Financial resolutions to keep you on track in 2021
However the pandemic has affected your finances, VICKY SHAW gets some expert advice to help us all
THE events of 2020 have impacted household finances in many ways. For many, their financial plans have been blown off course, or they’ve been pushed into debt due to lost income, or had to reconsider future retirement expectations.
On the other hand, many people may have managed to put some extra money aside while they’ve been forced to spend more time at home than usual and cut back on spending.
Whatever 2020 has meant for your finances, there may be some financial resolutions you can make to improve your situation.
We asked Maike Currie, an investment director of workplace investing at Fidelity International, for some expert tips...
RESOLUTIONS IF YOUR PENSION PLANS HAVE NOW CHANGED
ECONOMIC volatility means many people may have to work for longer and be retiring later than they had expected. This may mean you need to change your desired retirement age on your workplace pension.
Maike says: “If you are thinking about retiring later, because you’ve seen the volatile markets take a chunk of your pension, or you’ve possibly been furloughed or made redundant and you’re going to have to work for a few extra years to make up that shortfall, you have to adjust your retirement age.”
Explaining why it’s necessary to make sure your retirement age on your pension pot reflects your actual plans, she says: “As you near retirement age, the investments automatically get ‘de-risked’.”
Having your pension in riskier investments could mean stronger potential growth. But it could also mean more volatility – and if you’re getting close to retirement then less risky investments will give you more certainty.
Maike adds: “If you wanted to retire earlier and you still have a default retirement age there’s the opposite risk, that you could be in too many risky assets and that you could lose growth just at the point where you want to take your pension and to stabilise it.”
Whether you’re retiring earlier or later than expected, it’s a good idea to get your pensions paperwork in order. Maike says this could mean moving money from previous workplace pensions into one place, which could potentially bring costs down.
She also says pension savers should remember to stipulate who gets their pension in the event of the saver’s death by filling in an expression of wish form. “Often your pension is the most valuable benefit you can leave to your nearest and dearest,” she notes. Maike also suggests going digital with your pension and making sure you can log in online and via your provider’s app, in the same way that many people use their bank’s app to keep on top of their day-to-day finances.
With some pension providers allowing people to use their fingerprint to log into apps, you’ll literally have your retirement savings information at your fingertips.
RESOLUTIONS IF YOUR DAY-TO-DAY BUDGET HAS BEEN DAMAGED
MAIKE suggests having a “fall back fund” so you don’t need to dip into your longer-term savings. “Financial advisers typically advise to have between three and six months’ equivalent to your salary, put into an account,” says Maike.
“So if you have unexpected events, like illness or redundancy or the boiler breaking, you can dip into that and not into a stocks and shares Isa or (if you are aged over 55) your pension pot.”
RESOLUTIONS IF YOU’VE BEEN PUSHED INTO DEBT
GUIDANCE from the regulator means lenders should be supporting borrowers whose finances have been impacted by the pandemic. Further information about this is on the Financial Conduct Authority’s website (fca. org.uk), and you can also ask your lender what support is available. Maike adds: “Look at the interest you are paying on different debts and start with the ones with the highest interest.”
She says if you’re paying a high rate on a credit card, for example, you could look to transfer it to bring the cost of the debt down.
“Keep a check on your online purchases,” she adds. “While a lot of us are saving because we’re not spending on travelling, or on that daily coffee, we may be doing retail therapy via our phone and that’s something to keep check on.”
RESOLUTIONS IF YOU’VE MANAGED TO SAVE
FOR those in a position to do so, Maike suggests moving surplus cash savings into the stock market, but there are risks with this and while the returns could be higher you could also lose money.
Maike says: “If you are nervous about doing that because you see the stock market jumping around, drip feed your money in. You could set up a regular savings plan and put (a set amount) each month into a stocks and shares Isa.
“That means when markets are low, you buy more units, and when they are high you will buy less units, but over time it evens out.”