As another unusual year draws to a close, people begin to look at the year gone and the year ahead, reflecting on what will be done differently. For many, this will include looking at what they will be changing financially including budgeting, understanding the best saving rates, saving money, and spending a whole lot less.
With inflation on the horizon and constant changes to tax rules, knowing where to start when it comes to saving money in 2022 can be a particularly daunting task. Oakworth Financial Planning have listed their top money saving tips in 2022 to get you started.
Track spending and illuminate unnecessary expenses
The simplest way to spend less is to eliminate or reduce unnecessary spending. The first step of which is tracking where money goes each month. This can be done via most banking apps, a third-party app or manually tracking what someone spends money on.
Once there is an itemised list with amounts, it’s then much easier to see any unnecessary spending. Unused subscriptions or insurance premiums for something you no longer have can now easily be highlighted.
Shop around for cheaper bills
When unnecessary spending has been taken care of, move on to payments that can be reduced. A cheaper phone tariff, a better energy deal, a cheaper supermarket. This can be taken to the extreme; downsizing a home to save on mortgage cost, council tax and water and heating bills.
Circumstances and needs will dictate how extreme any money saving strategies should be. Simply eliminating unnecessary spending is something everyone can (and probably should) do to benefit from a little extra cash in their pockets.
Use your allowances
With taxes being one of only two certainties in life, saving money on tax should be high on everyone’s financial to-do list.
Your pension Annual Allowance is one of the best ways to do this. Any personal pension contributions will usually save a minimum of 20% tax, meaning, if you contribute £6,000 net to your pension, the government will put an extra £1,500 in there as well. If you’re a higher-rate taxpayer, a £7,500 gross pension contribution will only cost you £4,500, saving £3,000 in tax.
Everyone, regardless of income or employment status, has a minimum £3,600 Annual Allowance. The maximum Annual Allowance is the lesser of £40,000 and 100% of income. For example, a person earning £35,000 has an Annual Allowance of £35,000. The maximum of £40,000 only changes when a person earns more than £240,000 in a financial year.
One of the downsides to a pension contribution is that you lose access to it until you’re at least 55. If this doesn’t suit your financial goals and you’d like to keep access to your money, using your £20,000 ISA allowance should be your priority from a tax-saving perspective. Any growth, interest and capital gains within an ISA are completely tax-free, regardless of the type of ISA (Cash, Stocks & Shares, Lifetime etc.).
These allowances run from the 6th April to the 5th April. The £20k ISA allowance doesn’t carry over to future years. Unused Annual Allowances for pensions do carry over, for a maximum of 3 years.
Utilise low mortgage rates
Since March 2020, one of the Government’s main aims has been to ensure businesses and people invest and spend more money to help the country’s economic recovery.
One of the ways the Bank of England has helped do this is through lowering interest rates, which makes it less expensive to borrow money. This has resulted in mortgage rates being the lowest they’ve been this century.
A by-product of other government policies is relatively high levels of inflation which must now be controlled. Increasing interest rates from their current low levels is one of the ways to control inflation. Increasing interest rates will result in more expensive monthly mortgage payments for the general public.
To save money, fixing a mortgage for a longer period of time, before interest rates rise higher, has the potential to save hundreds of pounds each month on the average person’s mortgage payments.
