New Year 2024

New Year 2024

Image by Fatemeh Mousavi from Pixabay

Happy New Year.

It’s that time of year again that inspires us to try and stick to some New Year’s resolutions, whether they be lifestyle, diet, fitness or finance-related.   If you’re like us, life tends to get in the way, and despite our best intentions, our resolutions might already be slipping away.

Of all the above, financial resolutions can be the hardest to keep due to unplanned expenditures, booking that summer holiday or just feeling like spending on yourself to make up for the January blues!  But remember, not to be too hard on yourself, as making a start is key.

Many people try to set financial resolutions or objectives such as spending less, saving more into a pension or buying that bigger house (with a bigger mortgage), but what they don’t do is consider or set any specific long-term goals about what they actually want to achieve with their life.  This isn’t an easy exercise for most people because it’s not easy to see past where you are now and visualise the future.

A good starting point is to consider your money values, rather than becoming fixated on the specifics.  What we mean by ‘money values’ is not a specific goal but your overall thoughts about money and your life.  Spending time thinking about this and discussing your thoughts with your partner can be very valuable.   A good starting point for this is to ask yourself and discuss some or all of the following questions and writing down your answers:

What is it about our current circumstances that we are either enjoying or not enjoying?

Why do we go to work every day? Think beyond your salaries.

Is there anything we are missing?

Do we want to help future generations of our family?

What do we want our legacy to be?

How do we feel about money? Do we worry about running out of it?

How do we feel about having a large debt?

What do we want to achieve before we stop having to work?

In an ideal world, when would we like to be able to choose not to work and what would we like to do?

What would we like to do if we could take some time off paid work?

You can then use the answers to these questions to help you decide on your specific financial goals, giving them a timeframe and an estimated financial cost e.g. buy a larger house in five years for c.£1m in today’s terms.  ‘Take more holidays when I can afford to’ for example isn’t a specific goal as it lacks any cost or timescale component.

A financial plan should always start with your values as these will lead to your financial goals and it’s on these that the plan needs to be based.  In our experience, this approach is more productive than trying to stick to one-off financial resolutions or starting a savings plan or pension because you think you need to but haven’t taken any time to consider the outcome you’re trying to achieve.

However, if you’re just starting on your financial journey and are still trying to accumulate some wealth then it can be just as important to start getting into the savings habit.

We’ve always found it’s how you frame savings for yourself that’s important.  Try not to think about saving as a drag, or a reduction in what you can spend now, rather think about any savings as a way of paying yourself now so that you can fund future expenditure – you’re just deferring what you’re going to spend the money on.

Make sure that you pay yourself first, i.e. if you’re paid monthly then set up a regular transfer to your savings account or investment the next day so that a set amount is saved before you start using your earnings for that month.  If you wait until the end of the month to see what surplus you have left, it’s highly likely that, in most months, there won’t be any.  You know it’s there, so it gets spent.  We’re only human!

Once you start the savings habit, it will become second nature and just something you do.  You can then move on to thinking about your money values and, eventually, more long-term goals to allocate some of your hard work, savings or investment towards.

Try also to calculate your monthly expenditure.  This can be via a spreadsheet, an app, or just working out what is left on average each month after taxes and all expenditures.

Whatever you decide to do, make sure you know why.  In the same way as ‘getting fit’ not really being a goal, neither is ‘saving more’.  Giving yourself a target that is based on your values and relates to something you want to do, means you’re much more likely to achieve your goal.

So, before you embark on a new or repeat set of New Year’s resolutions, think about your values first.  Make sure you have a savings habit and then decide what you really want the end result to be and set goals with a timeframe and realistic targets.

It’s not an easy process and sometimes it’s even harder to stick to, but if this all sounds a bit too hard, just make a start and build on it each year.  ‘Rome wasn’t built in a day’ so don’t worry if it takes time.

This blog is intended for information purposes only and no action should be taken or refrained from being taken as a consequence without consulting a suitably qualified and regulated person.  Your capital is at risk when investing.  Past performance is not a reliable indicator of future results and forecasts are not a reliable indicator of future performance.