Four simple steps to help you fix your finances in 2021
- 23 December 2020
- 10 mins reading time
In this article we’ll provide tips that could help you
Manage your finances better
Reduce stress by taking stock
Control and clear debt
Leave yourself less exposed to a financial shock
Ways to help better manage your finances
The Schroders Personal Wealth (SPW) Money and Mind report from September 2020 revealed that the majority of people surveyed are on top of the financial basics, but seriously lacking when it comes to financial planning for the future.
For the day-to-day household finances, people across the UK scored an average 20 out of a maximum of 25 and an even better 24 out of 25 for debt management. However, they scored just 3 out of 25 for protecting against the unexpected, while planning for the future came in only slightly higher at 5 out of a potential 25. So we’ve come up with four tips that could help you take control of your financial health for 2021 and beyond.
1. Reduce stress by taking stock
Almost half (48%) in our study admitted that their financial situation causes stress. Seizing control is crucial. A good place to start is making a list of the things you would like to address. Have a financial admin day to take stock of the credit cards, loans and accounts you have, what areas you need to improve and the sort of support and guidance you might need .
2. Clear your debts, clear your head
Debt is likely to be the biggest cause of financial stress with two thirds of respondents saying being debt free would give them peace of mind over their finances.
Interest rates are at all-time lows, so now could be a good time to look for ways to move your debt to lower interest rates. You might need help and advice on this depending on your personal circumstances, but the principle of paying off the highest-charging debts first tends to make sense.
If you’re struggling to meet mortgage or other payments, it’s worth noting that on 2 November 2020, the Financial Conduct Authority (FCA) announced virus-related payment holidays would be available to some for an extended period of time. To find out more, contact the bank or building society with which you have the mortgage or other debts. But do it soon as the mortgage holiday deadline, for example, is set for 31 March 2021. The FCA has also banned repossessions for those in mortgage arrears until the end of January 2021.
3. Don’t leave yourself exposed to a financial shock
Our Money and Mind report also revealed financial security was a higher priority since Covid-19 for 19% of people, but just 13% are now making plans for their financial future.
This can be fixed.
Once you’ve cleared your credit cards and other debt, set up a cash buffer. Depending on your circumstances, a cash buffer that would last you, say, six months if your income stopped, would help to alleviate financial problems and the stress that can come with them.
You can also consider protection in the form of insurance in case of illness or loss of employment. As with all of these considerations, we believe it’s best to get professional advice. Talking of which…
4. Get professional advice
The report showed that 63% of people don’t know how much money they will need to live comfortably in retirement. This dropped to 24% among those who have an adviser.
Retirement income is just one life stage that could benefit from planning and preparation. Others could include getting a deposit to buy a home, preparing for a wedding or a first child, saving for university fees, holidays or any number of other goals.
The key is to:
Know your current situation
Know what you want your situation to be in the future
Know how to get there
Much like a fitness trainer, a professional financial adviser can give you an overall wealth-check, help you set appropriate goals and help to keep you on track or to meet changes along the way.
What’s more, an initial meeting can be offered free of charge. That gives you a chance to see if you get on with and feel you can trust the adviser and find out more about the costs and charges involved without having to commit to anything up front.
Any views expressed are our in-house views as at the time of publishing.
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In preparing this article we may have used third party sources which we believe to be true and accurate as at the date of writing. However, we can give no assurances or warranty regarding the accuracy, currency or applicability of any of the content in relation to specific situations and particular circumstances.
Forecasts of future performance are not a reliable guide to actual results in the future; neither is past performance a reliable indicator of future results. The value of investments, and the income from them, may fall as well as rise and cannot be guaranteed and the investor might not get back their initial investment.
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