The new UK tax year started on 6 April 2022 and is the time when several allowances and other limits are reset.
This makes it the perfect time to do some “spring cleaning” of your finances by organising your goals for the year ahead and taking the time to review your financial situation.
Read on to find out seven simple tips to help spring clean your finances for the year ahead.
1. Maximise your ISA allowance
For the 2022/23 tax year, you have a maximum ISA allowance of £20,000, which can be distributed across your Cash and Stocks and Shares ISA however you like.
If you choose a Stocks and Shares ISA, your money is invested so your savings can generate returns rather than earn interest. Research has also shown that those who contribute to their Stocks and Shares ISAs at the start of the new tax year have benefited because of this approach.
A study by HL looked at your potential returns if you had invested £5,000 into a Stocks and Shares ISA every year on the first working day of the tax year since 1999.
Someone who did this would be more than £10,000 better off by March 2022 than someone investing their £5,000 on the final working day of the tax year over the same period.
While past performance is not a reliable indicator of future performance and returns are never guaranteed when investing, now could be a good time to open and contribute into a Stocks and Shares ISA.
2. Put a saving strategy in place
If you don’t have a solid saving strategy already, the new tax year may be the perfect time to put one in place.
Some people like to save 20% of their monthly income immediately, splitting it between their various saving goals, and spend what they have left through the rest of the month. Others like to budget throughout the month and save what they have left over at the end.
Figure out what works best for you by trying a few different saving strategies over a few months, and then employ the best one moving forward.
3. Track down your old pensions
If you have had multiple jobs throughout your adult life, then you most likely have several different pensions stored in several different places. Keeping track of multiple pension pots can be time-consuming, but it’s worthwhile as each could make an important contribution to your later-life income.
So, this spring, take the time to find your old pensions and obtain up-to-date valuations. You may also want to consider consolidating your various pensions into one scheme – read our article for the pros and cons of this approach.
4. Review your outgoings
With the cost of living rising at its fastest rate for three decades, it is getting more expensive to purchase your day-to-day necessities. One major contributing factor is the rise in the energy price cap, which the BBC reports will raise energy bills by an average of 54%.
The new tax year could be the perfect time to review your outgoings to help find areas where you may be overspending. For example, take the time to go through your bank statements in search of forgotten direct debits and other unexpected payments, and cancel them if you no longer use them.
Also, it may be worth looking for cheaper alternatives to your bills and other, larger payments. Consider using comparison sites to find better deals for your household bills and insurances.
5. Create an ICE document
An ICE, or “in case of emergency” document or folder is a repository of useful financial information that your loved ones may need to access in an emergency.
The main purpose of an ICE document is to help your family easily find and access important documents should you be unable to manage your finances yourself for any reason. This also helps to give you greater peace of mind knowing that your finances will be managed effectively if, for example, you have to go into hospital or you have an accident.
Some files you may wish include in your ICE document are:
- Insurance policy records
- Details of your mortgage and other debts
- Ownership details of your car, home, and other such purchases
- Contact details for important individuals, banks, and your financial planner.
Make sure you store your ICE document or folder in an easy place to find, and let your close family and friends know where it is.
6. Write or update your will and Lasting Power of Attorney (LPA)
As time goes on and your personal situation changes, you may find you wish to create or update personal financial documents along the way. However, it can be easy to forget to do this with all of life’s other priorities.
As such, the financial new year is the perfect time to check these documents and ensure that they are up to date. For example, you don’t want to forget your new grandchild or prioritise the wrong person when leaving your legacy behind, so an updated will is crucial.
Plus, having an LPA in place will ensure someone you trust can manage your financial affairs should anything happen to you. Just make sure that you have elected the correct person (or people) to take control of your finances.
7. Book a financial planning meeting
Working with a financial planner can be the most effective form of financial spring cleaning. A financial planner will work close with you to identify your personal and financial goals, and then discuss an effective way to save for them.
By using effective financial management, which could include anything from a carefully sculpted investment strategy to a monthly saving plan, you could achieve your goals much faster.
If you’d like to learn more about our services and find out how we could help you and your situation, please email info@investmentsense.co.uk or call 0115 933 8433.
Please note
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
