Five New Year money resolutions for 2022
Investment firm AJ Bell have put together five New Year’s resolutions you should make for a prosperous 2022.
Sort out old pensions
One of the first tasks is to track down any old pensions that you have lost track of. According to the Department for Work and Pensions, people switch jobs on average 11 times during their careers – which means a lot of different pensions to keep track of.
It’s estimated there could be 1.6 million ‘lost’ pension pots in the UK, with each one being worth an average of £13,000 per pot. So, it’s worth digging out your old paperwork.
Laura Suter, head of personal finance at AJ Bell, said: “Your first port of call is finding any old paperwork that will tell you where your pension is and how to log-on to see its value and transfer it. If you can’t find any documents, you can use the government’s pension tracking service to find where it is now.”
Once you’ve found old pensions, you should consider combining them with your existing provider. This will make your pension easier to monitor and manage, but also means you could benefit from lower charges, greater investment choice and more flexibility when you decide to access your fund.
Start saving for your children
Saving on behalf of a child is a great way to give them a financial head-start in life. Lots of people default to saving in a cash account for their children, but children also have such a long investment horizon that they are ideally placed to ride out the ups and downs of the stock market in search of higher long-term returns.
Suter said: “If you managed to save just £100 a year every year since a child was born you could have £3,000 put away when they turn 18, assuming it’s invested and gets 5% a year growth after fees. Putting away £50 a month would equal more than £18,000 by the time they turn 18.
“You can now save up to £9,000 a year into a Junior ISA for a child, which is a pipe dream for many families, but it means that you can add lump sums to any regular savings, on birthdays or Christmas for example. In a Junior ISA returns are free from income and capital gains tax, and it can be rolled over into an adult ISA when they turn 18 and save the child from any additional tax on their investments when they grow up.”
Write a will
No one wants to think about death, which is why so many people put off writing a will. But lots of people wrongly assume the assets will go to different people when they die, which is why it’s crucial to ensure your affairs are in order.
With families being more complicated now and people cohabiting but not being married or having children from different relationships it’s more important than ever to ensure that your money and assets are going to the right place when you die.
For example, if you’re not married then your partner isn’t automatically entitled to any of your estate when you die, regardless of how long you’ve been together. It’s particularly key to bear this in mind if you own the home that your partner, and potentially step-children, live in.
Suter said: “It’s a relatively painless process to get a will: there are some kits that let you do it yourself or you can go to a professional who will guide you through the process. If you go down the DIY route you need to make sure the will is legally binding, otherwise your efforts will be in vain.”
Make the most of your cash
The Bank of England base rate rise is good news for savers who have suffered for years with record low interest rates. However, you’ll need to hunt down the best savings rates.
Suter said: “Lots of people have built up significant savings during lockdown but most of it is languishing in current accounts or old savings accounts earning nothing. Now interest rates have risen we will hopefully see rates increase in the best buy tables, meaning savers can get a bit more interest for their money.
“However, this will require switching accounts and getting the best deal possible for your money. The top easy-access account now pays 0.71%, so if you need instant access to your money that’s likely to be your best bet.”
Use your ISA and pension
Savers and investors should put money into tax-efficient accounts wherever possible. Anyone can put up to £20,000 a year into an ISA and most people have a £40,000 annual limit for their pension. On top of this, anyone with children can open a Junior ISA and put up to £9,000 a year into it.
Suter said: “The tax breaks afforded by pensions and ISAs will become even more valuable if taxes rise and investors should look to maximise the savings they hold within these shelters, outside the clutches of the taxman.”