Whether you are looking to buy your first home, or saving for retirement, 2018 is the year to sort out your finances and ensure you’re doing what’s best for you! Here are three new year’s resolutions everyone should make.
⇒ Start saving into a pension or an ISA
If you are yet to start saving and investing, the beginning of a new year is a great excuse to open a pension or an ISA. If you are saving for your first home, a lifetime ISA is ideal. It would be a huge mistake not to save into one, as you essentially receive free money from the government. Click here to learn more about lifetime ISAs.
If you would like to save for retirement, you should start a private pension. There are many advantages to saving into a pension, and the earlier you do so, the better. It is often said that the age you start saving into a pension, half your age and save that percentage of your pre-tax income each year until retirement. If you have not started a pension yet, you need to make sure you do so as soon as possible, otherwise you will have to save a very large proportion of your income when you eventually do.
⇒ Increase your pension contributions
If you are already saving into a pension, then it would be a good idea to increase your contributions so that you have more money when you retire. By saving more, you will be more financially secure later in life.
If you are 25 years old with an annual salary of £40,000, by saving an extra 2 per cent of your pre-tax income each year, you will have an extra £110,000 in your pension pot if you retire at 65. If used to buy an annuity, this can provide an additional income of about £5,000 per year. These figures assume your salary increases by 2 per cent each year, and investments grow by 4 per cent each year.
You might be wondering how you can afford to save an extra 2 per cent each year. Fortunately, it’s much easier than you think.
Firstly, as it is 2 per cent of your pre-tax income, this will include contributions from the government (tax relief) and your employer. Therefore, the extra amount that you have to take from your wages to save is actually less than 2 per cent.
If you are receiving a pay rise, you can use some of it to contribute to your pension. This way you will have more money to spend today, as well as saving more for retirement.
Finally, if you can cut costs and reduce your spending, it will be easier to put away 2 per cent of your income. Being smart about your money today will mean you can have more to spend tomorrow. Cutting costs may even tie in with other new year’s resolutions, for example by quitting smoking you would save a lot of money, as well as becoming much healthier.
⇒ Start earning money on the side
There are many different ways you can earn extra money at home, which is a great way to supplement your income. This would be especially beneficial to university students.
Methods include buying and selling items on eBay, or starting a blog or YouTube channel.
Money that you do earn can be spent to pay off debts, as well as saving some of it into a lifetime ISA for example, or putting it towards a pension.
If you would like to read more about sorting out your finances, “The Total Money Makeover“ by Dave Ramsey provides excellent advice on how to get out of debt, pay off your mortgage, and ensure you reach your financial goals!