A New Year Financial Check-Up

The start of a New Year is always a good time to review one’s finances.

In fact, with 2021 behind us and the pandemic still rumbling on, a financial checkup may be more important than ever this year.

With that in mind, here are some ways to make sure that your financial situation is on the right track.

Reassess your financial goals 

At the beginning of last year, you may have set goals geared toward improving your financial situation. 

Perhaps you wanted to save more, spend less, or reduce any debt. 

Maybe you wanted to be in a position to work less or even retire completely.

How much progress did you make with these goals? 

If your income, expenses, and personal circumstances have changed, you may need to rethink your priorities. 

Start by reviewing your financial statements and account balances to determine whether you need to make any changes to keep your financial plan on track. 

Check your retirement savings 

If you are still working, look for ways to increase retirement provision. 

For example, if you receive a pay increase this year, you could contribute a higher percentage of your salary to your retirement savings. 

Likewise, if you receive a bonus, you could contribute part (or all) of that.

Request a State Pension forecast and, if you are not on track for the maximum (£9,339.20 per annum in 2021/2022), make some voluntary contributions (£3.05 per week) to bump up your entitlement.

If you are close to retirement or already retired, take another look at your retirement income requirements and whether your current investment and distribution strategy will provide the income you will need. 

Be ready for inflation

Inflation sprinted ahead last year, at the fastest rate in decades. 

No one really knows if it will persist at such levels. 

It may drop off, as pandemic related supply chain issues wane. However, there is also scope for it to climb further.

What is certain, is that inflation is bad for cash holdings.

The one thing you can’t do is put your head into the sand and pretend it isn’t happening. If you have too much cash on deposit, you do need to take some protective measures.

These measures include picking investments that keep pace with or even outpace inflation. 

Generally, that means exposure to equities and equity funds.

Make an inventory of your investments

Are you holding on to shares or funds that you purchased years ago?

Perhaps you received them through an inheritance or an employer incentive scheme.

If so, it is likely that they no longer fit with your investment profile (if they ever did). 

It is also likely that they provide insufficient diversification and/or have high fees.

If they are not part of your core investment strategy, consider selling them and reinvest the proceeds in your core strategy.

Doing so will increase your overall chances of investment success and reduce the time and energy required to monitor your portfolio.

Evaluate your insurance coverage 

How much disability or life insurance coverage do you have? 

If you die, what percentage of your income would your family need to replace and for how long? 

Are there any major debts that would burden loved ones left behind? 

Does your family have upcoming goals that need to be funded, such as education for your children?

Remember that your insurance needs will change over time. 

As a result, even if you addressed this subject in the past, you will want to make sure your coverage has kept pace with your income and family/personal circumstances. 

Finally, if the cover is provided through your employer, consider what would happen to that insurance if you change jobs/get made redundant/retire.

Don’t forget about taxes

Depending on where you are resident, with proper planning and good advice, there are often ways to mitigate some of the taxes that you may be expecting to pay.

If you are in danger of breaching the pension lifetime allowance ceiling (currently £1,073,100), or have already done so, there are also ways to mitigate that.

Lastly, you could consider gifting as a way to reduce a future inheritance tax liability for your estate.

Finally, ask questions

As part of your financial review, you should also ask yourself the following questions:

* Do you have enough money in your emergency fund to cover unexpected expenses? 

* Are the beneficiary nominations on your pensions and insurance policies up-to-date? 

* Do you need to create or update your will? 

* When you review your portfolio, is your asset allocation still in line with your financial goals, time horizon, and tolerance for risk? Are any changes warranted? Does your portfolio need to be rebalanced back to its original allocation?


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