While the year of 2021 has been one of uncertainty with the level of coronavirus cases fluctuating and worries of more variants triggering further lockdowns, there’s been a clear message from consumers that they want to safeguard their financial futures. Here are 10 lessons to take into 2022 to help create a secure financial future:
1. Have a savings buffer
Build a financial buffer to ensure you have money should your income fall, or you come up against unexpected expenditures. A rule of thumb is to have the equivalent of between three and six months’ salary stashed away in a place where you can access the money at the touch of a button.
2. Don’t leave savings in cash
Money that’s earmarked for the future – rather than the contents of your rainy-day account – will see its value eroded if it’s left in cash for the long term. This is even more apparent now with rising inflation and ultra-low interest rates. This combination means your money is guaranteed to make a loss when it comes to real returns, over the long term. Save for a rainy day, invest for your future.
3. Don’t delay investing
The earlier you start investing, the better. Investments need time to grow, which is why a long-term approach is essential. The longer you can leave your money invested, the more likely you are to make a return.
4. Ignore short-term market movements
When stock markets fall it’s natural to worry about what that means for the value of your Isas and pensions. The latest market wobbles are down to the new coronavirus variant Omicron. It might be tempting to sell holdings in shares or funds that are tanking, but it’s worth remembering that losses are only on paper unless you sell. Always think long term and remember that historically, markets always recover.
5. Green your pension
As more and more people want their money to back responsible industries, campaigners are urging savers to ensure their workplace pensions are invested in sustainable businesses. Campaigner Make My Money Matter claims that switching your pension to back responsible causes is 21 times more effective at reducing your carbon footprint than giving up flying, going vegetarian and switching energy provider combined. You’ll also want to make a profit of course, so research the ‘green’ funds you want in your pension to make sure you believe they will make you a profit.
6. Save for children
More and more parents want to set aside funds for children to help with a deposit for a house, or to help pay for children’s school fees. It’s an important consideration with house prices going through the roof. The latest house price index from Halifax shows that prices rose by 3.4% in the quarter to the end of November, which is the highest quarterly rate since late 2006 and brought the average price of a home to a record of £272,992.
Equally, the independent school fees are rising, albeit slower this year for the first time in a while. Fees at UK private schools increased on average by 1.1% year on year in 2021, compared with 4.1% in 2020, according to the latest annual census.
An investment needs time to grow, so the earlier you start and the longer your money is in the market, the more chance you have of building up a meaningful fund. Consider a Junior ISA for tax-free investing that allows you to invest up to £9,000 per tax year. You might even suggest family and friends contribute at birthdays and Christmas instead of buying up oodles of new toys they don’t need.
7. Remember your mortgage expiry date
Despite the threat of an interest rate rise getting closer, mortgage rates remain extremely competitive. But that might not be the case next year. When your existing mortgage deal expires it automatically reverts to a rate, known as the standard variable rate, which is likely to be around double what you currently pay.
Make sure you secure a new rate in advance of your current deal coming to an end. Since a mortgage offer can last up to six months you can bag a cheap rate now even if your current deal doesn’t expire until Spring 2022.
8. Write a will
Making a will ensures your assets and possessions are passed on to the people you choose. Without one your wealth will be passed according to the ‘laws of intestate’. Writing a will can save on inheritance tax as well as spell out your wishes.
9. Take control
Since feelings about money matters have an impact on your decisions and on your overall financial health, it’s important to keep a handle on finances and take control. For some that means tightening belts on monthly outgoings and for others much bigger changes to spending.
10. Talk to a professional
A financial adviser can help you understand your financial priorities and put a plan in place to help achieve goals. Professional advice can go a long way to provide peace of mind that you are addressing the needs of you and those of your family.
Equally, if money is seriously tight and you are starting to get to the point where you’re borrowing to pay bills, it’s time to talk to a pro at a debt charity – for free. You don’t need to be in serious debt to ask for help.
Consider charities such as National Debtline (https://www.nationaldebtline.org 0808 808 4000), StepChange Debt Charity (https://www.stepchange.org 0800 138 1111), or the Debt Advice Foundation (http://www.debtadvicefoundation.org 0800 043 40 50).