treadmills, and cake sales shrink while carrots sell out as self improvement tops the agendas of Brits up and down the country. But we say if you're embarking on a journey to better things, you should put your your finances through the tests too, as unlike the fad diets thousands will attempt this month, a quick money make-over now could have long lasting benefits.
1. Stop procrastinating
Planning life's fun activities is a doddle compared with financial planning, which is more likely to send people snoozing than get them excited. We plan holidays months in advance, have no trouble putting together birthday and anniversary party 'to do' lists, but when it comes to organising our financial lives, the energy to plan sometimes seems to vanish into thin air. But if you want an exciting financial future and to avoid nasty surprises later down the line, it’s worth getting the boring stuff out of the way now. Make 2012 the last year you put it off!
2. Work out what you want
If you were to look into a crystal ball revealing your future, what would you see? If things are looking hazy, split your goals into short, medium and long-term and think about the kind of lifestyle you want to have. Some of your goals may be specific, such as buying a car or a holiday home, and others may be less tangible, like retiring at the age of 60 at a comfortable standard of living. Realizing the things you want in life and working backwards to see how much this will cost you is the first step to success in achieving all of your financial aims.
3. Get a proper financial plan
Earlier this year we highlighted the importance of having investment objectives, and there’s no better time to start than the present. Whether you want to do it yourself or pay someone else to do it for you depends upon your preference. Anyone considering paying for a financial plan should use a Certified Financial Planner, a gold standard awarded by the Institute of Financial Planning to around 1,000 individuals in the UK, or a Chartered Financial Planner, another gold standard title granted by the Chartered Insurance Institute. If you want to take matters into your own hands, writing your financial goals down at the beginning of the year and then reviewing them throughout the year to track your progress is a smart move, according to Patrick Murphy, Chartered Financial Planner at Zen Wealth.
4. If your individual income is more than £60k and you are currently receiving Child Benefit, opt out by 7 January 2013
From 7 January the introduction of a High Income Child Benefit charge which will affect anyone with an income in excess of £50,000 who receives Child Benefit or lives with a partner who receives it. If your income is in excess of £60,000, the tax charge for claiming Child Benefit will be equal to the amount of Child Benefit received, so it really does makes sense to stop the payments. If you are in this category and haven’t already done so, don’t put it off. Contact HM Revenue & Customs before 7 January 2013.
5. Complete your tax return
Get your 2011/12 tax return completed by 31 January 2013 or face a fine.
If you want to avoid a fine of £100, make sure you file your tax return for the 2011/12 year by the 31 January. If it’s late by even a day, you’ll have to stump up the fine. It’s human nature to leave things until the last minute, especially when it comes to filling out forms for the taxman, but putting this one off could really cost you. The longer you leave it the more you’ll have to pay - additional penalties could add up to £1,600 or more, depending on the length of delay.
6. ‘Detox’ your portfolio
Recent research conducted by YouGov found one in five investors said their adviser had never reviewed their investment portfolio. But it is important to keep an eye on your investments to make sure you still have the right mix of assets, the appropriate level of risk and that the individual funds you hold are delivering decent performance for fees that are not excessive.
Jason Hollands, head of business development at Bestinvest, says January is a great time to review your portfolio and make any necessary changes to get it into shape ahead of potentially using any individual savings account (Isa) or pension allowances. He warns: "Too many investors rush into the business of selecting Isa funds at the end of the tax year without first understanding where their existing portfolio needs strengthening. This can lead to getting swayed by the barrage of 'tips' and marketing hype and the compounding of weaknesses in the portfolio which may result in too much risk being inadvertently taken on board."
Look at the overall positioning of your portfolio. Combine all your assets and liabilities to create a personal balance sheet and investment ledger. Then aggregate to a single view of all your investments – you probably hold multiple equities, bonds and funds in a variety of accounts (Pensions, Sipps, Isas etc), what does this all look like together? Then compare this versus yourr target asset allocation to enable you to see where you are over or under exposed.
7. Pay less in fund charges
You could save thousands if you reinvest your funds to avoid paying annual commission to advisers. Owners of open-ended funds such as Oeics and unit trusts may currently be paying an annual commission to the financial adviser or broker with whom they originally took out the investment. These are typically worth 0.5 per cent per cent of the value of the investment each year, which really adds up if you're a long-term investor. From January 2013, new rules mean that advisers can no longer receive commissions for giving financial advice, but existing funds will continue to pay commissions up until the point the adviser gives you further advice on the investments. But this could be never! If you no longer need advice, register your funds to save yourself some money. You can use the Bestinvest Select service where any commissions are shared with investors in the form of an annual loyalty bonus. Go to: select.bestinvest.co.uk
Alternatively Massows will track down your commissions for you and arrange for your provider to pay your trail commission back into your policy for a one off fee of £125. Go to: http://www.paymemy.com.
8. Use your Isa allowance
Tax avoidance has made plenty of headlines this year, but making the most of legitimate tax-efficient schemes is a smart move. Although the very highest rate of income tax (called ‘Additional Rate’ and paid by those earning £150,001 and over), is set to reduce from 50 per cent to 45 per cent from next April, the UK is likely to remain in a high tax environment for some time. An individual can currently put up to £11,280 in a stocks & shares Isa, meaning a couple can ring fence up to £22,560 from the tax man. Investments held in an Isa don't need to appear on your tax return beacuse they grow free of tax.
9. Don’t leave money in an uncompetitive account
It may seem like simple advice but if someone handed you an extra £1,125, would you say no? That’s the difference between a poor paying account and one of the best easy access accounts for someone investing £50,000 over a one-year period.
With rates falling heavily for both new and existing savers along with many best buy accounts including large short-term bonuses, now more than ever you could find yourself earning virtually no interest on your savings if you don’t switch regularly. You can compare savings rates at www.moneyfacts.co.uk.
10. Boost your pension before its too late
In the recent Autumn statement the chancellor announced the annual cap on gross pension contributions will be slashed from £50,000 to £40,000 in 2014, so if you are approaching retirement, it might make sense to maximise your contributions while you can take advantage of the higher limit. You could do this by forgoing a bonus in favour of a pension contribution instead.
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