Take the financial de-tox - sort out your investments

After the excesses of Christmas, most of us want to shed a few pounds but not from our finances. Overspending on credit cards, a cooling property market, higher interest rates on mortgages and the credit crunch, have left many people facing a New Year financial hangover. January is the ideal time to detox your finances. Squirrelling a few pounds away each month is always a good idea, but financial well-being involves a good look at your tax, investment portfolio, pension and debt as well as general savings.

"Everyone should sort out their finances at least once a year and the New Year is a perfect opportunity to do so," says Malcolm Cuthbert, Managing Director, Financial Planning Division at Killik & Co. "Many people overspend at Christmas and, daunted by credit card bills, put financial planning on the back burner. This shouldn't be the case," adds Cuthbert:

"We urge investors to also look at their savings and make sure they are maximising their existing tax relief whether it's investments within an ISA / PEP wrapper, their pension pot and retirement planning, or even looking at the new CGT and inheritance tax legislation likely to come in next year."

Keep an eye on your spending

Don't turn a blind eye to debt. Keep a close eye on spending and don't bury your bank statements at the back of the drawer. Ignored bills can quickly mount up - if you find yourself getting into difficulty then arrange to pay monthly so you can budget more cleverly and spread the cost.

If you are repaying existing credit card debts, ensure you destroy the cards and close the accounts - otherwise if you keep the cards in your purse or wallet you may be tempted to use them in a moment of weakness.

If you find that your financial problems are more severe, then you should seek free confidential advice from organisations who can help you. Also, talk to your bank sooner rather than later. Banks are fully signed up to the enforceable responsible lending practices in the Banking Code.

Banks want to lend money but they want to do it the right way by lending to people who are going to be able to make the repayments. So, if your bank turns down your request for a loan then think hard before you go and borrow elsewhere

Save for a rainy day

Saving money can seem little more than a pipe dream for those feeling the financial pinch, but even putting a nominal amount aside each month is a positive step to a fresh financial start to the year. Small changes such as ensuring you utilise your annual tax-free allowance or by making monthly contributions to a regular saving account, can help to boost your finances.

Do your homework before opening savings accounts; some have attractive headline rates, hiding restrictions that can cut down on the interest earned on your savings.

Which is the best savings account for you? Let Moneyextra guide you to the right choice with our comparison service.

Make the most of ISAs

Use your full tax-free allowance every year by making sure you and your partner both contribute £7,000 to take advantage of the ISA allowance for the current tax year, before 6 April 2008. Over a period of just over 25 years, assuming a compound return of 7% p.a. (not outrageously unachievable with stock market investment) and assuming a contribution rate of £14,000 pa (£7,000 each), this could grow to in excess of £1 million in a tax-advantaged wrapper.

Check out the latest deals in stocks and shares ISAs.

Scrutinise your pension

Now is the time to really get to the bottom of your pension policy. Take a close look at how your pension fund has performed and what charges are being levied for managing your money. If the results are not up to scratch, then consider transferring poorly performing pension funds with high charges to another provider.

Do you need unbiased independent financial advice? Why not give us a call?

Boost your pension pot

According to stockbroker, Killik & Co, higher rate taxpayers over the age of 50 can boost their pensions by a massive 114% - with virtually no investment risk. For example, a 50 year old who puts a net £7,800 into his pension will receive £2,200 tax relief immediately, making the contribution worth £10,000. They may then claim back a further £1,800 through their tax return, so £6,000 net results in £10,000 in their pension. They can then take 25% tax-free cash (or £2,500), reducing their net cash contribution to £3,500 for £7,500 in their pension pot. Of course, this is slightly more complex to achieve than it first appears - if you're interested then you should consult your independent financial adviser.

03 January 2008 © Moneyextra.com

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