'No One-Way Bets': How To Survive 2022 And Stay Financially Fit

As the cost of living rises and people feel the squeeze, there is no better time to start afresh with your finances, as these resolutions show

Emma Simon 5 January, 2022 | 10:54AM
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2022 looks set to be financially challenging for many people. These New Year’s resolutions are designed to ensure your wallet enjoys a healthy year.

Don’t Hoard Cash

Cash savings are likely to be hit with double whammy of rising inflation and (still comparatively low) interest rates in 2022. Further interest rate rises may be on the cards, but interest rates are currently just 0.25%, and prices are already rising at 5% a year. As such, money held on deposit will continue to lose value in real terms. Despite this, Laura Suter, head of personal finance at AJ Bell says it makes sense to keep emergency savings in cash, but no more than is necessary: enough to cover three to six months’ outgoings. She also says you should be prepared to switch bank accounts to get the best rate possible.

Green Your Portfolio

After COP26, sustainability may well be high on your priority list. Research from Make My Money Matter and Aviva found those with an average £30,000 pension pot could prevent 19 tonnes of carbon emissions by switching into sustainable funds. It estimates this is 57 times more effective than switching to a vegan diet, 20 times more effective than driving an electric car and 40 times more impactful that moving to a renewable energy provider. Morningstar has a wealth of information and rating on which investment funds have the best track record when it comes to sustainability.

Re-Assess Your Income Portfolio

The tax rate on dividends will increase from April 2022, which means bigger bills for those who hold income investments outside an ISA or pension. Investors can still receive £2,000 in dividends tax free, but face higher charges thereafter. AJ Bell says the best way to protect yourself is to move money into an ISA or pension. Remember, though, the ISA allowance is £20,000 a year. It makes sense to fully utilise this and ensure the investments that pay the largest dividends are in this tax wrapper.

Increase Your Pension Contributions

Even a small increase to pension contributions can make a significant different to your longer-term retirement prospects. If you are lucky enough to get a pay rise use it top up monthly payments.

Pay Down Your Debt

According to GoCompare, cutting outgoings and paying down debt is top of people’s financial “to-do” list for 2022. Banks may be slow to pass on interest rates rises to savers, but aren’t usually as tardy when it comes to bumping up rates on credit cards or loans. Those with surplus savings are advised to use this to reduce outstanding credit card balances. If this isn’t possible look to consolidate debts and switch to a provider charging a lower interest rate. Plenty of balance transfer deals are available, so shop around.

Check Your Bills

Inflation is being driven by rising fuel bills. No-one can escape some price hikes, but you may be able to protect yourself to some extent. Kevin Mountford, co-founder and director of Raisin UK says many energy providers currently aren’t accepting new customers, but customers should still use price comparison sites to check, as this may change. In the meantime, use the sites anyway to ensure you aren’t paying over the odds on other household bills. It could be time well spent.

Stay Calm, Diversify

Omicron, climate change, inflation and global supply issues all have the potential to derail markets and increase volatility. Chelsea Financial Services managing director Darius McDermott says, given the number of unknowns, investors would be wise to play it safe with their asset allocations. “I don’t think this is the year for one-way bets,” he says. “The best way to get through what might be a difficult year is to maintain a diversified portfolio and stick to regular monthly investing where possible.”

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Emma Simon

Emma Simon  is a financial journalist, specialising in investment and consumer issues, writing for Morningstar.co.uk