Get your New Year off on the right foot with these six easy-to-keep financial resolutions
We all wish for a prosperous New Year, but 2017 looks set to be a challenging one for household finances:
- The uncertainty of Brexit has recently caused the value of the pound to fall to its lowest rate for 31 years
- Inflation is predicted to rise to around 4% by the end of the 2017 (National Institute for Economic and Social Research) - making everyday items like food, clothes, and petrol more expensive for the consumer
- Interest rates are at a record low of 0.25% (as at November 2016) - putting cash savings at risk of erosion from the effects of inflation
We look at how planning ahead can help you make your money to work harder throughout 2017.
1. Don't let your insurance renewal dates sneak up on you
Shopping around for the best home, motor, and travel insurance deals can be a time consuming business. However, if you leave it too late you could run out of time to find the most appropriate solution for you.
You can save yourself time (and hopefully money) by providing your renewal dates for home and motor insurance at the start of the year. We will then call you back prior to these dates and work with our panel of providers to find the most suitable solution for your needs.
Don't forget - if you're a Wesleyan member you will be eligible for Mutual Benefits which gives you generous discounts off a wide range of insurance policies from Wesleyan, throughout 2017. Look out for your Mutual Benefits pack in January.
2. Protect your cash savings from any rises in inflation
Keeping money in cash savings (rather than other asset types such as stocks and shares) is often considered as low risk. But low risk, doesn't mean no risk.
Simply put, inflation is the increase in the general level of prices of goods and services. It's a measure of what your money is 'worth' in real terms (£1 today, for example, buys you much less than it would have 30 years ago).
For the purposes of this illustration, let's assume that the rate of inflation is 4% (in line with the National Institute for Economic and Social Research's prediction). If you put £10,000 into a bank account with 0% interest, in real terms it would be worth:
So, unless you put your cash into a savings account or investment where the return outperforms inflation, its value could decrease in real terms, over time.
If you have cash savings, why not resolve to explore whether you could make them work harder throughout 2017. Start by visiting our investments centre to find out more about making the move from saving to investing.
Please remember the value of investments and any income can go down as well as up and you may get back less than you invest.
3. Don't overpay on your household energy bills
A significant percentage of household income is spent on energy. In 2015 the average combined gas and electricity bill in the UK was £1,298 (Department of Business, Energy, & Industrial Strategy, September 2016).
In March 2016, we published an article outlining how to save on energy bills, for example:
- requesting a refund from suppliers (as 61% of customer were estimated to be in credit)
- switching to variable direct debits (to prevent credit from building up)
- having a smart meter installed (to monitor your energy usage in real time)
If you haven't already taken these steps, make it one of your resolutions to do so in 2017.
In addition, don't underestimate the potential saving you can make by switching supplier. A third of UK homes have not switched supplier for five years or more.
4. Stay in control of your debts
Debt isn't always a bad thing. Borrowing money can often be an efficient way of meeting a need or expense when you don't immediately have all the money required, for example when taking a mortgage to buy a new home, or a personal loan to purchase a car.
But it's important to monitor and stay in control of your debts, as this can help you to avoid paying more than you might need to.
Start by listing all the details of your debts, including the:
- amount borrowed
- repayment terms
- interest payable
This will help you to see where the greatest potential savings can be made. Generally, paying off debt with the highest interest rate will see you make the fastest progress, but there are several caveats.
Some companies do not allow over payments or indeed will penalise you for repaying your debt early. In this case it's important to consider any charges that will be made versus the potential saving of paying back the amount you have borrowed sooner.
The same applies if you are looking to take out a new loan to consolidate all of your existing debt. Read the small print carefully and look out for deals that seem too good to be true.
Some providers look to attract new business with headline grabbing low rates, but when you read the small print it might say that this is subject to personal circumstances (meaning that the rate you see is not necessarily the rate that you get, and you could possibly end up paying more over the period of the loan).
5. Review your pension benefits
Reviewing your pension benefits annually is sensible so that you can assess how any changes in legislation may affect the benefits you will be entitled to. 2016 for example saw the introduction of two such significant changes:
- The total amount you can build up in pensions over your lifetime without having to pay a tax charge is the called the Lifetime allowance (LTA). This limit was reduced to £1m from the tax year 2016-17.
If your pension savings are over the LTA when your pension benefits are tested then a tax charge may be payable on the excess. Your pension pot will be tested against the LTA when certain event occur, for example if you:
- take benefits
- reach age 75 without taking benefits
- have growth on funds that have been flexibly accessed
- transfer to a recognised overseas pension
- die and benefits are paid to you beneficiary as a lump sum
Any excess is taxed at 55% if taken as a lump sum or at 25% if taken as an income, this is the lifetime allowance charge.
There are steps you can take to protect your pension benefits from reductions in the Lifetime allowance, so if you think you may have been affected, make an appointment to speak to a Financial Consultant.
- Certain pension schemes (such as the Teachers' Pension Scheme, NHS Pension Scheme, and Civil Service Pension Schemes) ceased to be 'contracted out' of the Additional State Pension.
Being contracted out allowed both employer and employee to pay lower national insurance contributions (NICs). The State Pension and Additional State Pension have now been replaced by the new flat rate State Pension.
Only those with 35 years qualifying NICs or credits will be entitled to the full flat rate pension (currently £155.65 per week). Individuals who have been 'contracted out' will have this taken into account when entitlement is calculated.
You will need to make sure you know whether you qualify so that you can make accurate calculations about your retirement income.
There are steps you can take to plug any gaps in your NICs, so if you think you may be affected, make an appointment to speak to a Financial Consultant.
6.Protect what you already have
At the start of 2016 it was hard to imagine we would finish the year with Britain having voted to leave the European Union, or that Donald Trump would become president of the United States.
Whether it's on the world's political stage, or in your own personal life, the unexpected can happen, so if you haven't already done so, make a commitment to protect what you already have in 2017. Find out more by visiting our income protection hub.