How to take control of your finances in 2021.

9th December 2020

New Year financial resolutions for uncertain times

The New Year is a great time to take control of your finances. Unfortunately, the income of many households across the UK have been seriously impacted by the pandemic, with many people having been made redundant and others having to manage on a reduced income. Even if you haven’t been directly affected, it will have highlighted the importance of having enough savings to support you through difficult times.

WEALTH at work – a specialist provider of financial education and guidance in the workplace supported by regulated financial advice for individuals, has written a list of ‘New Year financial resolutions for uncertain times’ to help people take control of their finances in 2021.

WEALTH at work’s New Year financial resolutions for uncertain times

• Review financial position and budget – Work out exactly what your income is, and if you are on furlough or reduced hours make sure you know what your take home pay will be. If you are facing redundancy you will need to consider how your income may change. Then look at what assets you have, pensions, savings, ISAs, property and investments, and what liabilities you have e.g. mortgage, debt, childcare, insurance and utility bills. Finally work out your household income and expenses. If the amount of money you need each month is more than the amount you have coming in, you can then work out what action you need to take to cover your costs. The Money Advice Service has a great budget planner: www.moneyadviceservice.org.uk/en/tools/budget-planner.

• Review all your outgoings – It is important to check bank statements and make a list of what is being spent each month. It is helpful to divide these into utility bills (gas, electricity and water), mortgage or rent costs, council tax, supermarket shopping, monthly contracts for TV, broadband and mobiles, insurance, regular subscriptions, and other spending. This will highlight where money is going and where savings could be made.

It became clear during lockdown to many how much is usually spent by households on nights out, day trips, holidays and experiences. Whilst these have all been missed, it is useful to now be aware how much they cost, and perhaps be a bit more discerning in the future when deciding where your disposable income goes. Now is also a good time to cancel any unused subscriptions, or unused memberships you have forgotten to cancel. If you can’t afford them or don’t use them, now is the time to get rid of them.

• Apply for help if you are struggling to pay your mortgage or rent – The Government has agreed with mortgage lenders that they should continue to offer a mortgage payment holiday. This can provide homeowners who are struggling to pay their mortgage with up to 2 payment holidays of up to 6 months in total.  Each payment holiday can only be up to 3 months at a time before it must be reviewed. 

Taking a payment holiday will not affect your credit rating however credit files are not the only source of information that lenders can use in lending decisions.  Keep in mind that monthly payments will be recalculated when restarted after a mortgage holiday and may increase.

Those struggling with their repayments should contact their providers as soon as possible to discuss the support they can offer.  Those who do not qualify for a mortgage payment holiday can request tailored support from their lender.

For those who are renting their home, the rules have been extended to protect tenants from eviction until at least 31 January 2021. Speak to your landlord about your rent payments if you are in financial difficulty. Landlords and tenants are expected to work together to establish an affordable repayment plan. Your landlord may be able to take a mortgage holiday and therefore delay your rent payments.

• Make managing debt a priority – If you are in financial difficulty ensure you speak to your lender before any payments are missed. Lenders may discuss with you the option to transfer debt to alternative products that have more favourable terms.

When it comes to credit cards, personal loans and motor finance, you may be entitled to apply for a payment holiday of up to 6 months, including any payment holidays you have received previously.  Lenders will only offer a payment holiday of up to 3 months at a time, however this may be extended to the maximum 6 months.  If you are struggling with an overdraft you should speak to your bank or building society about the support they can offer.  This may include waiving or reducing interest and supporting you to reduce your overdraft use.

There are many different types of debt with varying rates of interest, and it is often a good idea to pay off expensive debts first. Credit cards and overdrafts can have rates of 18 – 40%, with payday loans having rates of 1,500% and more! For example, a debt of £3,000 with a rate of 18% APR, could take 10 years and 10 months to pay off if paying £50 a month, with a total interest paid of £3,495. If that monthly payment was increased to £100 a month, the debt would be paid off in three years and four months, and interest paid would be only £908.

A good option could be to consolidate any debts into a 0% or low interest balance transfer card, as more money will go towards paying the debt off and enable you to clear it over a shorter time period. Whatever method you chose, it’s always best to make paying off your debt a priority.

• Take control of your retirement savings – You may be tempted to reduce or pause your pension contributions if you are in financial difficulty. However, plan carefully before doing this, because if you can afford to continue making regular investments this is likely to create a larger pension pot for your retirement. Pension contributions for furloughed employees will continue but these will usually be based on the reduced furlough payment.

• Be a savvy shopper – By switching brands it might be possible for you to significantly reduce the price of your regular shop. In addition, by planning for your weekly shop in advance, it may help you to search for deals and reduce expenditure on non-essential items. Discount vouchers are often available through voucher and discount websites, and some people have access to discount vouchers through their employer. This could be crucial if you have to make a big purchase, such as if your washing machine breaks.

• Check if you can save on your utilities and broadband deals – It is possible to save a lot of money by shopping around for cheaper utilities and broadband providers. There are many comparison services out there to help you make the switch. For example, by shopping around 50% of people could achieve a saving of £338 on their dual fuel energy cost according to comparethemarket.com May 2020 data[1].

• Watch out for auto-renewals – Many insurance policies for cars, homes and travel, automatically renew each year but people may be paying more than they need to if they allow this to happen. To get the best deal and to avoid any potential price hikes with auto-renewals, make sure you find out when your contract is due to end, and put it in your diary for a few weeks earlier, so you have plenty of time to shop around, and switch or haggle where appropriate.

• Beware of investment scams – Unfortunately in turbulent times like these, scammers see an opportunity! It is important to be on your guard. Scammers tend to sound completely legitimate when they contact you. It’s easy to see why so many people are fooled and it isn’t small amounts of money which are being taken. If someone contacts you with an offer which seems too good to be true, it’s vital to check whether the company is registered with the Financial Conduct Authority (FCA) https://register.fca.org.uk/. You can also visit the FCA’s ScamSmart website which includes a warning list of companies operating without authorisation or running scams www.fca.org.uk/scamsmart.
• Take action – it’s easy to bury your head in the sand when it comes to sorting out your finances but any saving made now can make a big difference in the long term. If you are struggling, don’t worry if you don’t know where to start as there is plenty of help available. It’s always worth speaking to lenders to see if they can help if you are struggling with repayments and Citizens Advice can help you understand how to deal with any debts. Many employers offer their staff help through financial education and guidance, so make sure you speak to them to find out what is available.

Jonathan Watts-Lay, Director, WEALTH at work, comments; “The New Year is a great time to take control of your finances. Whether your finances have been seriously affected due to redundancy or reduced household income, or you have just realised that you would like to have more savings to support you through difficult times, now is the time to take action.”

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