How to tighten your belt in ’22
THE new year is here and everybody knows it is going to be a tough one, with the cost of living crisis set to add £1,200 to household bills.
It will be hard for pensioners with inflation expected to top 6% in the spring while the state pension will rise by just 3.1% in April.
You will need plenty of grit to get through this year and the following 12 new year resolutions might help...
1
Get budgeting
Put your finances on the right track by drawing up a list of all your household income and spending, says Emma Watson, head of financial planning at Rathbone Investment Management: “It may sound obvious, but a budget makes it easier to understand where your money is going so you can live within your means.”
2
Improve habits
Take a look at your spending to see if you have fallen into bad money habits, such as buying a coffee or lunch out every day, says Sarah Pennells, Royal London’s consumer finance specialist: “Reducing your spend by just £2 a day saves more than £700 a year.”
3
Be penny wise
Trawl through your bank accounts to see where your money goes and how to cut back on spending, including on subscriptions and streaming services. Make every penny count, says Topcashback director Adam Bullock: “Just one in five of us return unwanted Christmas gifts but if you have ended up with toiletries or candles you don’t want, grab the receipt and take them back.
“Aim to earn rewards, loyalty points and cashback on shopping. Remember to cash in points before you lose track.”
4
Work to rule
Peter Kimpton, personal finance expert at Family Money, suggests following the 50/30/20 rule, which divides your monthly income into three categories: 50% for essential outgoings such as rent, mortgage and bills; 30% for “wants” such as hobbies or subscriptions; and
20% for paying off debt, making investments or saving.
5
Get motoring
Motor insurers are now banned from charging existing customers higher premiums than new ones, but you may still be paying over the odds.
When your car insurance policy comes up for renewal, see if you can get it cheaper elsewhere. Switchers save £100 on average, but someone who has not shopped around for 10 years could save almost £500, according to Confused.com.
Kimpton also says hunt around for the cheapest petrol prices as savings of a few pence per litre can add up: “Take advantage of loyalty card schemes to collect points when filling up.”
6
Cut energy bills
The biggest financial shock this year will come from our gas and electricity bills, which could top £2,000 on average.
Alex Staker, head of commercial operations at energy comparison site Bionic, says go all out to cut your usage.
Avoid heating unused rooms, turn down your thermostat by one degree, switch off appliances rather than leaving them on standby, and turn off lights when leaving the room, he suggests.
“Draught-proofing doors and windows is effective,” Staker adds.
7
Pay down debts
More than one in five Brits took out credit to pay for Christmas, and 3.5million reckon it will take them five months to pay it off, according to savings platform Raisin UK. Co-founder Kevin Mountford says: “Prioritise paying back your debts in 2022, starting with the most expensive such as credit cards, store cards and overdrafts.”
Consider switching credit card debt balance transfer card interest-free credit introductory period.
If struggling, seek free advice from StepChange, Citizens Advice or National Debtline. unpaid to a offering for an
8 Remortgage
If you have a mortgage, switching to a cheaper deal could save you thousands as interest rates rise.
Online broker Trussle.com says its customers save on average £290 a month by remortgaging, which totals £3,480 a year.
9
Build safety net
Create a pot of rainy day savings to help you cope with life’s nasty surprises. “Keep it on easy access,” Mountford says.
10
Plan spending
One in 10 Brits have already started saving for Christmas 2022, while nearly twothirds have already started saving for holidays and birthdays.
11
Soaring inflation will destroy cash savings this year, so you may have to invest in the stock market, says Rob Burgeman, investment manager at Brewin Dolphin.
“This will give your money a chance of maintaining value over the medium to long term.”
Burgeman suggests using your annual tax-efficient stocks and shares Isa allowance, or investing in a pension and claiming tax relief.
Invest taxwise
The cost of living crisis is set to add £1,200 to household bills this year
12
Max out pension
Make sure you are getting the maximum state pension, as underpayments are common. If unsure, contact the Pension Service on 0800 731 7898 or visit gov.uk.