Seven simple ways to boost your financial fitness in 2022

The period after Christmas is a good time to take stock in all sorts of ways, but making lots of resolutions to keep up throughout the following year can be challenging. Particularly when it comes to financial matters. There are, however, often manageable steps that you can take to improve your monetary well-being.

‘Financial new year’s resolutions can feel onerous, particularly at a time when we have a lot of other pressures to deal with,’ says Adrian Lowery, personal finance expert at investing platform Bestinvest. ‘Just give yourself a bit of a financial health check and make some executable decisions.’

These seven actions are by no means exhaustive or universal, and everyone’s financial circumstances are unique. Whether you should increase pension contributions or switch to a fixed rate mortgage, for instance, will depend on your financial situation and plans for the future.

1. Make sure you don’t pay too much tax

Check your tax code and other income tax details – using the Gov.UK website - and make sure they are correct for your circumstances, particularly if these have changed during the last year or two. And make sure you are utilising allowances and reliefs.

Couples may be able to reduce their household tax bill if one partner earns less than the personal allowance (£12,570), and the other is a basic-rate taxpayer. The marriage allowance can save £252 on a tax bill and works by transferring some of the lower-earning spouse’s tax-free allowance to the higher-paid partner.

If you are working from home you might be able to claim through PAYE an automatic £6 a week relief against tax for household bills. Go to the working from home section of Gov.UK.

If you are a business owner and pay yourself partly in dividends, make sure you are up to date on the new increased rate of dividend tax that comes in on 5 April and the implications that has for how you pay yourself. Meanwhile, those thinking of selling or gifting any substantial assets might want to examine their plans before that date to minimise capital gains tax exposure by potentially using both this and year’s CGT allowance.

1. Take advantage of pension tax benefits and employer contributions

For many workers, saving into a company or personal pension is the most profitable form of saving – although funds cannot be accessed until pension age (which goes up from 55 to 57 in 2028). This is because most people receive tax relief on their contributions from the government at their marginal income tax rate. Basic rate taxpayers get 20% added to their pot on each contribution, while higher rate taxpayers on the 40% tax rate and additional rate taxpayers on the 45% rate will also get 20% and 25% knocked off their tax bills in addition to the 20% top-up.

Also in the case of company schemes, the employer pays a minimum of 3% stipulated under auto-enrolment rules, but many companies will match employee contributions to a higher amount – another source of ‘free cash’. However, there is a limit to what you can pay into a private pension each year and still receive the tax benefits, and if you are near this it might be wise to take financial advice.

1. Cut the cost of your mortgage

The Bank of England surprised a few people by hiking its benchmark interest rate on December 16. That means those with standard variable rate mortgages will see their monthly payments go up, if they haven’t already. With most analysts predicting at least one more rate hike next year, holders of these loans might want to speak to their lender or a mortgage broker to see what cheaper fixed-rate loans might be available to them.

Even those currently on two or five-year fixed home loans can check when their deal ends as they can start applying for a new loan six months before that date. It seems probable that mortgages will be more expensive in six months’ time than they are now.

1. Use automation to save and budget

Siphon out savings by standing order when your pay goes into your main account each month. Whether it’s going into a savings account or an investing ISA, set the payment up for the day after payday, and it’s gone before you know it’s there.

Second, if you want to keep a track (and a lid) on your casual spending, consider opening a second current account. Feed a fixed amount each month into this and make that the card you use for shopping and leisure. A digital bank can be good for this as they typically update balances in real time and offer budgeting tools.

If you have outstanding card or personal loan debts, you should think about paying those down before saving.

1. Audit your standing orders and direct debits

It’s easy to lose track of the subscriptions you’ve signed up for. But it’s also easy to look through your regular payments on digital banking, or your recent monthly bank statements, and cancel anything you are not using or can really do without. You might even find something you’d forgotten about – or even didn’t know you had.

Among necessary outgoings like mobile and broadband bills, the chances are you can reduce them by switching - even if it is just to a cheaper deal with the same supplier.

1. Think about an investment ISA

There is a certainty with cash savings at the moment: you are losing money, as inflation erodes its real value faster than meagre interest rates can add to it. There are risks with investing, but there are also ways to minimise those risks. If you do your research, invest a bit every month and stay invested for the long term, the returns have a better chance of beating inflation. .

Even if an investing ISA isn’t for you, consider a Junior ISA for your children or grandchildren (if they are under 18 years old), as over time relatively small contributions can grow rapidly with compound returns. Two lottery tickets for both main draws every week comes to £34.66 a month. If that were put into a JISA from the birth of a child, and assuming an average annual return on investments of 5%, the pot would be worth £12,239 by the time of their 18^th birthday. That’s from monthly contributions totalling £7,487.

For younger workers looking to save for a home, a Lifetime ISA could be beneficial, as it comes with a 20% savings bonus from the government. But be aware LISAs come with rules – and penalties if used incorrectly - as they are designed specifically to be used for the purchase of a first property up to the value of £450k.

1. Make sure you have paid enough NI - or are receiving the correct state pension

Those approaching retirement who have had breaks from paid work and therefore gaps in their national insurance payment record should check where they stand on the state pension, if they want to receive the new full flat rate. This can be done by plugging their NI number into the appropriate page of the Gov.UK website here. If you have fallen short it might then be possible to top up contributions in order to receive the full state pension when you retire.

For those already retired, make sure you are receiving the state pension you are due. Many women are not, in underpayment errors that have been exposed in the last two years, and which could exceed 100,000 cases. Married women who hit state pension age before April 2016, including widows, divorcees and the over-80s – whether married or not – should check if they are receiving the headline state pension payment that they are entitled to (given their year of retirement). And if not they should contact the Pension Service.