Some of the most effective financial planning strategies are the easiest to implement. In this article we look at five simple ways to improve your finances.

Maximise ISA opportunities

One of the best ways to improve the performance of your investment portfolio is to make sure that it is as tax efficient as possible.  Making use of the Individual Savings Account (ISA) allowances each year is an excellent way of doing this.

When taking a longer term view, ISAs represent an excellent opportunity to build up a substantial, tax-efficient portfolio. The key is not to be put off by short term market fluctuations. ISAs are one of the few tax-efficient wrappers left, although you should be aware that they are not strictly tax-free any more.

Since 6th April 2004 it has not been possible for ISA managers to reclaim the 10% tax credit on dividends from UK equities. What this does is negate the income tax benefits of ISAs for lower or basic rate taxpayers.

There are still a number of advantages:

• Higher rate taxpayers do not need to pay the balance between basic and higher rate tax on dividends.
• All gains within ISAs are free from Capital Gains Tax.  Switches can be made without worrying about CGT.
• All income received from fixed interest holdings is tax free.
• Personal administration is kept to a minimum as you will not need to declare any income or gains on your tax return.

The annual allowance is now £10,200 p.a. per person and is set to rise by an inflationary amount going forward.

Improve the rate of return on your cash

You should make sure that you are getting a decent return on your savings. Whereas many current accounts pay a negligible amount of interest, good savings accounts can pay well in excess of Bank of England Base Rates.

It is not practical to always be chopping and changing savings accounts but you should make sure that the interest rate is at an acceptable level. With this in mind, be careful with accounts that pay a very attractive introductory interest rate and then systematically cut this. With these accounts, banks are relying on saver apathy to keep the business.

Taking an example of £100,000 in a 1% interest  savings account, if this were moved to a savings account paying 3% interest per annum, this would represent additional interest of £2,000 each year before tax.

This may seem like a very simplistic financial planning strategy but the truth is that far too many people throw money away by not managing their cash effectively.

Following on from this, £3,000 of interest before tax would equal £1,800 after tax for a 40% taxpayer and £2,400 after tax for a 20% taxpayer. A nil taxpayer should complete a R85 form to enable them to receive the interest gross.

In many cases, one partner will be a higher rate taxpayer and one partner a nil taxpayer. Therefore, on the example of £100,000 attracting 3% p.a. interest, moving the savings into the nil taxpayer’s name could represent the difference between having £1,800 in your pocket and £3,000.

Many couples hold their savings in joint accounts but remember that interest on these will be taxed as if 50% is one partner’s and 50% the other’s. This is therefore not always tax-efficient.

The above therefore represents another way of vastly improving your net return without having to take any additional investment risk at all.

Make pension contributions more tax-efficiently

First and foremost, get your sums right. Work out what your total income is now, and where it might be in the coming years. If your total income is under £43,875 for the 2010/11 tax year, you will be a basic rate taxpayer.

If you think your income will always be under the higher rate threshold, you should still take advantage of any pension schemes through work, but over and above that, you should consider whether there are any benefits in tying your money up for the long term, getting basic rate tax relief at outset but then paying tax on the income in retirement.

If, on the other hand, you think that your income will rise above the higher rate threshold, you may wish to consider delaying further contributions until you can get 40% tax relief. Getting 40% tax relief at outset and then only paying basic rate tax on the income in retirement is an altogether more appealing proposition. Bear in mind that there are no guarantees that 40% tax relief will still be available in the future.

From April 2010, income between £100,000 and £112,900 is effectively taxed at 60%. This is because you lose the Personal Allowance at a rate of £1 for every £2 of income over £100,000. An easy way not to pay 60% tax is to make a pension contribution. If you are in this category or think you will be soon, it's best to start planning now.

If you are not classed as a High Income Individual but may be in the coming years, try to take advantage of 40% tax relief on pension contributions while you still can.

Join your employer’s Save As You Earn Scheme

Offering employees share option schemes is an increasingly popular way of giving workers a stake in the companies they work for. Many large firms will offer SAYE or "Sharesave" schemes. These allow employees to save between £5 and £250 per month for three, five or seven years. Employees also get a tax-free bonus if they complete the savings plan.

Employers grant employees an option at outset. At the end of the period, employees choose either to use the money saved, plus the bonus and interest, to buy shares, if buying the shares would generate a profit, or have their contributions returned plus interest, if this would give the higher return. SAYE schemes offer huge upside potential with very minimal risk.

Essentially, if the share price falls during the period, you will still get your savings back plus a tax-free bonus so the only "risk" is the fact that you could have received a slightly higher return through a conventional savings account.

Look after the pounds, not the pennies

Personal finance needn't be complicated and most people could improve their financial position significantly just by implementing a handful of simple ideas such as those suggested above.

However, none of us should lose sight of the fact that there is more to life than money. According to HMRC, 620 people in the UK filed their tax returns online on Christmas Day last year – 224 accountants and 396 individuals.

The end result of taking more control of your finances should be that you have more free time and money for the interesting things in life such as family and holidays.

Whilst it is important to make positive changes, we all have to draw a line somewhere.  We would suggest that you shouldn't be too concerned about having the absolute best interest rate on your savings or the lowest possible interest rate on your mortgage.  As long as the rates are good, that should be enough.  Frankly, you have better things to do with your life than trying to chase the few extra decimals of return.

A more satisfying approach would be to look after the pounds by getting the important decisions right and not waste time and energy worrying about the pennies.