With the deadline for tax self assessment coming up next week – it’s midnight next Sunday by the way – now is the perfect time to complete some important money tasks.
It might not be the most exciting thing to happen in lockdown but it will at least put you in a better stead for the year ahead financially speaking.
You’ll know the importance of these five tasks already, but consider this your nudge to actually tick them off your list.
Check your savings
The Office for National Statistics (ONS) has inflation as measured by Consumer Prices Index including owner occupiers’ housing costs (CPIH) at 0.8% in December 2020.
Why do I include this statistic every month?
Well for one thing, inflation is a measure of how much more expensive things have become over time – in this case the average prices in December 2020 is 0.8% higher compared to December 2019.
It’s not much but it matters in this context because you should always be aiming for any savings you have to beat inflation – otherwise you’re basically losing money over time.
Right now, the majority of savings products offer interest rates that are far below inflation. But, there are instant access products that do beat inflation – the Virgin Money current account for example, or Nationwide’s Start to Save account.
So if your money is currently dumped into an account that pays less than 0.8% interest, you should be looking at whether there are better places to put it.
Look at your spending
The pandemic has driven us into a routine and if nothing else, it’s made assessing our spending easier.
While your spending habits might change in the coming year, as might your income, it’s a good idea to get a snapshot of what you’re spending on average each month.
Go through your bank statements and start by looking at the essentials that go out regularly, like your rent, food, council tax and bills for example. Then look at any non-essential spending and group them into one-offs such as gifts and regular occurrences like takeaway coffee.
This will help you work out a monthly budget, and therefore how much disposable income you have each month to save or spend on luxuries. If you’re looking to reduce your monthly spending, this will also help you identify areas where you can make cuts.
Overpay your mortgage
Assuming you have sizeable savings and a mortgage, make sure you max out the overpay allowance each year as early as possible – obviously leaving enough for your emergency fund.
Here’s the thing: however low the interest rate on your mortgage, the interest rate on your savings will be even lower right now.
And when you do make an overpayment, make sure you choose the option that reduces the length of your mortgage rather than the amount you repay each month – this will help you save more over time.
According to analysis by Nationwide, “Increasing the mortgage term from 25 to 35 years (which is the most common) increases the total amount of interest paid on a typical mortgage by 40%”. This could equate to tens of thousands of pounds.
Of course, choosing this option is assuming your monthly repayments are already manageable.
Reassess your borrowing
Almost nine million people had to borrow more money by December 2020 because of the coronavirus pandemic according to new data from the ONS.
Since June 2020, the proportion of those borrowing £1,000 or more has also increased from 35% to 45%.
If you’re currently in debt, take a moment to assess whether the repayments are still manageable. Having a budget prepared will help you to do that.
Debt charities such as Step Change can offer you free advice if you are in trouble.
Take care if you’re refinancing a debt though, especially if you’re doing it solo, as it could actually increase your debt burden over time rather than reduce it.
Review your pensions
I’ve saved pensions to last because, well, it takes the longest.
If you have a few pension pots, it’s worth seeing whether you could make them work harder by consolidating them.
While flat fees on pension pots that are smaller than £100 will soon be banned, those just above this threshold are still getting a raw deal.
Make sure you do your research and read through the fine print though – you don’t want to lose a pension pot with extra benefits or reduce the size of your pots by transferring them out unnecessarily.