It may not feel like it but spring is here and this is an ideal time to spruce up your finances.
You might associate spring cleaning with reorganising your home, said Good Housekeeping, but put down the vacuum cleaner and open your filing system instead. “The benefits of having a financial admin declutter will last far longer than cleaning the house.”
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What’s more, said the financial website, with the UK economy facing multiple challenges such as high inflation, rising interest rates and a property market slump, “it’s never been more important to make sure your money’s working as hard as possible”.
Here is how to spring clean your finances.
Review your budget
Making and following a budget is the “bedrock of your financial health”, said Experian.
Now is a good time to review it and check if you are spending within your limits. Look for areas where you might be able to cut back – “such as by spending less at the grocery store, lowering your insurance rates or cancelling unused streaming subscriptions – to help you reach your financial goals faster”.
Many people are still paying off festive debts, while also putting a summer holiday on a credit card or overstretching to cover the rising cost of living, said Rest Less. “If you can clear your debts all in one go, great, if not, make a plan.”
Refine your financial goals
What are your reasons for putting money aside and have they changed? Are you saving for retirement? To buy a home? Whatever your goals are, said MoneyWeek, long or short term, it’s a good idea to be clear.
Once you know what your goals are, the financial website said, it’s time to re-evaluate your portfolio. If your goals have changed, do your investments or savings still make sense and could you be paying lower fees to invest?
Make sure your savings are earning as much as they can to stop rising living costs eating into their purchasing power, said Rest Less.
Chances are that they’re not if you’ve had the same ones for years, said Good Housekeeping, “so check and compare everyday savings accounts and cash ISAs, using comparison sites such as GoCompare and Moneyfacts”.
Saving money into a cash account is fine for the short term, the website added, “but to see real growth, you need to consider investing”.
Consider your current account
Banks are vying for business and are making current accounts more attractive, with some now paying reasonable interest rates and even cashback for new customers.
Check if your current account is right for your needs. If not, you can earn up to £200 by switching to a new bank, but make sure you meet the criteria before you apply.
Check your credit score
One of the best ways to help your finances is to boost your credit score. You can do this by ensuring you pay your bills on time and by keeping debt as low as you can.
Review your report for anything that looks unusual, said Experian, such as an account you don’t recognise. If you see something that doesn’t look right, you can dispute it with the credit bureau.
Use your tax allowances
There are changes to income tax, capital gains tax and dividend allowance from this tax year, said MoneyWeek, which could change how you manage your money.
The amount you can earn before paying capital gains tax on sales of assets such as a second home has fallen from £12,300 to £6,000 and will be reduced again next year to £3,000.
The tax-free allowance on dividends (payments made to a company’s shareholders) has also dropped from £2,000 to £1,000 and will be reduced again to £500 from April 2024.
HMRC is more helpful when it comes to letting savers and investors put up to £20,000 into an individual savings account (ISA) each year, where returns can be earned tax-free. You can use this in a cash ISA product to earn a fixed rate of interest or take more risk with potentially higher returns by investing in stocks and shares.
Similarly, up to £60,000 can now be put into a pension each year to set money aside for your retirement and you will also earn tax relief from the government to boost your contributions.
These allowances reset at the end of each tax year, said Reader’s Digest, “so make sure to put away all you can to take advantage”, while “if you have some savings, consider putting a small amount in your pension. You’ll thank yourself later.”
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