How to banish old habits and give your finances a fresh start in 2016

January has become the month when many of us detox. We give up alcohol for a while, start a diet and make promises to be better people in the new year. With all those new leaves being turned over, it makes sense to detox your finances at the same time.

Here are five ways to improve your money habits in 2016.

1. Rebalance your portfolio

Whether you've had great success with your investments or picked up a couple of 'dogs', the chances are your portfolio is looking a little unbalanced. Take the time in January to reassess your investments. Does your asset allocation still reflect your risk profile or has one strongly performing investment pushed everything out of kilter?

If things are out of balance then you may need to sell a little of the investments that have performed really well to bring your exposure back down to the right level.

2. Don't forget your tax breaks

While you are taking a look at your finances be sure to check you are making the most of your tax allowances. Have you used up your £15,240 annual ISA allowance? Are there any unused inheritance tax gifts you want to make? And have you used your pension allowances?

'Making the most of your pension contributions is particularly important this year,' says Rob Burgeman, Investment Manager at Brewin Dolphin. From this April, the amount high earners can pay into their pension each year and still get tax relief will start to fall. The annual allowance for people earning between £150,000 and £210,000 will gradually fall from £40,000 to £10,000. So make the most of your allowances while you still have them.

3. Be less emotional

If you are looking for a New Year's resolution for your finances, consider making a pledge to be less emotional. 'We are all guilty of looking at our portfolio with rose-tinted spectacles,' says Burgeman. 'But you need to try and divorce yourself from being too personal about it. Try to look at it as if it wasn't yours.' This will allow you to take a step back and analyse where you may have gone wrong and what you need to do to minimise any mistakes.

'One of the great aims of value investing is to take emotions out of the equations - principally fear and greed - that can negatively influence our decisions,' says Andrew Lyddon, a fund manager at Schroders. This is where a wealth manager can really earn their keep as they are far more capable of remaining impartial when assessing your portfolio.

4. Don't obsess over market ups and downs

Taking the time to detox your finances in January is great, but don't get caught up watching them too closely. You could end up worrying far too much about volatility and missing out on returns as you constantly buy and sell.

'We would urge anyone who owns equities with the genuine aim of an inflation-beating total return over the long term and who wants to get the best out of these, to keep their discipline and only check on their portfolio when they really need to,' says Lyddon.

5. Let the dogs out

When you are taking a look at your portfolio, assess whether there are any investments you need to let go of. 'If an investment is worth less than you paid for it don't fall into the trap of thinking 'OK, I'll wait for it to come good',' says Burgeman. 'The fact is, sometimes investments don't recover.

'You need to consider whether you are making the best use of your money. While you leave it in an investment and wait for it to get back to what you paid for it, that money could have been working harder elsewhere.'

The value of investments can fall and you may get back less than you invested.

Any tax allowances or thresholds mentioned are based on personal circumstances and current legislation which is subject to change.

Brewin Dolphin Holdings plc issued this content on 26 January 2016 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 01 February 2016 16:08:07 UTC

Original Document: https://www.brewin.co.uk/insight/financial-planning/five-ways-to-detox-your-finances