THE NEW year is the perfect time to make a fresh start, particularly when it comes to your finances. After the excesses of the Christmas period, most of us will be significantly poorer than usual and pledging to be better with our money this year. So here are a few things that anyone can do in January to make 2017 your most financially savvy year yet.
1.Take stock of your finances
It might be tempting to close your eyes and ignore your bank balance in the month after Christmas, but this is the perfect time to sit down and work out your financial position at the start of the year. Before you make any new financial decisions, you have to know exactly where you are, so take stock of everything – from your earning potential, to your debt, to your investment portfolio and tax position – then you can start planning realistically for the year ahead.
2. Move your debts
Everyone has debts – whether they come in the shape of a mortgage, a credit card, an overdraft, a personal loan, or all of the above. And with interest rates at an all-time low, and new lending initiatives popping up all over the place, there are some incredibly competitive deals out there. Do some research and see if you could save money by moving your debts from one provider to another – just don’t forget to factor in any transfer charges and make sure you never fall behind on your payments.
3. Rethink your savings
The rate of inflation is set to skyrocket this year, while high street savings accounts are offering woeful returns. In fact, if your interest rate is lower than the rate of inflation, you will actually be losing value on your money by leaving it in that account.
Make 2017 the year that you take a proactive stance on your savings. If you are saving for a home or a pension, consider the more favourable rates offered by the Lifetime ISA (which launches in April). For pension savings, you might also want to look into dedicated pension funds or HMRC-approved investment schemes, which can all be wrapped into the tax-free Self-Invested Personal Pension (SIPP).
4. Consider investing
Savings accounts took a massive hit in 2016, and 2017 is set to be just as bad. With the average cash ISA offering less than one per cent, it will be almost impossible to make money on your savings through traditional channels, so this may be a good time to consider investing instead.
Stocks and shares ISAs allow consumers to make tax-free investments in funds and the stock market. If you choose a diversified portfolio which matches your risk profile, you could make a reasonable profit over the course of the year. Similarly, the recently-launched Innovative Finance ISA enables tax-free investments in peer-to-peer platforms, where you can lend money to your peers for a fixed rate of interest, which can be anything from three per cent to nine per cent or more, depending on the risk involved.
However, investing comes with risks that do not apply to savings. Stock market values can go down as well as up, although your chances of success are higher the longer you can maintain your investments. And with peer-to-peer lending there is a risk that your borrowers might default on their loans, leaving you with nothing.
5. Make a budget – and stick to it
The first step to making a budget is to work out where your money is going every month. Take some time to go through your last six months of spending, and you will soon spot a few patterns emerging. Divide your expenses into four categories: essentials (rent, petrol, bills, insurance); groceries; luxuries (clothing, socialising, gifts); and savings. Then work out where you can make any changes. You may be able to save on your essentials by changing a utilities provider, or cut down your food budget by making your own lunches. After you have accounted for your essentials, groceries and savings, whatever is left is your budget for luxuries.