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10 steps to a positive financial reset

Give yourself a financial check-up. Try 10 straightforward steps to boost your financial wellbeing – including how you can detox your portfolio – from expert investment commentator Jason Hollands and personal finance analyst Alice Haine. Investments carry risk, you may get back less than invested. Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change.

Published on 12 Jan 20249 minute read

Written by Jason HollandsContributors: Alice Haine

The journey towards financial wellness is a timeless New Year’s resolution. but a positive financial reset is possible at any time of year if you have the discipline to follow it through. The key is to make sure your strategies are realistic and achievable. If you’re stuck on ideas, here are 10 steps to a positive financial reset to guide you through.

Step 1 – File your tax return online by 31 January

Few people enjoy filling out forms, not least lengthy ones for the HMRC, so it’s human nature to leave completing an annual tax return until the 11th hour. The good news is that returns can be submitted online until 31 January.

If you miss this deadline you will face a fine, starting at £100 for being just one day late, with further penalties if you delay by more than 3 months. So, for many people this will be one of the most immediate priorities.

And we recommend you don’t leave it until the very last day, because potentially more challenging than the fine is the fact that if you owe any tax, you will need to pay it immediately at a time when your bank account may have limited funds available.

Step – Detox your existing portfolio before investing further in an ISA or pension

It’s important to periodically stand back and review your investments. You should take time to consider what you’re trying to achieve, whether you have the right mix and if your approach needs to change.

One of the biggest mistakes many DIY investors make is to choose their investments on an ad hoc basis each year when they’re contemplating adding to their ISAs and pensions at tax-year end.

It's easy to dive in without first considering how these new investments might fit alongside your existing portfolio.

Go deeper – understand 3 advantages of managed investment portfolios often overlooked by DIY investors.

3 key steps to detox your existing portfolio

  1. Think about your goals, attitude to risk and expected time horizon – your circumstances may have changed since you last did this. As time goes by, long-term growth investors will gradually become medium-term ones, which may require a change of approach and reduction in risk, or perhaps they will start to appreciate taking some income. Thinking about your goals and time horizon will help determine how much of your investments you should consider allocating to more volatile, long-term asset classes with higher return potential such as equities versus bonds and cash, and potentially other areas like gold, infrastructure or property. But remember, the potential for higher returns also comes with the higher risk of losing money. Those with very short-term horizons should focus on cash savings rather than investments. 
  2. Consider your asset allocation – this means deciding how much of your investment pot should be divided across different types of investments, as well as geographies and industry sectors. Reviewing your current asset allocation may reveal that your portfolio needs to be rebalanced to reduce over-exposure and address weak spots. This process can help you avoid the risk of ploughing more cash into areas where you are already too heavily exposed. Bestinvest account holders can see a breakdown of their asset allocation across their holdings when logged in.
  3. Review each of your individual investments – see whether they deserve to remain in your portfolio or switched elsewhere. This could be because they are poor performers, also known as ’dog funds‘, have unreasonably high fees or no longer fit with your overall approach and goals.

When embarking on a portfolio health check, consider whether you’re confident enough to do it yourself, or whether it might be the time to get some professional advice or guidance. You can discuss your investment approach by booking a meeting with a member of our coaching team

Step 3 – Consider consolidating your investments for greater control

One of the things that can frustrate an investor’s ability to effectively manage and review their investments, is when they’re scattered in different accounts. This is especially true of pensions, because people can end up accumulating several pots as they change jobs during their working lives and build up a collection of workplace plans.

These days, however, the ISAs and Self-Invested Personal Pensions offered by platforms like Bestinvest provide an incredible amount of choice of investments from different fund providers within a single account. Consolidating your investments might enable you to have greater control over your investment strategy, without sacrificing choice or limiting your options. 

When considering a pension transfer, it’s important to do your homework by checking the investment options available and whether you need the wider choice offered by a SIPP as a new arrangement may be more expensive, especially if you have a stakeholder pension. You should also look at the charges and ask if you will lose any valuable benefits or features or incur penalties. If you have an occupational final salary pension scheme it’s very unlikely that it’s best to transfer, and advice must be sought.

