Financial resolutions: 2015
It's time for a real 2015 resolution - to be cannier about finances. Collectively, we waste billions – filing tax returns late, leaving too much cash in zero interest accounts and ignoring "use it or lose it" tax benefits.
No one can foresee the future – especially financial matters – other than to forecast that the vast majority of New Year 2015 predictions will fall flat. A few will be right, but probably from luck rather than judgement.
But while this article cannot tell you what to buy and sell - besides regulatory constraints, everyone is different - here's some ideas to put your finances in good order for the coming year.
- Make a list of where you are financially and resolve to update it every three months. Include the value of pensions, ISAs, (Individual Savings Accounts) savings, stocks and shares but also mortgages, credit card and other debts. What about bank accounts you never use? Do you remember why an investment was a '"good idea"? And is that still such a clever notion?
- Check if you can afford to pay off loans. Interest rates at historic low levels can't go down, so the only change is up. Experts have predicted rises for some years including 2015 – and have been proved wrong – but when, one day, they do go up, rates on savings will not go up to match that (they never have). You will always save by using spare cash bank to cut home and other loans.
- Take advantage of tax free ISAs. They're more flexible than ever – you can now switch from stocks and shares to cash – and not just vice versa. They're also more generous – the allowance up to 6 April is £15,000 per person – after that it goes up to £15,240. But it's a "use it or lose it" benefit.
- Capital gains tax allowance is also "use it or lose it". But most people, even those with substantial assets ignore this. Up to 6 April, everyone can sell assets whose value has grown by up to £11,000 without paying capital gains tax. That's worth up to £3,080 in cash terms – double that for a married/civil partnership couple. The allowance goes up to £11,100 on 6 April but it's then too late to use the £11,000 from this tax year.
- Consider unit and investment trust monthly savings plans. They are a good discipline – and you don't have to worry about “is this the best time?” You can invest monthly into an ISA.
- Earning a little over £50,000 or £100,000, can affect the financial benefits your see. Child benefit starts to disappear if one parent earns over £50,000 while the personal income tax allowance erodes once you earn £100,000.
- April sees the biggest ever changes to personal pensions. Out go rules forcing most people to buy an annuity (income for life). From 6 April, there's pension pot freedom – it could be an annuity (income for life) or it could all go on a second home or anything in-between. Most pension providers have yet to announce how they will turn this freedom into practical reality. But this is not just about people close to retirement. Those still decades away can gain with a fresh look at pension plans. This can be complex so you might prefer to consult an independent financial adviser. None of this applies if you are in an employer final salary plans.
You will always save by using spare cash bank to cut home and other loans.
Resolve to treat media finance stories with a pinch of salt. They are little help with long-term planning for your home, your pension or providing for children's education costs. Markets go up and down all the time - by the time you get to read these stories, it's nearly always too late or too expensive to act because professional speculators have skimmed off potential gains. The media need a constant diet of fresh sensation. You don't. Leaving well alone is often the best option.
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