1 January 2023
If 2023 is anything like 2022, we’re in for a tumultuous year for personal finances, with inflation, interest rates and taxes all on the rise. More than ever, savers and investors will benefit from getting on top of their finance to avoid making costly mistakes.
Carla Morris, a financial planner at wealth manager RBC Brewin Dolphin, shares her advice on how to avoid typical financial mistakes:
“The new year is a great time to take stock of your finances and get your affairs in order to ensure you avoid making costly financial mistakes. There are a number of key things to think about so that you’re in the best place possible.”
First things first – clear the Christmas hangover
The festive season comes with added expenses, from socialising to present buying. A report from the Bank of England estimates that the average household spends almost £740 more in December, which is 29% more than in a typical month. Steep price rises mean it’s more important than ever to have a solid budgeting plan in place. Sticking to a budget can help avoid splashing out on things you don’t really need, which in turn may result in more money to put towards savings.
The new year is also a good time to reconsider your financial goals – what you would like to achieve over the short, medium and long term. It’s generally considered wise to have around six months’ worth of essential expenditure in an easy-access savings account, if you can afford it. Once a rainy-day fund is established, any money that is being put aside for goals that are over five years away should ideally be invested in the stock market. Although the stock market can be volatile, history shows that it performs better than cash over long periods.
Check your pension is on track
If checking the value of your pension pot hasn’t been on the to-do list recently, this is the time to do so. Understanding how much money you’ve saved up will help you work out whether you’re on track to achieve your retirement ambitions. An adviser can offer support by
[1] https://www.bankofengland.co.uk/knowledgebank/how-much-do-we-spend-at-christmas
calculating the projected value of your pension at retirement and the amount of annual income this is likely to produce.
If there’s a shortfall, you might want to see if you can top up your pension. Pensions are a tax-efficient way of saving for the future because of the tax relief you receive on personal pension contributions. A £100 pension contribution costs just £80 if you’re a basic-rate taxpayer, £60 if you’re a higher-rate taxpayer, or £55 if you’re an additional-rate taxpayer.
Be tax efficient – maximise your allowances
There are a whole host of tax allowances and exemptions to make use of each year. Many people wait until the end of the tax year to maximise their allowances, but there is no time like the present and acting at the start of the year offers a better chance of achieving financial goals.
In the 2022/23 tax year, investors can invest up to £20,000 into ISAs to benefit from tax-efficient income and growth. Money can be withdrawn from ISAs at any stage without paying tax, which makes ISAs a useful investment vehicle for pre-retirement goals, as well as a tax-efficient source of income in retirement.
Other allowances include the capital gains tax (CGT) exemption and the dividend allowance. These allowances are due to be slashed in April 2023 and again in April 2024, so you might want to act quickly to maximise your tax-free investment gains and tax-free dividend income before the changes come into effect. The key, which wealth managers can assist with, is to keep abreast of changes in the tax landscape and make decisions that optimise the allowances that do exist.
Review your protection – check you’re covered
Having the right protection is crucial to ensure you and your family’s finances hold up in the event of unexpected illness or death. The new year is a good time to check any current protection policies and ensure they are up to date. If the level of cover is too low, your loved ones could be at risk of financial hardship should the worst happen. A financial adviser can make sure you have the right policies and level of cover to suit your individual needs.
Make or update your will
Making a will is one of the most important things you can do. It ensures your assets go to who you want after your death, and that your wishes are carried out as you intended. If you’ve already made a will, consider whether it needs updating – for example, if your personal circumstances have changed. Making or updating your will could make a big difference to the future of those you care about.
Concluding, Carla said:
“Becoming more engaged with your finances could be the simple financial resolution you need to kick-start the new year and avoid making costly financial mistakes. Take the time to read and review financial statements, review your pension, look at tax allowances, and set some goals for the year ahead. January is also the perfect time to liaise with your financial adviser or, if you don’t have one yet, you might decide that it’s the right time to start seeking advice. Be proactive in arranging a meeting – don’t wait for your adviser to contact you first.”
ENDS
DISCLAIMERS
- The value of investments, and any income from them, can fall and you may get back less than you invested.,
- This does not constitute tax or legal advice. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.
- Opinions expressed in this publication are not necessarily the views held throughout RBC Brewin Dolphin Ltd.
- Information is provided only as an example and is not a recommendation to pursue a particular strategy.
- Information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness
PRESS INFORMATION
For further information, please contact:
Richard Janes richard.janes@brewin.co.uk / Tel: +44 (0) 20 3201 3343
Siân Robertson: Sian.Robertson@brewin.co.uk / Tel: +44 (0) 20 3201 3026
Chloe McFarlane: chloe.mcfarlane@brewin.co.uk / Tel: +44 020 3201 3490
Payal Nair payal.nair@brewin.co.uk / Tel: +44 (0) 20 3201 3342
NOTES TO EDITORS
About RBC Brewin Dolphin
RBC Brewin Dolphin is one of the UK and Ireland’s leading wealth managers and traces its origins back to 1762. With £51.7* billion in assets under management, we offer award-winning, personalised wealth management services from bespoke, discretionary investment management to retirement planning and tax-efficient investing.
Our qualified investment managers and financial planners are based in 33 offices across the UK, Jersey and Republic of Ireland. They are committed to the most exacting standards of client service, with long-term thinking and absolute focus on our clients’ needs at the core.
As part of Royal Bank of Canada (RBC), we are now able to draw on the strength of a global financial institution to continue to improve the service we provide to our clients and drive further innovation across our business.
*as at 30th June 2022.
Disclaimers
The value of investments can fall and you may get back less than you invested. RBC Brewin Dolphin is a trading name of Brewin Dolphin Limited. Brewin Dolphin Limited is authorised and regulated by the Financial Conduct Authority (Financial Services Register reference number 124444).