Four steps to reviewing your finances

06 April 2023

4 minute read

Reviewing your finances regularly is essential if you want to stay on track to meet your financial objectives. Here are four key steps to help.

The value of investments can fall as well as rise and you could get back less than you invest. If you’re not sure about investing, seek independent advice.

What you’ll learn:

  • How to check the performance of your savings and investments
  • Why it’s important to rebalance your portfolio
  • How much you can pay into your pension and get tax relief.

Making sure your finances are in the best possible shape this New Year can help ensure you stay on track to meet your personal goals.

All investment carries a risk of loss, so here’s our step-by-step guide to reviewing your finances to hopefully help to mitigate it. From monitoring how your investments are performing to making the most of your annual tax allowances.

Step one: Check how your savings and investments are performing

A good starting point is to go through all your annual statements so you can establish exactly how your savings and investments are doing.

If, for example, you have cash savings languishing in an account paying little or no interest, you may want to consider moving these to an account paying more competitive returns.

Bear in mind that if any of your investments currently aren’t performing in line with your expectations, you should think about whether the reasons you chose those investments still hold true. For example, a fund’s underperformance could be down to the fact that the manager’s particular style is currently out of favour, so you may be comfortable sticking with your choice for now. Focusing on the long-term is important to ensure you aren’t tempted to sell at the wrong time.

If, however, a fund has consistently underperformed relative to its peers and you aren’t confident that things will improve going forward, you might decide to cut your losses and switch.

Smart Investor’s Compare tool and Research Centre offer a number of investment research tools that can help you check performance, as well as the latest news and market data.

Step two: See if your portfolio needs rebalancing

If you find a particular investment has significantly outperformed the others in your portfolio, you may find you now have a larger chunk of your portfolio invested in this than is appropriate for a balanced portfolio.

For example, you might originally have held a certain percentage of your portfolio in shares, but if they’ve done particularly well, this percentage may have grown. You may, in this scenario, want to readjust your portfolio to ensure it’s balanced, and that you’re comfortable with your asset allocation.

This should help ensure your investments remain in line with your attitude to risk so that hopefully you’ll have a chance of remaining on target to meet your objectives.

Step three: Make the most of annual allowances

There are plenty of tax allowances to make the most of in 2023. For example, everyone can earn some income each year without paying tax, known as their personal allowance. This stands at 2023-24.

There’s also the Personal Savings Allowance (PSA), which enables savers to receive a certain amount of savings interest income each year tax-free. If you’re a basic-rate taxpayer, you’re entitled to a £1,000 allowance, while higher rate taxpayers receive a £500 allowance. If you’re an additional rate taxpayer, you’re not entitled to a PSA.

You also have a dividend allowance for investments, which means any dividends received up to £1,000 are tax-free. However, any dividends above this amount will be charged at 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers, and 39.35% for additional rate taxpayers. Remember that some types of investments pay an income which is considered to be ‘interest’ rather than a ‘dividend’ payment, and therefore makes up part of your savings allowance instead.

In the current tax year, you can also shelter up to £20,000 in the 2023-24 tax year.

These rules could change in the future, and their effects on you will depend on your own circumstances.

Learn more about how ISAs work

Step four: Find out if your retirement savings are on track

When reviewing your finances, it can be easy to forget about how your pensions are doing. Dig out your latest annual statement or contact your pension provider to see if your savings are on track to provide you with the sort of income you’ll need to support the type of lifestyle you want when you retire.

If you think you need to be putting away a bit more, and have some spare cash available, consider making additional contributions. Most people can receive tax relief on up to £60,000 of pension contributions each year, or 100% of your earnings, whichever is lower. This is known as your annual allowance, and it includes all contributions you make into any pension plans, such as a company pension scheme and payments that an employer, or anyone else, makes for your benefit. However, for every £2 you earn over £260,000, this annual allowance is reduced by £1 – all the way down to a minimum of £4,000.

Remember, you can’t usually draw benefits from a pension until you are aged 55, rising to 57 by 2028. And that tax rules can change and how they affect you will depend on your personal circumstances.

Find out more about pension allowances in our guide to key tax rates, limits and allowances

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The value of investments can fall as well as rise. You may get back less than you invest. Tax rules can change and their effects on you will depend on your individual circumstances.

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