GET A GRIP ON YOUR FINANCES IN 2022
AS THE COST OF LIVING SOARS, MAKE SURE YOU’RE WELL PREPARED, SAYS HARVEY JONES
THE New Year is the ideal time to rethink your finances and resolve to manage your money better in future. This is particularly important in 2022 as the cost of living rages out of control.
The following tips will help you to take control and build financial resilience in the tough times ahead.
Return unwanted Christmas gifts
Only one in five of us returns unwanted Christmas presents to retailers, according to research from topcashback.co.uk.
If you have ended up with something you don’t want, see if the retailer will give you a credit note. Otherwise, try to re-gift it instead. Just make sure the person who originally gave you the gift doesn’t find out.
Topcashback’s Adam Bullock says re-gifting may feel stingy, but you’re saving money and helping the environment at the same time.
He says: “Hopefully, it means that unwanted gift may actually be used.”
If you have earned rewards, loyalty points or cashback on your Christmas shopping, cash them in – otherwise you may lose track, which is simply throwing money away.
Cut non-essential spending
Life is going to get a lot tougher in 2022 with inflation set to top 6%, so cut back wherever you can.
While a £3 meal deal might not sound much, if you do it five days a week, it adds up to £720 per year, according to onlinemoneyadvisor. co.uk. Make sandwiches instead. The same goes for takeaway coffees – invest in a travel cup and make your own.
Pay down debts
More than one in five of us took out credit to pay for Christmas, and 3.5 million reckon it will take them five months to pay it off, according to research by savings platform Raisin UK. Co-founder Kevin Mountford says prioritise paying back your debts in 2022, starting with the most expensive.
“If you manage to clear your debts, then start saving for next Christmas,” he advises.
Beware “buy now, pay later” credit
People are being encouraged to live beyond their means with nine in 10 saying they feel “encouraged” to follow an unaffordable lifestyle, according to a survey by Openmoney.
Head of advisor services Hayley Millhouse says the “alarming” rise in “buy now, pay later” (BNPL) schemes, risk leading more people into debt.
While they offer free credit on purchases, you face interest and charges if you don’t pay the money back in time, while missed payments will lower your credit score.
Hayley says the consequences can be devastating.
She urges: “Understand what these schemes entail.”
If in trouble, seek help
Anybody can end up with serious debt problems due to divorce, illness or redundancy. Shun debt management companies, which charge for their services, and get free, impartial help from charities instead, such as Stepchange, Citizens Advice or National Debtline.
Stepchange’s Sue Anderson says: “We can offer a supportive ear, help budgeting and set people back on the road to financial security.”
“If debt is keeping you awake, then visit Stepchange.org or call us on 0800 138 1111.”
Draw up a budget
Draw up a list of all your household income and spending. Then look for ways of increasing the former – and cutting the latter.
Emma Watson, of Rathbone Investment Management, recommends using an online banking app to track your spending and cut back where necessary.
Build a cash safety net
Ideally, everybody needs a “rainy day” fund for emergencies, such as car repairs, equivalent to three to six months of salary. Emma says: “While it’s not possible for everyone to save this much, a little here and there can build up over time.”
Drive down your motor insurance costs
Typically, insurers hike renewal costs by £47 on average.
Someone who hasn’t shopped around for 10 years could save almost £500 by switching, according to comparison site Confused.com. It says the average saving is just over £100.
Cut your tax bills
Tax bills are set to soar in 2022, so make sure you aren’t paying too much. Nearly 1.8 million married couples and those in civil partnerships can save up to £252 a year in tax by claiming the marriage allowance.
Couples are eligible if one partner earns less than the personal allowance of £12,570 and the other is a basic-rate taxpayer. They can backdate claims for up to four tax years, getting a maximum £1,220. Check your eligibility on Gov.uk.
If working from home, you might
be able to claim £6 a week tax relief through PAYE says Adrian Lowery, of investing platform Bestinvest. “Go to the working from home section of Gov.uk,” he says.
Use pension tax relief
When you save in a pension, the Government effectively gives you free money in the form of tax relief. If you’re a 20% taxpayer, every £100 you pay into a pension only costs you £80, and just £60 for a 40% taxpayer.
Maximise employer pension contributions
Under the auto-enrolment workplace pension scheme, employers must contribute a minimum 3% of your salary (and some pay more). Avoid opting out if at all possible as this is turning down free money, Adrian says.
Cancel anything you are not using or can really do without. Adrian Lowery of Bestinvest
Save a regular monthly sum
When saving or investing for the future, a direct debit is your best friend, Adrian says. “Set the payment up for the day after payday, and it’s gone before you know it’s there.”
Try to increase your monthly contribution, especially if you have had a pay rise. “However, if you have a credit card, overdraft or loan debt, pay that down first,” he adds.
Use the Help to Save scheme
If you’re entitled to Working Tax Credit or receive Universal Credit, the Government-backed Help to Save scheme offers a bonus of 50p
for every £1 you save for up to four years.
You can save between £1 and £50 a month by debit card, standing order or bank transfer. You will get bonuses after two and four years, depending on how much you save.
Put away the maximum £2,400 over four years and the bonus is £1,200.
Teach kids good money habits
Now is a good time to teach children about the value of money, says Salman Haqqi, of Money.co.uk.
“Showing them small activities, such as checking the receipt after your shop or putting money into savings, can develop positive habits from a young age,” he suggests.
Check all your subscriptions
The cost of streaming services, such as Netflix, Spotify, Amazon Prime and Disney Plus, can add up, and the money keeps coming out of your account even if you no longer use them.
The same goes for your gym subscription and plenty more. Adrian says: “Cancel anything you are not using or can really do without.”
Get the maximum state pension
You need to have made 35 years of qualifying National Insurance contributions to get the maximum state pension. Check where you stand by keying in your NI number at gov.uk/voluntary-nationalinsurance-contributions. If you have fallen short, it might be possible to make top-ups.
Those already retired should make sure they are receiving all the state pension they’re due.
If unsure, contact the Pension Service on 0800 731 7898 or visit Gov.uk
Save thousands on your mortgage
Switching to a cheaper mortgage deal could net you the biggest saving of all – especially as mortgage rates are now rising.
Online broker Trussle.com says its customers save on average £290 a month by remortgaging to a cheaper deal – which totals £3,480 a year.
Tread carefully if you’re locked into a fixed-rate mortgage as there may be penalties for switching. But Trussle’s Miles Robinson says 800,000 on a standard variable rate should be free to move on.
“SVRS can be incredibly expensive, with homeowners potentially paying hundreds of pounds in extra interest every month,” he says.
Consider talking to a broker to guide your decision.