5 effective financial new year resolutions both you and your clients should follow this year

With a new year just around the corner, it’s a perfect time to start thinking about goals, ambitions, and resolutions you’re going to make for 2023.

While workout routines and new skills are often the most common choices, financial resolutions should also be near the top of the list. After all, 2022 has been a tricky year for managing your money, so why not put your best foot forwards for 2023?

This is true for both you as a business owner and your clients – however you manage your money, you can always find ways to improve!

So, read on for five financial new year resolutions to help you and your clients make your money streamlined and efficient for 2023.

1. Create a new budget – and stick to it!

The first step to take to help you better manage your money in the new year is to review your existing budget, or even create a brand-new one.

You or your clients may already have a budget in place. Yet even so, that budget might have become outdated as circumstances have changed dramatically over the course of the year. So, even if you already have a budget, take this opportunity to update it.

To create or update a budget, you simply need to list all your income, whether that’s a salary, from your business, or taken from a pension or investments.

Then, work out your typical expenditures, including food and bills, mortgage repayments, and even smaller, regular outgoings such as gym memberships and your monthly restaurant spend.

From here, you can subtract your outgoings from your income, showing you:

• Exactly how much you spend each month
• Where your money goes
• How much you can afford to save
• Any areas where you may be able to cut back.

The key to a successful budget is sticking to it once you’ve made it. It’s all too easy to let financial resolutions slide as the year goes on, so it’s crucial to keep it front and centre – you and your clients will reap the rewards if you can stick to yours.

It can also be true that amid the turmoil of 2022, you could be forgiven for straying from your budget by not fully spending the funds you have allocated.

If you are reigning in spending during the weaker investment years, you could find it challenging to spend more in the profitable years. This can balloon Inheritance Tax (IHT) liabilities. Instead of viewing your budget as simply spending money, it can also be used to make gifts to your next generation.

Stockpiling assets or cash without adherence to a financial plan can be a costly exercise in terms of IHT, and also forgoes opportunities to spend or see your beneficiaries enjoy the funds sooner.

2. Pay yourself first

As you’ve seen, sticking to a budget can be tricky. That’s why it can be useful to “pay yourself first” when you receive your income.

Rather than taking the approach of spending your money and then saving what’s left, this way round instead involves saving first to prevent you from overspending. Doing so means you have to prioritise setting money aside, while simultaneously forcing you to cut back your expenditure as you’ll have less money available.

As a result, it can be a very helpful technique to use if you want to save more in 2023. Your future self will thank you!

3. Review your investment portfolio

The economy and the stock market have been remarkably volatile throughout 2022, making it difficult to effectively manage your investment portfolio. Fortunately, the new year presents a perfect opportunity for you and your clients to review your investments and check that they’re still fit for purpose.

Investments are often central to achieving your future goals, as they seek to generate the returns that will support your ambitions. As a result, making sure that they’re still set to do what you need them to is a valuable use of your time.

One fascinating issue that a year of such difficult economic circumstances can lead to is “loss aversion”. Loss aversion is defined as “a cognitive bias where the pain of losing looms larger than the idea of winning”.

As fear of losing overrides the pleasure you might feel from winning, it often leads to individuals making decisions that avoid losses at all costs. This can cause your portfolio to stagnate, as you ultimately stop looking to generate the returns you need to help you reach your goals.

In addition, before clients make a “dive to cash” or de-risk their investment portfolio in the aftermath of market falls, consideration should be given to the long-term knock-on effects of this.

Deftly timing your buy-in and cash-out from investments (even government stocks have seen significant volatility) is complicated. Some have trouble in going “back into the water” and can therefore miss market recovery, investing at a peak, and undermining their portfolio value.

So, if you and your clients aren’t already working with a financial planner, 2023 could be the right time to do so. By working with a planner, you and your clients will have a professional to hand who can design you a portfolio that’s balanced in terms of meeting your goals and your attitude to risk.

Crucially, you can also have the reassurance that an expert is reviewing your portfolio, keeping an eye on your money throughout the new year and beyond.

4. Check for gaps in protection cover

While no one wants to think about bad things happening to them and their family, it’s prudent to protect against such eventualities. That’s why it’s sensible to consider any gaps in protection cover that you or your clients may have.

Would you be able to support your lifestyle if you were to fall ill? How would your clients’ families cope if they were to suddenly lose their income through illness or worse?

This is especially a concern for adults between 25 and 44. According to research from insurance company LV=, 45% of adults in this age group are not confident they’d be able to financially cope if they became ill.

You may fall into this category, and it’s highly possible that at least a few of your clients do.

Types of protection you and your clients may want to consider could include:

• Life insurance
• Income protection
• Critical illness cover

Having protection like this in place can offer you or your clients valuable peace of mind that you’ll be protected, even in the worst of circumstances.

5. Make the most of allowances and exemptions early

2023 is going to be a significant year financially, largely down to some notable changes made by new chancellor Jeremy Hunt during his autumn statement in November.

Some of the most important revisions that could affect you and your clients in the new year when they come into effect on 6 April 2023 could include the:

• Lowering of the additional-rate tax band threshold from £150,000 to £125,140, increasing the chances of you or your clients having to pay 45% Income Tax
• Reduction of the Capital Gains Tax (CGT) exempt amount from £12,300 to £6,000
• Cutting of the Dividend Tax Allowance from £2,000 to £1,000, a decision that could significantly affect business owners.

With these changes set to come into effect from April 2023, it might be a sensible option to make the most of the tax allowances and exemptions available ahead of this.

Some of those that you and your clients may want to consider making the most of might include:

• Pension Annual Allowance – standing at £40,000 or 100% of your earnings, the pension Annual Allowance is the maximum amount you can contribute to your pension in a single tax year without incurring a tax charge.
• ISA Allowance – save or invest up to £20,000, with any interest or investment returns entirely free from Income Tax or CGT.
• Capital Gains Tax (CGT) exempt amount – allows you to take up to £12,300 in gains on investments before CGT is due. With the exempt amount set to reduce in April 2023, it may well be worth liquidating assets now to make the most of the higher exemption.
• Dividend Allowance – earn up to £2,000 in dividend income before Dividend Tax is due. With this allowance also being reduced from April 2023, it may be sensible to make the most of it now.

April 2023 may seem far away right now, but it will soon creep up on you. So, both you and your clients could benefit from making the most of these allowances and exemptions long before the deadline – or at least having a plan of how you will use them throughout the remainder of the year.

Get in touch

Whether you’d like help preparing your finances for 2023, or you’d like to work with a trustworthy financial planner who you can recommend clients to, we can help at WKM Wealth.

Email info@wkmwealth.co.uk or call 0116 403 0138 to get in touch today.

Please note

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.