Author
Each year, millions of Brits use the new year as an opportunity to make a lasting positive change to their lives. According to data from YouGov, exercising more and losing weight were some of the most popular resolutions in 2021.
You might already have had some thoughts about the lifestyle changes you might want to make, such as improving your diet or learning a new skill. While these may be good ideas, adjusting your financial habits can also be a useful alternative.
If you want to take control of your money in 2022, read on for three useful new year’s resolutions you should make.
1. Pay off any expensive debt
The coronavirus pandemic, and subsequent national lockdowns, have had a significant impact on the UK economy. As a result, the government implemented the furlough scheme to help people while they were unable to work.
While this helped around 11.4 million Brits stay on top of their bills, according to government figures, a lot of people still struggled with the reduced income. As a result, many households increased their borrowing. While this is understandable, having too much debt can hurt your financial resilience.
Recently, the Bank of England has hinted that a rise in interest rates looks likely in the near future. This can obviously pose a problem for people with debt, as it means that it will cost you more to repay it. Over the long term, the interest can add up to a significant amount.
If you have any debt, the new year can be a great opportunity to start paying it off. You may want to start by repaying credit cards and overdrafts, as these typically have the highest rates of interest.
Not only can this give you greater peace of mind to know that you don’t have any urgent financial obligations, but it can have the added benefit of improving your credit score.
2. Put financial protection in place
According to data from the Financial Conduct Authority, during the pandemic, the number of UK adults with low financial resilience increased from 10.7 million to more than 14.2 million. This is a concerning figure, as many of these people would not be able to overcome a serious financial shock if they encountered one.
For example, if you’re the main earner in your household, your loved ones may struggle to get by if you fell ill for a prolonged period and were unable to work. This could mean that you aren’t able to meet your financial obligations, such as mortgage repayments.
While you can’t predict what the future may bring, at least not without the help of a crystal ball, having the right form of protection in place can help you overcome any unexpected problems. This can increase your financial resilience and give you greater peace of mind.
3. Make the most of your allowances
If you want to be able to save for the future in the most effective way possible, it’s important to be aware of your annual tax allowances and make the most of them.
As you may know, Individual Savings Accounts (ISAs) are a tax-efficient way to grow your wealth. This is because any interest or growth is paid free from Income Tax or Capital Gains Tax. In the 2021/22 tax year (6 April to 5 April), you can contribute up to £20,000 into your ISAs.
It’s important to make the most of this allowance, as an ISA’s tax-efficient status means that you can grow your wealth more effectively. However, this doesn’t roll over, so if you don’t use the full amount by the end of the tax year, it’s gone for good.
Another limit you should be aware of is your Annual Allowance, which is the amount that you can contribute to your pension pots each tax year while still receiving tax relief.
This is when the government tops up your pension contributions with a little extra depending on the rate of tax you pay. For example, if you’re a basic-rate taxpayer, you can receive 20% relief on the money you put into your pension, up to the threshold.
In the 2021/22 tax year, the limit for how much you can contribute into your pension while still receiving relief stands at £40,000 or 100% of your pensionable earnings, whichever is lower. You may be able to carry forward unused allowance from the previous three tax years.
By maximising your pension contributions, you can take full advantage of the government’s tax relief and grow your pension more effectively.
If you want to know more about how you can grow your long-term wealth in the most effective way, you may benefit from seeking professional advice. Working with a financial planner can help you to make properly informed decisions with your finances, giving you greater confidence that you will reach your long-term goals.
Get in touch
If you want to change some of your financial habits and want to know how to do so in the most effective way, we can help. Email us at office@verve-financial.com or call 0330 320 5048.
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.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.
This item was correct at the time of writing and the information contained may no longer be up to date.
