It’s Christmas time, which also means it is the end of the year so it is a great time to get stuck into our personal finances have a good rummage around and change things we need changed for the new year. This is the piece I did on Newstalk with Chris Donoghue and Ivan Yeates yesterday morning. (skip to 11 minutes and 15 seconds)
Don’t get me wrong I am not suggesting that you jump up after the Christmas dinner and start pulling out all your financial documents. I am instead suggesting that as you go about your day in the next week or two start thinking about your finances and then when you get time either over the holidays or very early in the new year get stuck into it.
So what should you be doing with your finances at this time of year? I have devised a checklist to help you get the most out of your financial clean up.
- Sort out that Box
You know the one I am talking about, practically every client I meet has one. A box full of all your financial “stuff”. Take it out of the box and sort it into different piles. You should categorise them by account. One pile for each bank account, another for each pension, another for the home insurance, life cover etc.
When it is sorted then put it in chronological order with the newest first. Then do the unthinkable, throw out the stuff that’s no longer relevant. Believe me it is very unlikely you will ever need the terms and conditions for the house insurance policy you had in 2002!
If any of the accounts are closed or policies are no longer active dump them. If you are unsure about throwing something out put it in a file marked with a note that says “last read December 2014” if you don’t look at it again in the next two years dump it then.
- Make a list, check it twice.
Now you have all your pensions, savings, bank accounts and insurance policies in order make a list of them. Try and build up a dosier of everything you hold, again do the unthinkable, dump some of them too. Do you need six current accounts? Do you have to keep the Henry Hippo account you opened when you were 8 and have not used in 20 years?
- Close old accounts
Close the accounts you don’t need. Excess bank accounts only increase the likelihood of financial identify theft and other forms of fraud and they also create a whole pile of paperwork you don’t need.
If you carry more than one credit card have a look through them and if you can, transfer the balances of the higher interest rate ones to the lower interest rate card, then cut them up!
- Do the same with old pensions and life policies.
Unlike our parents we don’t tend to stay in the same job for 40 years. So it’s likely you have old pensions from old jobs. It is always a worthwhile exercise getting somebody to look over the old pensions and try and tidy them up by bringing them together in your current pension scheme or into a personal retirement bond. But be sure to get advice before you do this.
Also get somebody to look over any life or serious illness policies you have, rates change but more importantly your circumstances change. Maybe you could save a few quid by getting them reviewed.
- Check where you are at?
Before the year end ring your pension and savings provider and find out what return you got this year.
A portfolio invested purely in equities could be up in excess of 20% this year (as of 16/12/2014 the S&P 500 is up 22.16% ytd). You would expect a well balanced portfolio to be up less than half that. If you are failing to beat theses benchmarks get somebody to have a closer look. This year has been a good year make sure you are participating in the good years!
Getting into the habit of gathering information on fund performances at this time of year and recording those details will be invaluable in years to come.
ü Take advantage before the clock strikes twelve.
New Year’s eve this year will see the end of film finance for the ordinary retail investor, unfortunately if you haven’t got in already I will say it is probably too late. But it is not too late to take advantage of some of the EII Schemes that are available. You will still get 41% relief if everything works out but you get it in two lots over 3 years instead of all upfront. If you pick the right scheme you also have the opportunity of growth on your investment.
If you are a company owner and the company year-end is the calendar year you should consider a company pension contribution before December 31st, January 1st is too late.
Whether you are an employee or are self-employed you still have until October/November 2015 to make personal pension contributions in respect of 2014.
ü Take Stock
Be sure to capture your net worth statement during your clean up, if you did this last year compare your savings and bank account balances between this year and last year, you could spot trends.
Maybe you should consider automating your savings on a more formal basis instead of letting it accumulate in your bank account. If you think you might get a pay rise in January you definitely need to consider automating savings before you get used to the extra money.
If you are worse off this year than you were last year then you should consider tracking your spending in the month of January and see if you could cut some things out.
Keeping an eye on where you are financially is proven to be beneficial to your finances, doing it with a professional financial planner is invaluable. In fact people who engage with a financial planner are said to have 2.5 times the net worth of those who don’t by the time they reach retirement.
ü Get into the habit
The first year you do this is the most difficult but just by doing it will make it more likely you will maintain better records throughout the year thus making it easier next year. These are your financial affairs take control of them. As our great assistant leader once said “fail to prepare, prepare to fail” Roy Keane, Saipan.