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Simple steps for your finances in 2016

20 January 2016

Independent personal finance journalist Rosie Murray-West looks at how to keep those personal finance resolutions

How long before you break your New Year’s pledges? According to surveys, the bulk of us only manage to keep our new vows until the last Friday in January – now dubbed ‘Fail Friday’.

That’s all very well if your resolutions are of the generic ‘get fit’ or ‘start a diet’ kind, but promising yourself that you’ll get your finances in order involves a little more dedication. The good news is that it only takes a few simple steps to put your finances on track for the rest of the year – and if you take them now, you’ll be in a far better position come next January. 

There are some big financial changes expected in 2016 – these resolutions should show you how to make the most of them and ensure that your money works harder for you this year.

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 Max out your pension (early in the year)

2016 is expected to be another year of big change for retirement planning, with the results of the government’s investigation into the pension system due in March’s Budget.

 

It’s always important to save into pensions as early as possible, but the likelihood that this year might see dramatic curbs in pension tax relief means that getting in quickly is imperative this year. You have an annual allowance of £40,000 this tax year so make sure that you use it.

 Use or lose your ISA


Another allowance that you can use every year is the ISA allowance – an amount that you are allowed to put away in cash or investments that can then grow in a tax-efficient manner. If you don’t use the allowance, it doesn’t roll over until next financial year.

You have £15,240 that you can put in before April, and a similar amount for the 2016-17 financial year. ISAs have already become radically more flexible in recent years, with the ability to switch between stocks and shares and cash and back again, and an increase in how much you can save in these products.

From April 6 this year, the rules on ISAs change again, so that you can take money out of your ISA and put it back in again, within the same tax year, without losing any of your annual allowance, meaning that they are even more flexible and can be used even for shorter term goals. However, you will need to check the individual terms and conditions of your own ISA provider to see when it is rolling out this benefit (1).

Make your cash stash pay


Millions of us have cash in our current accounts or in poorly paying savings accounts with low rates. But interest on cash savings gets its moment in the spotlight in 2016 with the dawning of a new rule meaning that the interest we earn on much of these savings is tax free as of April this year (2).


Basic rate tax-payers will be able to receive up to £1000 of interest tax free, while higher rate taxpayers will receive £500. So make it a resolution to ensure that your cash is either in a current account that pays a good rate on cash balances, or in a rewarding savings account to take account of this. www.moneyfacts.co.uk will allow you check out the higher paying accounts.

 

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 A lot changed in 2015, with falling oil prices having a profound effect on the value of different parts of investment portfolios. In addition to the change in value of various stocks, your own personal goals and circumstances may have changed as well.

January is a good time to check that your investments still match your goals and are still aligned to your own personal risk appetite. Your portfolio of shares or funds may have become unbalanced, so check whether you have too much or too little in various sectors and geographical areas.

If you are unsure of how to make sure that your savings are aligned to your personal goals, an independent financial adviser may be able to help. Make a commitment now to reviewing your portfolio every few months, to check it is performing in the way that you expect.

 

Do a debt check

Investing and saving is great, but you need to check that you aren’t losing out on the other side of the equation. If you have credit card debts, loans or other high-interest debt, make it a priority to pay these off first. Until you do, it is likely that the return on your savings will be less than the amount you pay on expensive debt.

Even if your debt is cheaper, including low rate tracker mortgages, you need to make a plan for what will happen when rates rise. This is widely expected to happen in 2016, especially now the US Federal Reserve has raised its rates. In this situation, it is important to make a plan for how you will deal with higher rates, perhaps locking in a good fixed rate mortgage deal now, or planning to overpay your mortgage debt with some of your savings.

 


 Risk warning

Equiniti/Selftrade do not provide investment advice. This article is written by Rosie Murray-West, an independent personal finance journalist, and is not the view or opinion of Equiniti/Selftrade and Equiniti/Selftrade accept no liability for any loss caused as a result of the use of this information. The opinions expressed are those of the author at the time of writing and should not be interpreted as investment advice.

The value of investments can fall as well as rise and any income you get from them is not guaranteed and you may get back less than you invested. Past performance is not a guide to future performance. We do not provide advice or make recommendations about investments. If you have any doubts about the suitability of an investment, you should seek advice from a suitably qualified professional adviser.

 


 The Selftrade Shares ISA is an excellent way to invest tax efficiently for the long term. Click here for more information.

(1) http://www.thisismoney.co.uk/money/saving/article-3219018/Government-breaks-promise-make-cash-Isas-flexible-weeks.html

(2) https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/414026/Savings_factographic_final.pdf

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