It is hard to be happy about your finances in January. Most of us have something to worry about. A Which? survey just out shows that 49% of people expect their household budgets to be tighter this year than last (only 30% expect improvement); 42% used credit to pay for Christmas; 2.5 million people don’t expect to repay that debt until June; and 60% are already dreading their winter energy bills. Then there is retirement.
A December survey of high-net-worth individuals showed that, even for them, the top financial resolution for 2014 is to save more for their retirement and to put away more for the financial support of their families.
The trouble is that very few of us follow through from worrying about money (and telling those conducting surveys that we worry about money) to actually sorting things out. But it really isn’t that hard. The first step is to look at your debt.
It should go without saying that high-interest debt has to be paid down first, and that everyone’s aim should be to be free of consumer debt. Beyond that there is your mortgage.
Yet another New Year survey showed that 33% of us think that the main thing that will bring us “peace of mind” is paying off our mortgage. Given just how low interest rates are at the moment, the last few years have been a fabulous opportunity to get on with this: it is much easier to get rid of debt on a rate of 2% than 10%. So don’t stop now.
We don’t know when rates will go up, but we know they will, so make sure you have the lowest rate you can get, and overpay what you can every month.
Switch from a typical standard variable rate mortgage at 4.79% to Norwich and Peterborough’s five-year fix at 2.84%, says The Sunday Times, and you’ll save £3,300 a year on a £200,00 mortgage. That should bring you closer to peace of mind than most people when the base rate hits 3% (as it is forecast to do in 2018).
Once debt is dealt with, make sure you are saving efficiently. You need to be sure you are making some pension contributions as a fall back for your retirement, but also using your individual savings account (Isa) as best you can.
This year you can put up to £11,520 in total into Isa accounts. That means that, between Isas and pensions, most people should be able to save almost entirely into tax-efficient vehicles. Are you?
Finally, make sure you shop around when all your insurances come up for renewal (premiums have fallen this year and disloyalty savings can be huge) and if you are thinking of a booze-free January, stick with it.
According to employee benefits firm JLT, a 22-year-old man who rolls the cost of 21 units a week into his pension instead of drinking it can raise the final value of his pension by £20,000.