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Improving your relationship with money could change your life

It’s easy to get used to the ‘money in, money out’ mentality, and it’s a really good idea to stop and take a look at your situation every so often.

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Why getting into good money habits matters

Everyone thinks about money. No matter what your personal situation is, money is an important part of life, as well as other things like family and health.  How you choose to spend your money is only part of the picture. Managing your income, your savings and your investments means mastering a tricky balancing act of taxes, rules, regulations, interest rates and long-term financial planning.

A great first step is to take a look at our ultimate guide to tax. It’ll help you understand what income you can expect based on your personal situation.

Once you’ve got an idea of the types and amounts of income, then you can start to think about savings you can make and any investments that will help you achieve your financial goals. Reaching your financial goals is what it’s all about. From getting rid of that nagging credit card balance right through to providing for yourself and loved ones as you get older. The new year is a great time to make a plan and launch forward with positive money habits.

Take a look at what the 2022/2023 tax year looks like in our easy-to-digest proactive planning post.

Start with the plan

The first item on the checklist is a financial health check. This isn’t at all scary and will actually be a weight off your mind once you’ve got it done.

  1. Make a list of all your income. Be sure to tick off any taxes that apply. Try to be realistic. There is always a temptation to add income that you’re expecting, like the future sale price of a car. Don’t count your chickens and only put down what you’re sure will end up available.
  2. Take away your fixed payments, like rent or mortgage payments and loan repayments.
  3. Budget in all your other, non-obligatory, outgoings. Mobile phone, streaming services, and gym memberships for example.
  4. Now tot up your daily living expenses. Food, clothing, entertainment and transport  for example.

This should leave you with a fairly realistic picture of where you stand. Of course, things can change, but we’ll come to that later.

Now the fun part! Think about what’s important to you. That holiday of a lifetime? Financial independence? Security as you get older? It can be anything, but remember to think both short and long term. If you’re unsure where you stand, we can coach you through your goal setting as part of the financial planning process.

Getting where you want to be with good money habits

Knowing where you stand with your finances is a relief in itself and it let’s you set clear directions to reach your goals.

Start with the things that you can change today. It’s common, especially if you live with a partner, to ‘overlap’ on things like subscriptions. Do you really need Netflix, Disney+, Amazon Prime and Hulu? Are you popping out for lunch every day? Try taking lunch from home two or three times a week.

These savings might not seem much at first glance but saving just £20 a week will see you over £1,000 a year better off. That kind of money can really help you achieve your goals.

Now start to look longer term. If you’re not currently putting money aside, for example into an ISA, you might be missing out on some savings on the tax you pay. Saving, even just a little, means you’ve got extra options in the future. Remember, we talked about what we would do if things change unexpectedly? That’s where savings come in. While you have to be careful about ‘dipping into savings’, having them there in the first place can make a big difference when you need it. In case you didn’t know, a financial adviser can also set up protection insurance policies so that if the unexpected happens you don’t have to dip in to your savings.

For ISAs Investors do not pay any personal tax on income or gains. Tax treatment varies according to individual circumstances and is subject to change.

Tax planning is not regulated by the Financial Conduct Authority.

The value of investments can fall as well as rise. You might get back less than you invested.

Thinking about the future

The new year often leads to having a little bit of a ponder about what lies ahead. But why just think about this at the start of the year. Regular reflections throughout the year is really important.  From a financial perspective, that means connecting your goals with how you manage your money. Could you be generating some extra income using investments, planning for retirement with a pension or finding ways to make sure your loved ones are comfortable after you pass on?

This type of long-term planning is perhaps one of the most complex. It means balancing your income, tax, savings and assets over a long period of time. This means thinking about how tax tables and regulations will change in the future, along with your individual earnings and allowances.

While some will manage this type of high-quality financial planning, it’s not for everyone. If you’re unsure then a good first step is to reach out and talk about your situation with someone who’s on your side and understands your personal goals and requirements. Having that ability to pick up a phone and fire a few questions that are worrying you is something that many of our clients say they value very much.

Author & Editor: Cherie-Anne Baxter

Date: 16th September 2022

Does a financial ‘new you’ sound good? Get in touch for a chat.

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