Make some money resolutions

Turn over a new leaf in 2006 as Nicky Burridge investigates the financial resolutions that should help everyone have a happy and prosperous New Year.

New Year's resolutions are as much a part of the Christmas break as trees and turkey, but while most people start January with good intentions, promises to do better often quickly fall by the wayside. An estimated nine million people started 2005 with a resolution, with good intentions ranging from shedding a few pounds to saving a few hundred.

Unsurprisingly, giving up smoking came near the top of the list of changes people hoped to make during the year, with more than one in five people who made a New Year's resolution hoping to kick the habit, while 17% promised themselves they would lose weight.

But the most common resolution of all was to become better with money, with around 3.5 million people planning to improve their finances during 2005. However, research carried out by IFA Promotion, a group which supports the work of independent financial advisers (IFAs), found that most people had trouble sticking to their good intentions. In fact 43% admitted they had already broken their New Year's resolution within the first month of the year, while more than half started 2005 with the same resolution they tried to keep the previous year.

Part of the problem is likely to be that while many people want to improve the way they manage money, they don't really know how they should go about doing it or what areas they should tackle first. So, to help you keep at least one of your resolutions for longer than it takes to eat up all the left over turkey, chief executive of IFA Promotion David Elms has drawn up a check list of what your financial New Year's resolutions should be.

Mr Elms says the first and most important thing people should do regarding their finances this year is review their pension arrangements ahead of April 6, dubbed 'A Day', when wide-ranging new regulations come into force.

The new rules will affect everything, ranging from how much you can pay into a pension each year, to what you can invest your pension in. After April you will be able to hold your retirement savings in investments as diverse as buy-to-let properties, classic cars and fine art. Mr Elms says: "Chances are the changes will affect you and you may be better off if you take action before hand."

To find out more about the new rules visit www.takepensionaction.co.uk and download a simplified guide or call 0800 085 3250. Secondly, Mr. Elms advises you to ensure you have enough insurance cover in place to protect you if you were unable to work due to a long-term illness or injury, as well as making sure your family would be provided for if you died. Recent research carried out for Yorkshire Building Society showed that more than three-quarters of people with dependants had failed to take out sufficient insurance to cover their income if they were unable to work, with most only having life insurance to cover their mortgage if they died.

"Remember that your financial and general circumstances may well have changed significantly since you last reviewed your retirement provision."

The start of a new year is a good time to review the financial products you hold, and third on Mr Elms' checklist is to take a look at your long-term savings. He suggests you sit down and think about both whether your money is still in the right place and earning the best returns, as well as whether you are still saving the right amount.

He says: "Whether your retirement is years off or just around the corner, there's still time to boost your income potential. The simple mantra is the sooner the better. Consider whether you could cut other unnecessary spending to enhance your long-term savings and whether the money you have already built up is working as hard as it could for you."

"Remember that your financial and general circumstances may well have changed significantly since you last reviewed your retirement provision."

Number four on the list is to complete your self-assessment tax form. Everyone who is a higher rate taxpayer has to complete one of the forms and they must be correctly filled in and with HM Revenue & Customs by January 31 to avoid costly penalty fines.

Next, Mr Elms recommends that those who still have a mortgage should check they have a competitive deal. Bradford & Bingley estimates that someone with a £100,000 mortgage who was on an uncompetitive standard variable mortgage rate could save £1,800 a year by switching to a market-leading fixed rate or tracker deal. Even though people in their 50s are likely to have smaller mortgages than average there are still big savings to be made if you are stuck on an uncompetitive rate. For the best rates available log on to financial information website www.moneyfacts.co.uk, but remember to check if you will have to pay a redemption penalty for cashing in your current mortgage early, and to factor in any arrangement fees you will have to pay when working out how much money you could save.

Sixth on people's list of financial priorities should be to make sure they are making the most of pensions tax relief. Mr Elms advises readers to consider boosting their pension contributions before the end of the tax year to benefit from generous tax relief, under which any money paid into a pension scheme is not taxed.

You should also ensure you have made full use of your capital gains allowance for the year, before the start of the new tax year on April 5. Everyone has a capital gains allowance of £8,500 for the 2005/2006 tax year, with any capital gains made above this threshold taxed at the same rate at which you pay income tax, unless the money you make pushes you into a higher income tax bracket.

In eighth place Mr Elms urges you to ensure they have an up-to-date will. He says: "Still two-thirds of UK adults don't have one, but it's the only way to be sure your loved ones don't miss out on their inheritance, and to limit the tax paid on your estate."

Number nine on your list should be to save more money tax free by using up your annual ISA allowance. You can save either £7,000 each tax year into a maxi ISA, or £3,000 into a cash mini ISA and £4,000 into an equity mini ISA. At the same time those who are non-taxpayers or whose spouse is a non-taxpayer should make sure they have filled in an R85 form at their bank or building society so that any interest paid on their savings in paid gross.

Finally, Mr Elms suggests you should concentrate on paying off any credit card debt you may have accumulated in the run up to Christmas, or during the course of the previous year.

He says: "Last year, it took the average earner 40 full days' pay to clear off just the interest on their credit card and loan debt. Bring your personal Debt Freedom Day closer by switching to a cheaper credit card deal and paying off more of your balance."

Mr Elms recommends you visit an IFA to help you identify what your own financial priorities should be and to help you keep your New Year's resolutions on track. He says: "It is very encouraging to see so many people starting the year with resolutions - especially financial. However, it can be easy to let these good intentions fall by the wayside.

"An IFA could encourage you to persevere with your resolutions and improve your finances."

You can find your local IFA by logging on to www.unbiased.co.uk and clicking on Find an IFA, or by calling 0800 085 3250.

David Elms' Top 10 Financial Resolutions:

1. Look at your pension arrangements ahead of April 6 when wide-ranging new rules come in.
2. Ensure you have enough insurance cover to protect your family if you die or are unable to work.
3. Review your savings.
4. Complete your selfassessment tax form.
5. Review your mortgage.
6. Take advantage of pension tax relief.
7. Make the most of your annual capital gains tax allowance.
8. Write a will.
9. Use up your ISA allowance.
10. Pay off your credit card debt.