Starting the year with a review of your finances could help you to save thousands of pounds. Many of the cost of living pressures of last year will continue into 2023 but there are some things you could avoid if you act now.
Changes due in April thanks to the chancellor, Jeremy Hunt, mean that you have only three months to take advantage of some tax breaks. And with savings rates on the rise, now is also a good time to pick somewhere to stash your cash.
Helen Morrissey from the wealth manager Hargreaves Lansdown said: “2022 has been a bruising year with spiralling inflation putting pressure on our budgets. It’s expected to ease off, but it’s going to stay tough. We need to keep watching the pennies.” Here’s how to get ready.
1. Make your cash work harder
The Bank of England has increased its base rate nine times in the past 13 months — from a record low of 0.1 per cent in December 2021 to 3.5 per cent now. More rises are coming as the Bank tries to get inflation under control, but it is expected to peak at about 4.5 per cent this year.
This should mean that savers get a better deal than the paltry rates we have been used to over the past decade, but if you are with the big banks you may be waiting a while before the rises are passed on to customers. The best rates are normally from the smallest firms — check our sister site Times Money Mentor for deals. If you want to stick with the larger banks, look for the better rates they often pay on accounts linked to a current account.
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Remember that you can save up to £20,000 a year in an Isa and never have to pay tax on your interest or investment gains. If you have savings outside an Isa, you can earn £1,000 a year interest before you have to start paying tax, £500 if you are a higher-rate tax payer.
2. Take control of your debt
Before considering putting money into a savings account, make sure to pay off any expensive debts first. You are likely to earn less interest on savings than you will pay on debt, but always do your sums.
If you used a credit card for your Christmas shop to earn rewards or cashback, make sure that you make pay it off before any interest charges. If you have a 0 per cent balance transfer or purchases deal, make sure you pay the minimum amount each month otherwise you will be charged, and keep a note of when the interest-free period ends.
3. Ditch that useless insurance
Insurance is designed to give you peace of mind but some policies are simply not worth it. Extended warranties, often sold alongside white goods such as fridges or dishwashers, are one example. You don’t need to pay extra to guarantee repairs if your item is faulty because you have statutory consumer rights which mean you are entitled to demand a repair or replacement. Replacing an item when it comes to the end of its lifespan may also be cheaper than insuring it for years.
And although you will often be sold separate cover for a mobile phone and other gadgets, they may be already be covered through your home insurance policy, so always check. Even if they are not, adding extra cover on your home policy will often be cheaper than the gadget cover that a specialist retailer will try to sell you.
4. Get a better deal on your broadband
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If you have not switched broadband services for a year or more it is worth asking if your company can offer you a cheaper rate, or faster speed for the same price. Internet services are constantly improving and new deals are regularly offered only to new customers so make sure you are not missing out before you sign up for another contract.
5. Cancel subscriptions
About £500 million a year is spent on unwanted memberships, including to gyms and TV streaming services, according to Citizens Advice. It found that one in four people had signed up to a subscription service by accident, maybe because they never got round to cancelling a free trial. Check your bank or credit card account. If you find subscriptions you don’t want, contact the company to cancel them. Some banks have facilities that will do this for you at the click of your phone. If you sign up for a new subscription with a free period, set a reminder for a week before the free period ends so that you don’t forget to cancel.
6. Check your tax status
Millions of tax codes are wrong every year and it is your responsibility, not your employer’s or HMRC’s, to check it. You might find you have been overpaying tax, or underpaying. This can happen if you change jobs, earn money from more than one source, such as a part-time job or a property portfolio, or have just retired.
Check your tax code and other details at gov.uk/check-income-tax-current-year to make sure that you are on the right code.
7. Maximise your personal income allowance
The first £12,570 of most people’s income is not taxable — this is your personal allowance. If you are married or in a civil partnership and neither of you is a higher-rate taxpayer, you can claim the marriage tax allowance, where a lower-earning partner transfers up to £1,260 of unused personal allowance to a higher-earning partner. This can reduce a couple’s income tax bill by up to £252 and you can backdate claims by up to four years.
