Many people are aware that they should be paying off their debts, saving more, or spending less, but actually taking control of your finances and making decisions, can be daunting.
2022 looks like it could be a financially challenging year for people. Rising inflation, increased bills and energy costs, coupled with possible interest rate rises will all put pressure on household finances. Now is a great time to commit to organising your financial affairs, and work out how you are going to pay for those increased repayments if they do happen.
WEALTH at work, a leading financial wellbeing and retirement specialist, has written a list of things that people can do to help them take control of their finances in 2022.
1. Create a budget – Work out exactly what your income is, and what liabilities you have e.g. mortgage, debt, childcare, insurance and utility bills. If the amount of money you need each month is more than the amount you have coming in, you can then work out what action you need to take to cover your costs. MoneyHelper has a great budget planner.
2. Review all your outgoings – It is important to check bank statements and make a list of what is being spent each month. It is also helpful to divide these into utility bills (gas, electricity and water), mortgage or rent costs, council tax, supermarket shopping, monthly contracts for TV, broadband and mobiles, insurance, regular subscriptions, and other spending. This will highlight where money is going and where savings could be made. Cancel any unused subscriptions, or unused memberships you have forgotten about. If you can’t afford them or don’t use them, now is the time to get rid of them.
3. Make managing debt a priority –. There are many different types of debt with varying rates of interest, and it is often a good idea to make paying off expensive debts a priority. Credit cards and overdrafts can have rates of 18 – 40%, with payday loans having rates of 1,500% and more! For example, a debt of £3,000 with a rate of 18% APR, could take 10 years and 10 months to pay off if paying £50 a month, with a total interest paid of £3,495. If that monthly payment was increased to £100 a month, the debt would be paid off in three years and four months, and interest paid would be only £908.
A good option could be to consolidate any debts into a 0% or low interest balance transfer card, as more money will go towards paying the debt off and enable you to clear it over a shorter time period.
4. Be a savvy shopper – By switching brands it might be possible for you to significantly reduce the price of your regular shop. In addition, by planning for your weekly shop in advance, it may help you to search for deals and reduce expenditure on non-essential items. Discount vouchers are often available through voucher and discount websites, and some people have access to discount vouchers through their employer. This could be crucial if you have to make a big purchase, such as if your washing machine breaks.
5. Check if you can save on your household bills – It is possible to make significant savings on a range of household bills such as car, home and pet insurance, and broadband and mobile suppliers. Price comparison websites can help to make it easy to compare the different deals available. Increases in wholesale energy costs mean fewer deals are available right now, so it may not be a good time to try to change utility suppliers, but there are still significant savings available on other bills.
6. Watch out for auto-renewals – Many insurance policies for cars, homes and travel, automatically renew each year but people may be paying more than they need to if they allow this to happen. To get the best deal and to avoid any potential price hikes with auto-renewals, make sure you find out when your contract is due to end, and put it in your diary for a few weeks earlier, so you have plenty of time to shop around and switch or haggle where appropriate.
7. Set up a savings Direct Debit – If your expensive debts are paid off, and you can afford to save, it is often a good idea to set up a direct debit for saving into an ISA, pension or company share scheme. Often this means that you don’t notice that the money is going into your savings.
8. Start saving early – Starting to save when you are younger means that the money has time to grow. ISAs are a great way to start saving, and mean you have access to your savings in the future should you need them. It is also important to make sure that you’re saving into your pension from early on. Many are already paying 5% of their salary into their workplace pension through auto-enrolment, with an additional 3% employer contribution. However we know that many employers match additional contributions (up to certain limits).In fact, if you are in your 20s, by saving an extra 1% a year with your employer matching this, it is possible to increase your pension pot in retirement by 25%.
9. Beware of scams – Scammers tend to sound completely legitimate when they contact you. It’s easy to see why so many people are fooled and it isn’t small amounts of money which are being taken. Action Fraud reported a doubling of the average amount lost by pension scam victims between January and May 2021 to almost £51,000 from around £23,689 in 2020. If someone contacts you with an offer which seems too good to be true, it’s vital to check whether the company is registered with the Financial Conduct Authority (FCA). You can also visit the FCA’s ScamSmart website which includes a warning list of companies operating without authorisation or running scams.
10. Take action – Don’t worry if you don’t know where to start as there is plenty of help available. It’s always worth speaking to lenders to see if they can help if you are struggling with repayments and Citizens Advice can help you understand how to deal with any debts. Many employers offer their staff help through financial education and guidance, so make sure you speak to them to find out what is available.
Jonathan Watts-Lay, Director, WEALTH at work, comments; “Most people would benefit from having a better understanding of money, but are confused where to start. Too many struggle to pay bills, or repay expensive debt. Often people have direct debits for products and services they no longer use, and policies often auto renew at much higher rates than the original deal.”
He adds; “If you are able to save, you need to understand what the best method is for your saving goals. For example, whether that be putting something aside for a new car, your first home or retirement. Now is a great time to commit to understanding what your financial situation really is, and taking action to make sure you are in control of your finances in 2022.”