Use the Christmas period to get on top of your finances

For millions of households across the UK, this will be a festive season like no other. Some families have lost loved ones; many more will be unable to see each other as they normally do; seasonal gatherings with friends and colleagues will be conducted on Zoom.

It will be all but impossible to escape the shadow of the coronavirus pandemic this Christmas. But winter festivities also come against the backdrop of developments that could see vaccines made widely available over the coming months. The hope of a return to some form of normality in the first half of 2021 means that the holiday season may offer the chance of some useful breathing space before daily life picks up the pace again.

It’s also an opportunity to act on some of the changes that you may have considered making when the country first locked down back in March.

For many of us, the coming of lockdown was a trigger to work out how the crisis might impact our finances and to check on our financial resilience. But if spring was about taking stock and summer was a time to review priorities and perhaps rethink financial goals, what about winter and the festive season?

It might be a golden opportunity to refocus your finances where you want them before daily life becomes more frenetic again, says Melloney Underhill, Marketing Insights Manager at St. James’s Place Wealth Management. “There has been a heightened interest in thinking about finances, but it hasn’t necessarily fed through into action yet,” she explains. “People have taken a step back but there has been a sense of waiting to know what might happen before doing anything.”

But there is an urgency now to listen to that little voice on your shoulder and do the research you need, make the necessary calls or speak to an adviser, she adds. “With the end now in sight, we’d be doing ourselves an injustice if we didn’t do that important housekeeping and make those changes while we could.”

So, if the festive period represents some much-needed time and space before 2021 begins and soon runs away with us, how can you take advantage?

The first step is to address any gaps or issues that became evident during the year. That might be about building up your rainy-day fund (having three to six months’ worth of funds saved is advisable); setting a budget so you have greater control over your income and outgoings; or putting some form of protection insurance in place. Income protection plans, for instance, offer peace of mind by helping you cover outgoings such as mortgage repayments, rent and bills if you’re unable to work because of illness or an accident.

Any expensive debts that need repaying, such as credit cards and unsecured loans, should be a priority, even if it’s just reducing the amount outstanding.

Then you can look beyond the short term, says Tony Clark, Senior Propositions Manager at St. James’s Place Wealth Management: “We think a lot about what we save and how, but now is a good time to think about the purpose for the money and your objectives.”

Those goals could range from increasing pension and/or investment contributions to paying more off the mortgage and helping family members (with Christmas a good chance to pass some funds to those who could use a financial helping hand).

And if you have pension savings, can you confidently say how well they are working for you? “Even if you’re not in a position to access them, it’s useful to know where they are and how they are invested,” says Clark. “There’s been market volatility this year, so you need to ensure that your plans are appropriately invested to contribute to your goals.”

If you’re not taking advantage of your employer’s pension scheme, you’re missing out on both government tax relief and contributions from your employer. Starting or increasing your pension payments is perhaps the most tax-efficient way of boosting your long-term finances as we enter 2021.

For anyone within a decade or so of retirement it’s a good chance to get a handle on how your retirement plans are looking. The events of the past year may well necessitate a review of those plans, says Clark: “Are you rethinking when you retire or how you go about it? There may be worries around whether or not current retirement lifestyles are sustainable, so there’s a lot to discuss if you’re in the retirement phase.”

Similarly, the volatility of recent months will have affected the many pension pots that remain invested during retirement. If you’re taking an income from a drawdown arrangement, it’s vital to check that it’s a sustainable level of withdrawals and not eating into your pension savings too quickly.

Your plans, circumstances and priorities may have changed this year. Now is the time to make sure your finances reflect that, and to benefit from the insight that a professional financial adviser can offer.

Advisers can use strategies such as cashflow planning to either put a plan together for you or revise your existing one, mapping out how to get where you want to go. “If plans are changing, you should revisit your cashflow modelling with an adviser,” says Clark. “If the model you have now is based on information that’s a year old it may need a complete refresh.”

The idea of taking advice is something that people are increasingly open to, he adds. “The past few months have shaken so many people’s financial and life foundations. Taking advice is a very good way of dealing with the uncertainty and working out a way forward.”

The value of an investment with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief generally depends on individual circumstances.