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There is also a trading allowance of up to £1,000 for casual income such as from babysitting, odd jobs in the community or selling goods online.
A property allowance of £1,000 is available on any income derived from your home or land, such as letting someone park on your driveway or store items in your garden shed. You can also make up to £7,500 a year tax-free if you rent out a room in your home to a lodger.
If you are married or in a civil partnership, transfer any income-generating assets to the lower earner. Married couples can transfer to one another without triggering a tax charge.
8. Consider taking profits
Capital gains tax (CGT) is due at up to 28 per cent on the profits from the sale of assets such as shares or property that is not your main home. You can make gains of £12,300 a year before CGT starts to become due, but this allowance will fall to £6,000 in April and then to £3,000 from April 2024. If you think you will breach this threshold, consider selling some assets now.
9. Overpay your mortgage
About 1.8 million people are expected to come to the end of a fixed-rate deal this year and will be in for a shock because the decade of low rates is truly over. The average two-year fixed rate was 1.57 per cent five years ago and 1.86 per cent two years ago. Today it is 5.8 per cent.
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If you are still on a cheap fixed rate and you can afford it, try to overpay on your mortgage to reduce your loan-to-value ratio. Say you had a 25-year £250,000 mortgage and one year left on a five-year deal at 2.5 per cent. Your monthly payments would be £1,122. At the end of the fix, you would owe £211,650, according to L&C Mortgages, a broker. Assuming a property value of £350,000, this would give you 39.5 per cent equity, excluding you from the best deals that require at least 40 per cent.
If you overpaid by £340 a month for the remaining year of your fix, however, you would reduce your debt to £207,523, giving you 41 per cent equity.
If you are within six months of your deal ending you can lock in a new rate now. If rates drop in the meantime, you do not have to take the higher rate.
10. Cut food bills
Food prices are likely to remain high but there are ways to cut your weekly grocery bill. Switching to a low-cost supermarket such as Lidl or Aldi will help and so will buying own-brand goods instead of expensive names.
If you are shopping for a large family, try going wholesale. Taking out an individual Costco membership for £33.60 for a year (£2.80 a month) will mean you can buy essentials in bulk and may work out cheaper in the long run.
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Try the Too Good to Go app, where restaurants, cafés and supermarkets sell food that is about to expire at significantly discounted prices, or Olio, where people living near you post if they have food to give away that they don’t need any more.
11. Write a will
If you die without a will, there are rules that dictate how your money, property or possessions should be allocated and this may not be the way you would have intended. For example, unmarried partners cannot inherit from each other unless there is a will, so the death of one may create serious financial problems for the remaining partner.
You can find free online will writing services, but it is worth asking a solicitor for advice as there are many pitfalls. Expect to pay between £100-£300 for expert legal advice.
12. Get cheaper petrol
Despite drops in global oil prices, the average cost at the fuel pumps is still higher than the wholesale price, while independent retailers are 3-5p a litre cheaper than supermarkets, according to the AA. Don’t pay over the odds: find the best petrol stations on the AA app or petrolprice.com.
‘My aim for 2023 is to clear my credit card’
Mike Rodel, 27, says his new year’s resolution is to cut charges on his borrowing and investments.
He is starting 2023 by paying off his credit card before it incurs any interest. The marketing executive put his Christmas shopping on an American Express Platinum Cashback Everyday credit card, which pays 5 per cent cashback for the first three months (up to £100 cashback) and then 0.5 per cent on up to £10,000.
“I have already made more than £100 and intend to continue using it this year. I will of course make sure to pay it off in full every month to maximise its benefits.”
Rodel, from Tonbridge, has also decided to cut his investment charges this year by opening an Isa account with Dodl, part of the wealth management firm AJ Bell.
Dodl is a cheaper, streamlined version of AJ Bell’s Youinvest service which Rodel also uses, but only for his self-invested personal pension.
“I want to cut my investment charges and spend less time having to pick and choose what to invest in. Dodl simplifies the investment process and has a very user-friendly app which makes checking my investment easy. I use AJ Bell’s Youinvest for my pension, which I don’t monitor as frequently.”
