With the new tax year having begun on 6th April, being prepared for the year ahead with changes coming in can help you get the most out of your personal finances in 2021. With the amount you can earn before paying any income tax increasing to £12,750 from £12,500 last year, this is one of many positive changes that consumers can benefit from. With everything from savings, pensions and personal lending affected, here are some of the ways to best prepare your finances.
Review Your Finances
It’s always a good idea to review what you currently have and look at ways to maximise this. If you haven’t done so for a while, going through your full income and outgoings to determine a full picture of your financial health is a good place to start. If you have the disposable income, you will then know exactly how much you have to put towards repayments for lending products such as a payday loan, personal loan or credit card when you need them. It will also ensure you are not left with a negative amount each month causing a strain on your finances. If some of your outgoings seem high, look at opportunities to reduce them and ease this so that you can have more money to put towards your savings.
Maximise Your ISA and Pension Contributions
Having an ISA ensures your savings are free from income tax, capital gains tax and dividend tax, so opening one if you haven’t already is a smart move. The £20,000 allowance is unchanged for the 2021/22 tax year, so if you have money in a regular savings account that you want to grow, consider moving this to an ISA if you don’t plan to use the funds straightaway. With your pension contributions, these can similarly enjoy the freedom of no capital gains, dividend, or inheritance tax, so maximising your contributions where possible is recommended. The tax-free amount you can pay into your personal pension is unchanged this year at £40,000.
Set Financial Goals for the Year Ahead
Knowing what you want to achieve for the year ahead can help shape where your money goes, so if it is just to save more or you have a purchase such as a property in mind, setting clear goals will help. Whilst putting your money into savings accounts that work for you and maximise your pension can help grow your money, you’ll want to ensure you can access some of your savings easily when you need them. Some accounts may have a restriction on withdrawals, so you will need to consider this when choosing a product to move your money to. Most importantly when setting financial goals, make them realistic as then they are more likely to be maintained and achieved by the end of the year.
Seek Financial Advice
As your finances can quickly become complex, seeking financial support and advice will help you along the way. As there are many tax exemptions and benefits available, knowing how to make full use of them to maximise your finances is key. If any of the available allowances seem difficult to understand or you are not sure where to start, a financial advisor can help you do so and whilst still being affordable. Free advice is also available through online resources including The Money Advice Service and Citizens Advice to help you along the way.
Understanding the various allowances for your personal finances that are available this financial year will help you make the most of your money. The above should hopefully give you a starting point for a healthy financial year and to begin the next one in stronger shape.