Step 4 – Maximise your ISA allowance and increase your tax-efficiency

With the UK tax burden already at a post-war high and the potential for a change of government later this year, sheltering as much of your savings and investments tax-efficiently is incredibly important to protect your hard-earned wealth.

While pensions offer the greatest tax benefits, ISAs are both tax efficient and provide considerable flexibility as you can withdraw your money at any time without a potential tax hit on the way out. Returns on savings and investments held in ISAs are tax free.

Adults can subscribe up to a chunky £20,000 each in an ISA before midnight on 5 April, whether in cash savings or investments. Annual ISA allowances are provided on a ‘use it or lose it’ basis that disappear if you don’t take advantage of them. Even if you’re unsure of where to invest or whether it is a good time to do so, don’t let this put you off as it’s possible to initially fund an ISA with cash and then invest it later. And if you change your mind, there are no restrictions on when you can withdraw your money from an adult ISA.

In addition, up to £9,000 can also be put into a Junior ISA for children every year. However, unlike adult ISAs, money cannot be withdrawn until they are at least 18-years old.

Step 5 – Beat the April tax hikes with a Bed & ISA or Bed & SIPP

From 6th April, the amount of gains that can be realised tax-free each year will be halved to just £3,000 and the amount of dividend income that can be received tax-free will be slashed to £500. If you own investments or savings outside of tax-free accounts such as ISAs and pensions, consider using these to improve your efficiency, if you are not able to fully utilise your current annual allowance with cash.

This is a process known as ‘Bed and ISA’ (or ‘Bed and SIPP’) which in the case of investments involves selling your shares or funds and using the proceeds to fund an ISA contribution. In doing so, take care not to exceed your current year capital gains exemption of £6,000.

The whole Bed and ISA process can take a few days, so it is unwise to leave this too close to the tax-year-end deadline. This is therefore one to consider sooner rather than later.   

Step 6 – Build a rainy-day pot for emergencies

It’s important to have a back-up savings plan to cover unexpected expenses when you consider the many curveballs life can throw at you. Bestinvest research suggests savers aim to keep 6 to 12 months of their regular expenses in an emergency cash fund. But it’s important not to stash too much cash as savers are now being hit with tax charges on their interest and over the long-term the real value of cash will be eroded by inflation.

Go deeper – learn more about investing your cash 

Step 7 – Have you paid enough National Insurance (NI)?

Those likely to have significant gaps in their NI record include women that took time out to raise a family or care for elderly relations, as well as low earners or expatriates living and working abroad. The deadline to fill any NI shortfalls was extended until April 5, 2025. While this sounds like a long time to plug any shortfall, the HMRC is already grappling with lengthy delays.

The danger of gaps in your NI record is that you don’t accrue enough qualifying years to receive a full state pension – Britons need at least 10 years of NI contributions to receive anything at all and at least 35 years to receive the full new state pension.

Step 8 – Check your tax code

Millions of tax codes are wrong every year and it’s your responsibility, not your employer’s or the HMRC’s, to check it. You may be overpaying or underpaying. Checking your code could see you receive a generous rebate.

Step 9 – Create a budget using the 50-30-20 rule

Setting a budget is the best way to understand the state of your finances and ensure you can cover your expenses, savings, investments and luxuries. The 50-30-20 budgeting method can help you meet your financial obligations. It’s a technique that involves dividing your after-tax income into three dedicated categories:

  • 50% on ‘needs’ such as bills, school fees and groceries
  • 30% on ‘wants’ such as holidays. a new car and home renovations – this portion is ideal for investors to allocate to their investments
  • 20% for savings and debt repayments

Go deeper – see our Budget Bootcamp.

Step 10 – Book a financial review and get a money makeover

When was the last time you got an expert’s perspective? We offer free investment coaching, where our qualified financial planners can help with your investment goals and how you might achieve them. We also offer personalised investment recommendations via two low-cost packages that can help you build and maintain your portfolio, from just £295 including VAT.

Book your free coaching

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