The new year traditionally heralds new beginnings, so there’s no better time to revisit your personal financial plan. Making sure you have clear, achievable goals can improve your long-term financial position and protect you against unforeseen pressures.

So, where do you start?

1 Look at your current financial situation.

The best starting point is to get a really clear idea of your current position. The better you understand your current circumstances, the easier it will be to plan and budget for the future.

Working out your net worth or quantifying the value of your assets and liabilities can be challenging for anyone with more complex financial affairs, for example, if you’re a shareholder in a business or have a large investment portfolio.

If this is the case, you might need to speak to a financial adviser to be sure you have an accurate understanding of your finances.

2 Are your books in order?

Staying on top of your personal books is vital if you want to understand your finances, in the same way that it empowers a business owner to know how their business is performing. By keeping detailed, accurate and up-to-date financial information on file, you’ll find it easier to see where your money is going and what you should focus on in the future.

3 Set your goals for 2024

Once you know where you currently stand financially, you can start plotting out the year ahead. Establishing clear and achievable financial goals is crucial for guiding your efforts throughout the year.

Perhaps you want to pay off debt, invest in property, put money aside for your children’s education, your dream car or a fabulous holiday or simply to build up an emergency fund so you can sleep better at night. Whatever your ambitions, setting measurable, time-based objectives can make it easier for you to see how you’re progressing over time and to achieve your goals.

4 Your Personal Budget

A crucial piece of the goal-setting puzzle is a personal budget. Your budget should align with your current circumstances and financial goals. 

Think about:

• what you’re spending at the moment
• how much you’re earning 
• how much money you need to meet your goals

If you want everything to go to plan, you’ll need to create a realistic personal budget that gets you from where you are now to your end goal. Looking at historical information will help you understand how you usually spend money and identify areas where you can make changes.

5 Your Tax Strategy

Your tax strategy is an important part of your financial plan. By minimising your total liabilities, you’ll keep more of your hard-earned income to meet your personal goals.

In the short term, this could mean maximising reliefs on your self-assessment tax return or timing the sale of any property correctly to defer your capital gains tax payments. Speak to your accountant if you’re unsure here – they should be able to reassure you that this is already taken care of!

More long-term tax strategies could include setting up a trust to protect assets or an estate plan that helps you pass your wealth to the next generation.

Business owners

Entrepreneurs should consider the tax treatment of their business income. Historically, it was tax efficient to incorporate a business to boost your personal income, for example by paying yourself as a Director thorugh a comination of salary and dividends, but this is not necessarily always the case any longer. It can be beneficial to review the status of your business given the more recent rules around dividend tax and other changes to legislation. 

Important Questions:

1 Do you have an emergency fund?

Unforeseen circumstances can disrupt even the best-laid plans. An emergency fund acts as a financial safety net, and many people don’t have any reserves to fall back on.

The exact amount to save will depend on your circumstances, but a good rule of thumb is to aim to be able to cover three to six worth of your living expenses. Having this amount tucked away can save you a lot of stress should something untoward occur.

2 Do you have any outstanding debt?

If you have any outstanding debts, addressing them should be a priority. The longer you leave bills unpaid, the more interest you’ll accrue.

The usual advice is to pay existing debts based on their urgency and interest rates. If you have a lot of debt, it may be advisable to seek some external advice, where the various amounts and creditors can be looked at in detail.

3 Do you have enough income to achieve your goals?

A Personal Financial Plan isn’t just about scrimping and saving; it’s also about ensuring you have the income you need to achieve your short-term and long-term goals.

In some cases, it may help to think about ways to boost your income, such as looking at ways to grow your business or expand your investment portfolio.

Although no investment is entirely without risk, expanding your income streams can help you boost your personal wealth while safeguarding you against financial pitfalls.

Getting your Personal Financial Plan right

The best plans evolve as your circumstances and goals develop. Regularly reviewing your plan ensures it stays relevant and protects your finances as much as possible.

However, constantly adjusting your strategy can be time-consuming and difficult to get right. If you want to get the most out of your plan, think about getting support from external financial advisors.  

We often work with clients and their financial advisors to ensure any decisions they make together are tax efficient and highlight how the inevitable changed or new legislation might affect their plans. If you’d like our help with your plans, or in finding a financial advisor, please get in touch.