April is always an important money month and this year is no different, as a bunch of government-mandated changes come into effect. These include changes to income tax and the National Living Wage:
- Income tax thresholds will rise from £12,500 to £12,570 and the higher rate threshold from £50,000 to £50,270
- The National Living Wage will rise 2.2% to £8.91 an hour and will be expanded to start at the age of 23 instead of 25
The new tax year began on the 6th April (if you’re wondering why the 6th – it’s a wacky story and you can find it here) and it provides an opportunity to set some resolutions for your money. New year, new you and all that – here are 5 financial actions to take right now.
1. Build your assets: use the ISA reset
There are two ways to make money:
- Earn it by working for it
- Earn it through saving or investing in stocks, bonds, funds or other financial instruments
Given that the long-term average annual return of the stock market is about 8% and current interest rates on savings are 0.1%, investing in the stock market is a great way for the average person to build wealth.
This is where a ‘stocks and shares ISA’ (might) come in. You get a new ISA allowance at the start of the new tax year and the ISA is a superb way for UK residents to save (cash ISA) or invest (S&S ISA) up to a total £20,000 (the 2021/22 allowance) tax-efficiently.
You can open a Cash ISA and/or an Investment ISA and split your allowance between them. If you don’t use the whole allowance up, you can’t carry it over to the next year.
2. Pay off your debt
You can’t build solid financial foundations on sand. Debt makes building wealth much more difficult and it is also expensive, especially if you are carrying a lot of consumer debt in the form of high-interest credit card debt, payday loans or even overdrafts.
If you want to change your financial picture and gain more financial opportunities, you need to do two things as quickly as feasible:
- Pay off any debt you have as quickly as possible
- Reduce your dependence on debt – budgeting can help here
3. Start a financial plan: Create a budget
The first step in reducing your dependence on debt is to know where your money is going each month and to have a plan for where it ought to go.
A financial plan is essential for taking control of your finances and that often starts with a budget.
A budget is your best tool to change your financial future and it need not be complicated or time-consuming – you just need to know how much is going out, how much is coming in and reduce the former while maximising the latter.
Check out our Master Your Money pathway!
4. Spend less: revisit your subscriptions
You can probably reduce your monthly spending without drastically altering your lifestyle. In the first instance, by choosing different providers for the things you need to spend money on.
There are deals to be had on utilities, there are many options for groceries and when it comes to subscriptions – from the gym to your music – there may be a myriad of seemingly cheap apps that are fast building up to real money.
Another obvious way of reducing your spending is by addressing the big three:
- Takeaways
- Deliveries
- Alcohol
These three, especially when made quick and convenient through technology, can make that pay whittle away faster than you could imagine.
A quick money hack is to get into the habit of a single ‘no-spend’ day once a week. Much like the concept of intermittent fasting, this is a challenge to become more conscious of spending by being an occasional minimalist.
5. Earn more: identify opportunities for extra cash
We’ve talked a lot about cutting how much we spend, but even more powerful is increasing how much is coming in.
A quick win could perhaps be found by tapping into your existing employee benefits package. There may be health insurance, bike schemes, and a range of other benefits that are there for the taking.
Another avenue might be maxing out your allowances (for example your pension) which will add more to your long-term savings while potentially lowering your tax burden.
Then there are short-term income boosts you can get from turning your trash into cash by selling stuff you don’t use, as well as longer-term side hustles or monetising any hobbies and skills.
Finally, a longer and potentially greater commitment is working towards a salary increase. Look for learning experiences that translate into earning opportunities and you’ll be well on your way to developing your most important asset: you.
Further reading:
- Top 10 Money Tips – Discover how you can break bad spending habits and create new good money habits, including how to manage money effectively, know where your money is going, create a budget, and pay yourself first.
- The Budget Decision Tree – A step-by-step decision tree to help to examine your income and expenses and put a plan in place to balance them – or ideally have more income than expenses!