With inflation rising, interest rates low, and tax hikes on the way in April, millions will face financial struggles in 2022.
Here are eight ways you can lessen the effects of the UK’s cost of living crisis this year.
1. Revisit your budget
Cashflow modelling is an important part of financial planning. At Fingerprint, we have tools that allow us to track your potential wealth from now to retirement, but the same concepts can be used to track your monthly expenditure.
Keep a spreadsheet of your monthly incomings and outgoings to work out how much disposable income you have, and where future savings can be made.
As the cost of living crisis bites, you might find you can easily give up the lockdown food and drink subscriptions or the streaming service that’s gone unused since you returned to the office.
2. Check your tax code is correct
While you are making a note of your incomings, be sure to check your most recent payslip to ensure you are on the correct tax code. This is especially important if you have recently changed job.
With finances about to be squeezed, finding out that you are on an incorrect, or emergency code, could increase your incomings at a crucial time or lead to a one-off refund.
3. Review your savings
Inflation reached 5.5% in January while the Bank of England (BoE) base rate limped to 0.5%. If you have cash savings, you’ll need to check that you’re not holding too much in a low interest account.
With savings rates low currently, the growth in your savings will be unable to keep pace with inflation. Your fund will effectively be losing value in real terms.
Check that you have enough held in cash for an emergency. We would usually recommend between three to six months of household expenditure. If you currently have more than that put aside, think about where your money could be working harder for you.
4. Consider investing
Investing your money comes with risks attached, the most obvious being that the value of your invested fund can fall as well as rise.
The general trend of the markets is upward though, and if you can afford to be without your money in the short term, investing could offer the chance for inflation-beating long-term growth.
Be sure you have a goal in mind, understand your attitude to risk, and then speak to us if you think investing might be the best option for you.
5. Contribute as much as you can to your pension
You might think that cutting your pension contributions – or opting out entirely – is a good way to claw back some additional funds when finances get tight. But you’ll be missing out on the incredible tax efficiencies pensions offer, as well as jeopardising your dream retirement.
Each time you contribute to your pension you receive tax relief at the basic rate, meaning an increase to your pot of £100 only costs you £80. If you pay Income Tax at the higher or additional rate, you can claim back a further 20% or 25% respectively through your self-assessment tax return.
You effectively get free money for the government each time you contribute and your funds are invested, meaning they have the chance of investment and compound growth.
6. Make the most of salary sacrifice
With a National Insurance (NI) rise on the way, consider speaking to your employer to see if they offer a salary sacrifice scheme.
This allows you to contribute to your workplace pension from your pre-tax pay, lowering the NI and Income Tax due. Reducing your salary won’t be right for everyone. It can affect other benefits, such as a “death in service” payment and could affect your borrowing potential if you are looking to take out a mortgage.
Remember too, that for each 5% you contribute under auto-enrolment, your employer contributes 3%. Ask whether your employer would be willing to up their contribution if you increase yours.
7. Check your eligibility for the Marriage Allowance
If you are a basic-rate taxpayer but your partner earns below the Personal Allowance, you could use some of their Personal Allowance to make a saving on tax.
For the 2021/22 tax year, you or your spouse can transfer a maximum allowance of £1,260, which could result in a saving of £250.
8. Speak to the experts
If you are concerned about the effect of the cost of living crisis on your household finances, there are many ways that our team of experts can help you.
Get in touch
These are just some of the tax breaks and allowances you could use to make the most of your wealth as the cost of living crisis bites.
At Fingerprint Financial Planning our dedicated team are here to help you so contact us if you have any worries about your household bills or your long-term plans. Get in touch by emailing hello@fingerprintfp.co.uk or call 03452 100 100.
Please note
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
Workplace pensions are regulated by The Pension Regulator.
