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If your personal finances have ended the year in better shape than they started, I salute you.
Congratulations if you’ve managed to increase your income in line with inflation (I’m not surprised that our most listened-to Money Clinic podcast of the year was How I got a 36% pay rise).
However, if your household finances are anything like mine, the combination of higher mortgage payments, bills, transport and food shopping will have necessitated a budget reboot.
To add to this, the performance of our investment portfolios has suffered, and we now have the unappetising prospect of higher taxes to look forward to in 2023 . . . which means financial planning has never been a more valuable activity.
Here are five ideas to ponder over “Twixtmas” to get your finances in shape for the year ahead. Do subscribe to the Money Clinic podcast for more tips on our Financial New Year’s Resolutions episode, released on December 27.
1 Can you manifest money in 2023?
Financial resolutions are easy to make — but much harder to stick to. The latest TikTok finance trend you’ve never heard of is performing a #moneymanifestation, which involves chanting a mantra to yourself every morning and evening along the lines of “Money will flow to me — I am a magnet for cash” or “I am worthy of becoming a millionaire this year”.
Quite obviously daft — or is it?
Psychologically, using this technique to focus on a (more realistic) financial goal that you want to achieve in the year ahead could spur you to make it happen.
From getting that promotion, pay rise or increasing the turnover of your business to paying down debt or saving for a house deposit, “we gravitate towards and attract that which we think about most of the time,” says Timi Merriman-Johnson, better known as financial educator Mr MoneyJar.
He thinks of manifesting as “putting things out into the world that I’d like to receive back” and will be using this to stick to his money goals in 2023. As a technique that costs nothing, I’m willing to give it a try!
2 Look at the bigger picture
New year resolutions need to stretch beyond January, but goal setting is so much easier if you can see the bigger picture.
It’s now possible to see all of your bank accounts and credit card balances in one place using tools like Money Dashboard Neon or Emma, which connect all your data from different providers. The former has a desktop version, perfect for older eyeballs, as well as a smartphone app. I’m hoping more Isa and pension providers will get on board in the coming year.
Even if you use something simpler such as a spreadsheet or a notebook, mapping a yearly money plan for 2023 is worth doing. Look at your monthly cash flow for the year ahead to better manage lumpy expenditure, think about how best to use your bonus (assuming you get one) and prepare for budget shocks such as a fixed mortgage rate expiring.
Be ready for income tax changes coming in April, as thresholds for the top rates of tax are lowered — especially important for those earning over £100,000 and readers in Scotland. Can you pay more into your pension to reduce the impact of this?
Investors and limited company owners need to plan for changes to dividend tax and capital gains in the next tax year, and remember — accountants and financial advisers are going to be even busier than usual in the first quarter of 2023.
3 Rethink budgeting
“Try to set up systems for 2023 which will serve you well, and also help your finances in the long run,” says Mr MoneyJar. We often think of budgets as being monthly but he does a weekly financial check on Sunday, which helps guide spending decisions for the week ahead and makes it easier to spot problems before they happen.
His other tips include synching your direct debits to come out on or around the same day every month and hiving off money that you can spend day-to-day into a separate account with its own payment card.
Opening a new account? Look for one offering decent rates on a regular saver. First Direct is the market leader offering 7 per cent, but other banks including Lloyds, NatWest and HSBC all pay above 5 per cent (and Barclays has a Rainy Day saver offering 5 per cent on up to £5,000).
However, newly minted additional rate taxpayers beware — you’ll need to pay tax on savings interest.
4 Deal with debt
“If your debts are going up, if your overdraft is creeping up most months and you’re in it for more days [and] if your credit cards are going up. These are signs that you are not really getting your debts down in any one month, and probably don’t have enough money coming in for what you’re spending,” she says.
Sara has lots more advice about finding a free debt adviser and making a plan to tackle debts on our upcoming podcast episode.
5 Perform a pension health check
The long-awaited arrival of the Pensions Dashboard next year will focus the eyes of millions on the adequacy of their retirement savings, ironically as the cost of living crisis forces many to cut contributions.
I hope it will provide people with the incentive to track down old company pensions and get the money inside them working harder.
Over 45? It could also pay to check your state pension forecast on the gov.uk website, particularly if you’ve worked overseas for part of your career.
Individuals need 35 years’ worth of national insurance credits to get the full amount of state pension. If you have gaps or missing years going back to 2006, it’s possible to pay to top these up — but after April 2023, the rules change and you can only go back six years.
It will cost around £800 to fill a single year’s worth of missing NI contributions, but Money Saving Expert Martin Lewis has calculated that this could unlock more than £5,000 extra in future based on typical life expectancy — and that’s not including any inflation-linked increases.
Obviously, the merits of doing so will vary according to your individual circumstances, but the government’s Future Pension Centre can give you a free personalised calculation. My final tip? Do so long before April’s deadline and get in before the rush.