5 tips for financial fitness in 2021

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1. Set up an ISA and start investing

Holidays were cancelled, commuting costs vanished and the daily Pret run was no more. If you’re one of the lucky ones that walked away from 2020 with more money in your pocket, then make sure you put it to good use. Cash interest rates are lower than ever right now – so make 2021 the year you become an investor.

It might sound scary, but it doesn’t have to be. Get over the idea that investing means hours of swotting up on the stock market. You can often set up a Stocks & Shares ISA for as little as £1 - handy if money is feelinng tight this year.

Good options for beginners are Wealthify and Moneybox, both of which support beginners with under £100 and have a range of investment ‘ready meals’ that contain a good mix of sensible shares and investments, blended together for you by a professional.

The next step is to make investing a habit. Set up a direct debit to save into your ISA each month. Do it on payday, so it’s gone before you’re tempted to spend it. Even if it’s only a tenner, it’s a start.

Still need convincing? Just think of ISAs like a savings account which is quarantined from tax - any growth or profit is yours alone. And although the market will inevitably have ups and downs, over any 10 year period since markets began, shares have done better than cash 9 times out of 10.

Take a look at our ISA Best Buys comparison table to see 1000s of customer ratings and our expert opinion to help you pick the best provider for your needs.

 

2. Get to know your pensions properly

Have a workplace pension? Then you’re already an investor!

We now pay 5% of our salary into our pensions – and employers top it up by another 3%. That’s £3,200 a year on a £40k salary, so it’s worth knowing where that money’s being put and whether it’s working hard enough for you.

If you’re still in the first half of your career, you can afford to be in slightly higher risk investments that will likely grow more over time. If you’re towards the end of your career, you might want to be in something a little more safe and boring.

Either way, it’s YOUR money! So speak to HR and make sure you’re happy it’s being invested wisely.

You can opt out of the workplace pension – but if at all possible, try not to. The Government incentivises us all to save for our retirement with additional tax breaks on our pension contributions. It’s effectively free money – an extra £20 for every £80 you save – so don’t turn it down!

Look into or Vanguard for a low-cost starter portfolio, or PensionBee if you have lots of pensions you want to consolidate into one.

If you have a personal pension too – or are planning to start one this year – and you’re not sure how it stacks up against others (particularly in terms of the fees you’re charged), take a look at our new Pensions Best Buys comparison table.

 

3. Save the world!

OK – perhaps a bit of an overstatement. But you absolutely do have the power to shape the future with your investments today. Changing how your pension is invested could make more impact than cutting out plastic, eating less meat or recycling.

According to Morningstar, a little over £10bn was put into sustainable funds in the UK in 2019, compared with more than £16bn by the end of November 2020. Boring Money research repeatedly bears out this trend towards sustainable investing, with surveys showing people increasingly refute the old adage that you must sacrifice performance for sustainable investment choices.

Don’t like the idea that polar bears are running out of ice? Or that the value of your ISA might be affected by arms contracts? Then opt for funds that either don’t invest in oil, fags, weapons and other 'nasties', or actively invest in alternatives.

Most of the big investing guns now offer specific socially responsible investment options. Charles Stanley Direct and Interactive Investor rate well with Boring Money readers, as do Nutmeg and PensionBee if you’re after a simpler, ready-meal version.

Check out our full list of Best Buys for sustainable investors for more info.

 

4. Ditch the Debt

It’s all well and good talking about investing – but if you have expensive debt like credit cards and short-term loans, then you should clear these first. (NB: long-term things like student loans and mortgages generally don’t fall into this category!)

Be super strict about paying off credit card debt, as the interest on it soon adds up. Set up a direct debit so you don’t miss any payments. If paying it all off is impossible, look for 0% interest cards, where you pay no interest for a set period of time. Sainsbury’s Bank or Virgin Money are currently offering interest-free periods for up to 19 or 20 months – but shop around to find the best deal for you.

 

5. Embrace disloyalty

As good citizens, we’re taught that it pays to be loyal. But that’s not the case when it comes to utility bills, insurance and other such annual contracts. In these instances, it quite literally pays to switch.

Although certain sectors have plans in place to end dual pricing (where new customers get a better deal than current customers), they won’t kick in for a while. So make sure you scout around for the best deals on your gas, electricity, phone and broadband, insurances and more. This is especially important if the introductory deal you were enticed in with is now coming to an end, as you may default to a more expensive ‘standard rate’.

Earlier this year, energy company Bulb found Brits could be paying £250 more for their energy than they need as a result of this ‘loyalty tax’. Ouch!

Look into bill comparison and auto-switching services like LookAfterMyBills.com to make this easier.

 

Still confused as to where to start? Or eager to find out what else you can do to while you’re in the resolutions groove? Take our Financial Fitness Quiz to get your very own fitness plan for 2021.

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