Back to school: five ways to get your finances in shape

Most parents or guardians should have finished their summer holiday, checked if the kids require new uniform or stationery, and got everything ready for them as the new school term gets underway. But what about your own needs?

Now is an ideal time to check your finances and get everything in order, so the entire family is focused and ready to prosper in more than ways than one.

Here are five things to consider:

1. Increase ISA or pension contributions

It’s common to wait until the start of a new year to reassess your finances – but that’s not always a good time to do it. Money can be tight in January, so you might feel as if your finances are stretched and you’re not in the right frame of mind to think about boosting your investments.

A better time to review your finances is when the kids go back to school after the summer holiday. That way, the whole household will be thinking fresh about the opportunities ahead.

Your child starting reception class, moving from primary to secondary school, getting ready to do GSCE or A Level exams – these are all major milestones. Get in the groove and think about your own life goals at the same time.

You should be thinking about finances on a periodic basis. You’ll be thankful down the line for having put away as much as possible over the years, so try and increase your contributions where possible, even if it is only by a small amount.

A lot of people get over the first hurdle of setting up a regular investment but they don’t adjust the contribution level as life goes on. Every time you get a payrise or circumstances change in your life to allow for more disposable income, think about squirrelling a little bit more away into your ISA or pension.

2. Invest any dividend cash lying idle in your ISA or pension

Many companies and funds pay regular dividends in cash to investors. Bonds also pay out money on a regular basis, known as coupons. This cash goes directly into your investment account and will build up each time you receive a payment unless you proactively do something with it.

Have a look in your ISA or pension and see if there is any income from your investments gathering dust. Some people might want to withdraw that cash to help pay bills if their account permits it. Others might benefit from investing the money in the markets.

An alternative route is to set up automatic dividend reinvestment for certain shares, investment trusts and ETFs. Any new dividend payments will be used to automatically buy shares in the same investment for a low fee.

If you invest in funds, certain investments have an ‘Inc’ and an ‘Acc’ version – the ‘Inc’ stands for ‘Income’ and pays out dividends as cash whereas the ‘Acc’ or ‘Accumulation’ version of the fund will automatically reinvest that money.

Read about the differences between Accumulation and Income funds

3. Set up a watchlist

If you’re not ready to invest or perhaps want to keep an eye on a few things before committing, set up a free watchlist that’s linked to your account.

Some people use watchlists to build a wish list of investments to research further and another list to keep track of certain stocks or funds in hope of them being available at a desired price in the future.

You can create up to 10 watchlists and track up to 50 investments per watchlist. Once you decide to make an investment, you simply hit the ‘Deal’ button on the watchlist to buy it.

4. Review regular investments

Individuals who have set up a regular investment will each month deploy a pre-agreed amount of cash or buy a specific number of shares without having to lift a finger. Using AJ Bell’s regular investment service, these individuals have automated their investing activities so they can get on with life. It’s a great way to regularly put money to work in the markets with little effort.

While this approach has a lot of benefits, it is important to revisit your investment choices from time to time. With the children going back to school, why not use the peace and quite to make a cuppa and have a look through any regular investments you’ve got set up. Check that you’re still happy with the choices. If not, it might be time to look at your watchlist and switch into something else.

5. Rebalance your portfolio

Just as with cooking, it’s important to get the right balance of ingredients when building an investment portfolio. Too much of one thing can affect the taste and potentially leave you over-exposed to something high risk or assets that might not deliver the returns you desire.

Many people create a plan when they build their portfolio, but a lot forget to revisit that original plan later on. You might find a few investments have done very well and others have a lagged, leaving your weightings out of synch with your original plan.

It’s a bit like making a cake with too many eggs and not enough flour. You need both ingredients to create something delicious but get the balance wrong and you could get indigestion.

Rebalancing can involve selling some of the investments that have done well and buying more of the ones that have lagged.

For example, you might have originally planned to have 80% of your money in shares and 20% in bonds. A year later, the shares component might have risen to 90% of your assets and bonds fallen to 10%, simply because of market movements. To get back on track with your original plan, you could reduce the share exposure and increase the amount of bonds in the portfolio.