January is a great time to implement new health and lifestyle habits. It also presents the perfect opportunity to make financial changes.

The cost of living crisis and the current UK recession have likely tightened your purse strings. With political changes at Number 10 and 11 – and with the end of the current tax year on the horizon – now is a great time to revisit your budget.

If you’re looking to start the year in the best financial shape, and maintain good financial habits through 2023 and beyond, keep reading. 

Here are three financial resolutions to make now.

1. Plan a monthly budget (to include wants, needs, and future savings) and stick to it

2022 saw high inflation, rising borrowing costs, and spiralling energy bills. With the UK on the brink of a recession, 2023 is also set to be financially challenging.

One way to stay on top of your household’s income and outgoings is through simple budgeting.

Consider using the “50/30/20 rule” throughout 2023.

Begin by making a list of your monthly income and expenditure. This will help you to better visualise the amount of money you have coming in, as well as identify areas where savings could be made. 

Once you are on top of the numbers, split your monthly income into three expenditure categories, assigning percentages as follows:

• 50% of your income should be spent on “needs”, including rent or a mortgage, household utility bills, and food
• 30% can be spent on “wants” like monthly meals, day trips or holidays
• 20% should be used to help secure your financial future, either through savings, pension contributions or investments.

To ensure that your future financial security remains a priority, even when times are hard, try to put the 20% for your future self aside first, and then budget with what remains.

2. Keep on top of your allowances throughout the year to avoid a last-minute rush in March

With three prime ministers, four chancellors, and countless policy U-turns during 2022, keeping on top of changing legislation has been tough.

Keeping track of your tax-efficient allowances, though, remains as important as ever. This is especially true with changes coming into force from the start of the new tax year. 

You’ll need to consider:

The Annual Allowance 

Your pension is incredibly tax-efficient so make the most of it in 2023. 

As a basic-rate taxpayer, the pension contributions you make are subject to 20% tax relief, effectively a top-up from the government. As a higher- or additional-rate taxpayer, you can claim even more.

Tax relief is available up to the Annual Allowance, which for 2022/23 stands at £40,000 (or 100% of your earnings, if lower.) 

Contributing up to the Annual Allowance will maximise the tax relief you receive. Also, consider making pension top-ups at the start of the new tax year. The sooner you contribute, the longer that money will have to benefit from investment growth and the effects of compounding.

Your ISA Allowance

ISAs are also highly tax-efficient, with no tax to pay on Cash ISA interest and Stocks and Shares ISA gains that are free of both Income Tax and Capital Gains Tax (CGT).

However, while unused pension allowance can be carried forward for up to three years, your ISA Allowance expires each year. If you don’t make full use of your ISA subscription before April 6, you will use it.

For the 2022/23 tax year, you can pay £20,000 across all the ISAs you hold. The limit for a Junior ISA is £9,000.

Imminent Dividend Tax changes

If you receive any of your income from dividends, you’ll need to factor in the changes announced during Jeremy Hunt’s autumn statement. 

The Dividend Allowance is the amount you can earn from dividends before becoming liable for Dividend Tax. For 2022/23, this stands at £2,000 but will fall in subsequent tax years so be sure to make full use of it now.

From April 2023 the Dividend Allowance will fall to £1,000, dropping further – to just £500 – in April 2024.

Staying on top of changes allowances throughout the year will help you maximise the tax efficiencies of the products you hold. 

3. Protect your loved ones by keeping your will up to date and revisiting your protection plans

Keeping your will up to date isn’t a monthly task, but it’s important to remember that life milestones can change your priorities. If you haven’t checked in on your will recently, the start of a new year is a great time to do it.

You might set yourself a reminder to check in every January, and after any family events like births, deaths, divorces, or marriages.

Another way that you can resolve to protect your loved ones this year is by revisiting your life cover and other protections. Make January the time when you check through your paperwork.

Have any term policies you hold expired? Has a change of job meant that you’ve lost vital benefits like death in service? Will your loved ones be looked after if the unexpected happens? Now is the perfect time to answer these vital questions.

Get in touch

If you would like help formulating your financial new year resolutions, or you want to discuss any element of your financial plans in the approach to tax year end, please email enquiries@futureplanningwm.co.uk or call 01793 575553.