How well did you do with your finances this year?

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whole year in financial review As 2020 rapidly approaches, it’s worth spending the time to think about how this year has gone for you financially.

Reviewing your finances at least once a year allows you to stay on top of what's working for you and, more importantly, what's not. You can then take the lessons you've learnt to make the next 12 months your most successful year yet. Not sure where to start? We'll show you how to review your finances and make changes to reach your goals in 2020.

Your starting point - net worth

Firstly - you need to look back at what your finances were like on January 1st 2019, then compare to where you are today. This may seem daunting but will give you an accurate overview and put you in a stronger position to make better informed financial decisions.

If you’re part of the 99% of people who don’t know this information off the top of your head, time to log into your online banking, or pull out your old statements. You’ll need to write down everything you owned and everything you owed - both on January 1st 2019, and today. We’ve put together a template to help you write it all out.

Write out the balance of your bank account, savings accounts, investment accounts, pension pots, and the value of key possessions like your house or car. You could use a site like that will give you a rough estimate of the current and past valuation for your property.

Next, list out everything and everyone you owe money to - mortgage, overdraft, credit cards, and friends or family.

If you’re using our template, it will tell you what the difference is - if not, you’ll need to subtract everything you owe from everything you own, which gives you your net worth. Compare what you were worth at the start of the year, to what you are worth now. Hopefully, that number has gone up - either because you paid down debt, or because you’ve added to your savings and investments.

Review each part of your finances

Once you’ve got this overview, it’s worth looking at how your savings, pension and any investments are performing, and whether debt repayments are on track.

Review the performance of each account individually - savings, investments or pension. This is because each type of product has different features and restrictions that will affect performance. For instance, investments carry a higher risk and larger potential gains than savings accounts, so could fall in value one year but rise higher the next, so take this into account when reviewing how your finances are performing.

Your Savings accounts

Fixed rate savings products use a set rate so you know how much interest you should have received over the course of the year, making it easier to see how your savings have performed. Other savings accounts are variable which means the rate may have gone up or down over the year.

In either case, take a look at your statements over the last year, and see what your actual interest rate (sometimes called an AER or annual expected return) is.

Ask yourself a couple of questions like; "Are there better rates available?" or "Could I get better rewards elsewehere?"

If you think you could get more out of your savings elsewhere then consider switching your savings account.

Remember, banks and building societies usually benefit from people sticking with them out of habit, so if you aren't getting what you want from them, take action.

Your Pensions

Unless you opted-out, you would have been auto-enrolled into a company pension. These are usually 'defined contribution' (DC) schemes where the pension you eventually receive is based on how much you and your employer have paid in.

Pension funds work by investing in a range of companies, assets, and markets in different geographical, industry or risk sectors such as; emerging markets, mining companies or technology investments.

  • When doing a check of your pensions, you want to look at a few things - which should be provided in annual updates from your pension provider.
  • What funds is your pension investing in?
  • What is the return from those funds?
  • What are the fees charged by your pension provider?
  • Are you on track to reach your retirement goals?

If you don’t know the answer to any of these, spend a bit of time reviewing the updates your pension provider sends, or get in touch with them. If you’re unhappy with the performance of your pension, you could change funds, but remember that pensions are a long-term investment, so they may fall in value one year but rise higher over longer time periods. If you think you’re not going to have the retirement you want, consider increasing your pension contributions (even just by an extra 1%).

Your investments

As most investors know, investments can go up or down. Short-term changes are not always a problem, because your investments should be aiming for longer-term goals where you have time to weather the changes before you reap any benefits.

As part of this year-end reflection, check how your investments (whether cash, property or shares) have performed this year. If you have a particular proportion of asset types that you are trying to stick to (e.g. 60% shares, 40% bonds and cash), then check to see if you need to rebalance your portfolio to stay within this. Look at financial advice if you are unsure.

If you can make a habit of reviewing your investments at the end of the year then it can provide a helpful annual comparison which will inform your future investment decisions.

Your debt and credit repayments

Debts form part of our overall finances and repayments should be reviewed to see if you can save money. Find out what interest (APR) you are paying and take a look around the market to see if the interest rate you're being charged is still competitive. If you have a mortgage rate change coming up - look around at different options, and make sure you can afford repayments moving forward. On the other hand, you might be wanting to pay off your mortgage sooner - so consider if you can overpay a lump sum if you have a fixed rate that is ending soon.

If you have a personal loan, it's worth checking whether you can switch providers to save you money on your monthly repayments. It's a bit like switching energy providers to one that can offer you a better deal.

Your tax efficiency

The end of the tax year isn't until April, so now is a great time to check if you're making the best use of the various allowances available to reduce the tax you pay.

You can earn up to £12,500 in the 2019/20 tax year before income tax is due and you can pay up to £20,000 each year into one or a combination of a cash and investment ISA, tax-free.

The maximum annual pension contribution is £40,000 and the lifetime limit is currently £1m. You receive tax relief on contributions - meaning you essentially get free money from the government when you contribute.

If you are selling shares or property remember to use your Capital Gains Tax allowance.

How do you compare to others?

We often just want reassurance that we’re in the same boat as others when it comes to our finances. It’s such a taboo subject, that it’s hard to know what’s ‘normal’. Finding out your Financial Health Score gives a good overview of your money behaviour and situation, and you can compare to others of a similar age, gender and location.

Moving forward

Congratulations - you’ve now got a great overview of how things went for you in 2019. The final step is to think about what goals you want to set for 2020. If there was anything that came out of this review, then make sure that you schedlule time to take action and make these changes happen. These may include; finding a cheaper mortgage deal, switching to a better savings account rate or tax-efficient products, adjusting pension contributions or changing your investments.

Our articles cover a wide range of mainstream financial products and employee benefits. Terms and conditions of each product may vary depending on your provider. Please ensure you check the specific terms and conditions of any financial products and employee benefits available to you from your employer.