Soaring living costs and rising interest rates mean that 2023 is set to be a tough year for many of us, but making a few money resolutions early on could help put you on a stronger financial footing.
Here are five financial resolutions to get you started.
1) Work out a budget
It’s much easier to keep your spending under control if you know exactly how much you have left each month once all your essential bills have been paid.
Emma-Lou Montgomery, associate director for Personal Investing at Fidelity International, said: “It’s true that many of us are feeling the pinch in one way or another but whatever your situation, creating a budget can make it easier to manage your money.
“Make a list of all your monthly outgoings including your mortgage, bills, subscriptions, plus any regular savings, investments, and pension contributions. It might seem like gruelling task but taking small steps will help you stay in budget and leave you in a good position for the New Year. You might spot ways to save money or realise you could be investing more for your longer-term goals.
2) Try to reduce your debts
Check how much interest you’re paying on your credit cards and any loans and see if you can switch to more competitive deals. Always check whether there are any early repayment charges first however, as these could potentially outweigh any savings you might make by moving.
Jessica Ayres, financial adviser at Timothy James & Partners, said; “Review your credit card balances and use a comparison website to secure an interest free credit card and make a balance transfer. Set up an affordable monthly direct debit to chip away at the debit and reduce the balance over time. If you are brave, cut up the card so you are not tempted to spend.”
Another option is to consider using either the ‘debt avalanche’ or ‘debt snowball’ methods to pay down your debts. These involve listing all your debts and making minimum payments on all but one. Then once the card or loan is cleared, you move onto the next balance until all the debts are paid off.
Alice Haine, personal finance analyst at DIY investment platform and coaching service Bestinvest, explained: “The difference between the two strategies is that with the snowball method, you target the smallest debt first and the biggest debt last – as the smaller liabilities will be easier to clear offering encouragement along the way. Meanwhile the avalanche approach targets the highest-interest debt to reduce the overall cost of your liabilities.”
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3) Set specific savings goals
Having a specific goal to aim for, whether that’s saving for retirement, building up a deposit to buy a property, or something else entirely, can make it easier to start and stick to the savings habit.
Katy Simpson, personal finance expert at Virgin Money said: “Once you’ve planned your budget, work out how much you can realistically put aside each month. Don’t overstretch yourself – little amounts will all add up over time. Just make sure you set up a monthly direct debit to your savings account, as you’re more likely to spend it if it’s left in your current account.”
4) Make your money work harder
Go through all your outgoings and make sure you’re on the best possible deals. It’s also a good idea to check any savings accounts you have, so you can be certain that your money is earning as much interest as possible.
Louise Rycroft, financial adviser at Timothy James & Partners, said; “If the accounts are quite old they are probably paying minimal interest. Now that interest rates are rising there are banks offering higher rates that could really make a difference to the interest you receive at the end of the year.
“Check when your contracts end for your household bills and mobile phones. Set yourself a reminder to check the new deals available when the contracts end so you can move to the next best deal. Don’t automatically let them roll on as you could be overpaying unnecessarily.”
5) Review your mortgage
Around 1.8m homeowners are coming to the end of fixed deals in 2023 and could face a sharp jump in payments, so it’s worth thinking how you might cope with higher costs and which sort of deal you want to re-mortgage to.
Ms Haine, of Bestinvest, said: “Fixed-rate deals might seem less appealing in the current climate when compared to cheaper tracker mortgages, which follow the Bank of England’s base rate with a set percentage on top, such as 1%. But tracker repayments will almost certainly go up in the short term – though they may also come down in the longer term.
“While it is possible to lock in a new deal up to six months ahead, with so much uncertainty this might not be the best move as better rates could emerge within that timeframe – so get that review call in with your broker to weigh up the options.”