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With the end of the pandemic potentially within sight, you might be wondering what the rest of 2022 might hold for you. While it’s good to be hopeful, some worrying economic trends have developed in recent weeks.
While the UK has slowly been adapting to the economic shock of the pandemic, it’s clear that we’re not out of the woods yet.
If you want to be able to overcome the financial obstacles that 2022 may bring, seeking professional financial advice can really benefit you. Read on to find out the four things you should discuss with your planner in 2022.
1. Rising inflation could erode the true value of your wealth
One of the biggest concerns for many people is the prospect of rising inflation eating away at the true value of their cash savings. According to data from the Office for National Statistics, the Consumer Price Index rose to 5.4% in the year to December 2021.
Inflation erodes the buying power of your money over time, as it essentially means that your cash loses its value.
A good way to see this is with the Bank of England’s inflation calculator, which can show you how prices change over time. According to this, if you wanted to buy £10,000 worth of goods and services in 1991, they would cost £10,000. In 2021, however, you would have to pay £22,844.
If you want to minimise the impact that rising inflation may have on your wealth, you may want to talk to your planner about whether you’re holding too much money in cash. Furthermore, you could also discuss whether you need to reassess your investing strategy to seek stronger returns.
2. An increase in interest rates may make your mortgage more expensive
To combat rising inflation, one of the tools that the Bank of England has at its disposal is the ability to raise the base rate. This has a knock-on effect on lenders, who may raise their own interest rates on loans as a result.
In February, the Bank raised the base rate to 0.5% and has hinted that there may be further increases if high inflation continues. While this may be good for the economy, raising interest rates may mean that your mortgage repayments become more expensive.
If you’re concerned about the prospect of rising interest rates, remaining on your provider’s standard variable rate may mean you’ll pay more than you need to. This is where seeking professional advice can help.
For example, your planner may recommend that you lock into a fixed-rate mortgage, so that you can take advantage of current low interest rates before they rise.
3. The government’s proposed tax increases could mean that you have less income
Another financial obstacle that you may encounter in 2022 is an increase in your taxes, which could make it harder for you to save money.
As you may remember from our previous article on the topic, in September 2021 the prime minister announced a tax increase to cover the cost of social care crisis and support the NHS. This change will come into effect in April, at the start of the 2022/23 tax year.
This new levy will increase your National Insurance contributions by 1.25 percentage points. While this may not sound like a lot, it can add up quickly, especially if you’re a higher- or additional-rate taxpayer.
For example, let’s assume that you’re a higher-rate taxpayer who earns the median higher-rate taxpayer’s income of £67,100 a year. According to figures published in MoneySavingExpert, this tax increase will cost you an extra £715 annually.
If you want to avoid this tax increase eating into your wealth, one option you could consider is salary sacrifice. This essentially involves giving up a portion of your income in exchange for more workplace benefits, such as greater pension contributions.
Since your income is lower, you’ll be able to reduce your tax bill while also contributing more to your pension. However, it’s important to note that this isn’t suitable for everyone, so you may want to speak to your planner to see if it’s right for you.
4. The cost of living crisis may slow down your progress towards your financial goals
One major economic problem that many people will face in 2022 is that the rising cost of living will slow down their progress towards their financial goals.
Many households are already having to tighten their belts thanks to rising energy bills, tax increases, and mortgage payments. Furthermore, according to the Guardian, food price inflation is set to reach 5% this year.
With an increase in your monthly outgoings, it’s possible that you won’t be able to save as much as you used to. This may mean that your progress towards your financial goals may be slower than you anticipated.
If this is the case, you may want to speak to your planner about whether you need to reassess your investing strategy. Exposing your wealth to more risk can mean that you see higher returns, but it’s important to be able to make an informed decision as more risk can mean more volatility in the value of your assets.
Get in touch
If you’re concerned about any of the potential problems we touched upon and want to know more about how you can overcome them, 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.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
Think carefully before securing other debts against your home.
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
This item was correct at the time of writing and the information contained may no longer be up to date.
