How to make sure your finances are fit for 2021

Many people will have reviewed their priorities in recent months and perhaps reconsidered their medium- and long-term financial goals. Now, the start of 2021 offers a golden opportunity to take action.

It’s a chance to make sure you know how your finances are looking, identify anything that needs changing and think about whether you need to adjust based on any new goals you might have. It might take an hour, it might be half a day, but it will be time well spent if it gives you peace of mind, clarity and direction.

Here are 10 steps you can take, from short-term priorities to long-term strategies.

1. Manage your debts

If you’ve taken on any debt, make sure you know how much you owe, and who to. Look at whether you can pay some down or move it around. Any expensive debts that need repaying, such as credit cards and unsecured loans, should be a priority, even if it’s just reducing the amount outstanding. If you’re worried about your debt level, get help now. Free and impartial debt advice is available from organisations including Citizens Advice, National Debtline and StepChange.

2. Cast an eye over your household bills

If you haven’t changed your energy supplier for a while, you might be able to save some money by switching to a cheaper tariff. The same applies to things like insurance and mobile phone contracts. Even if you need to wait until your existing deals end, it’s worth seeing if there are savings to be made when the time comes, rather than automatically renewing.

3. Start (or continue) budgeting

Keeping track of what’s coming in and what’s going out (as well as where it’s going) will give you a clear picture of your household finances, help you identify any unnecessary spending, avoid any nasty shocks and work out where you can make savings. There are several money management apps and online services that help with this – they can make it easier to see your spending patterns, set goals and monitor progress over time.

4. Build a buffer

If you can afford to, think about building up your emergency cash fund. Financial advisers generally recommend between three and six months of income, but anything you can set aside will help. Even if it’s just a few pounds each week or month, regular savings can grow into a tidy sum over time due to the snowball effect that is compounding. Also consider putting some insurance in place to protect you and your family. Income protection plans, for instance, will cover outgoings such as mortgage repayments, rent and bills if you’re unable to work because of illness or an accident.

5. Set some goals

It’s easier to get working on your finances if you’ve got something to aim for, whether it’s reducing your debt, starting a savings habit, paying for a holiday or building up a mortgage deposit. Get an idea of what you want, and you’ll find it easier to work out what you need to do. Try to keep your goals SMART: specific, measurable, attainable, realistic and time-bound.

6. Make your money work harder

Stock market-based investments, such as funds and investment trusts, have the potential to give you more growth over the medium and long term. So if you haven’t already done so, consider setting up a Stocks & Shares ISA. It’s worth speaking to a professional financial adviser to make sure your investments reflect your objectives and appetite for risk.

7. Don’t say no to additional money!

If your employer offers you a workplace pension but you don’t take advantage of it, you’re missing out on tax relief and the contributions that your employer will pay in. Starting or increasing your pension payments is perhaps the most tax-efficient way of boosting your long-term finances as we enter 2021. Pensions are very tax-efficient even if you don’t have access to a workplace pension, and there is a wide range of personal pensions available these days.

8. Keep your investments on track

If you do already pay into pensions and investments, make sure you know where everything is and check your money is invested in a way that works for you. You could begin your review by reminding yourself what you want from your investments, the risk you’re comfortable with taking and how your investments fit into your wider financial plan. A professional adviser can help you make sure your portfolio is well diversified – spread across a range of different assets and investments – and continues to reflect your risk appetite and objectives.

9. Check your retirement roadmap

If you’re within a decade or so of retirement, now’s a good chance to get a handle on how your preparations are going. The events of the past year may demand a review of those plans, particularly if your pension has lost value as a result of stock market volatility. Can you maintain your current lifestyle in retirement? Do you want a cliff-edge retirement – to suddenly stop working at a set date – or would it be better to phase it in by continuing to work and gradually easing into retirement? Do you need to increase your pension contributions in order to meet your goals?

10. Get advice

So, now you know what needs doing to get your household finances in a stronger position. But what if you’re not sure how to get started? Or need an extra set of hands? A professional financial adviser can take a proper look under the bonnet of your finances to make sure everything’s working according to plan, help you to put it right if it’s not, and map out a plan for the future. Getting financial advice could be the smartest financial move you make in 2021.

The value of a Stocks & Shares ISA will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

A Stocks & Shares ISA does not provide the security of capital associated with a Cash ISA.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.