MT Week - Time to review your finances

Switching things up a little this week…

Five money tasks to tick off in January

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.

Premium: What you need to know about debt

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.

Premium: Should you merge your pension pots?

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This week’s key numbers

Rightmove predicts around 613,000 properties are currently sold subject to contract and are awaiting legal completion in the UK. Of these, around 100,000 will miss the stamp duty holiday cut off of 31 March 2021.

Just a reminder that there is a Covid clause you can add to your conveyancing contract before you exchange that could save you a lot of money as we inch closer to the deadline.

The ONS now has the average house price in the UK in November 2020 at £250,000, an increase of 7.6% year on year. It’s also the first time average house prices in London surpassed £500,000.

Best buys

Current account: Virgin Money 2.02% AER

Instant access savings account: Nationwide Start to Save 1% AER (pay in up to £100 a month)

Regular savings account:

• Natwest Digital Regular Saver 3.04% AER (pay in up to £50 a month, with higher rate paid up to £1,000)

• Cambridge Building Society 3% AER (pay in up to £100 a month, no withdraws)

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Finally...

The Competition and Markets Authority (CMA) has released a new research paper on online algorithms and how they can reduce competition and harm consumers.

Specifically, it looks at how companies are tracking and collecting our data to build profiles of our persona and how they could then use this information to augment our online experiences, and manipulate the prices we pay, often without us realising it.

Most of it is quite dry but the anecdotes are particularly interesting.

For example, it cites a 2016 NPR interview with Keith Chen, Uber’s head of economic research, where he revealed that “people are more likely to pay for surge if their cell phone is almost out of battery”.

Uber says it doesn’t use that information to set prices, mind, but it certainly offers food for thought on what unscrupulous companies could get up to.

The same information that’s used to set prices could also foster discrimination if left unchecked.

The CMA highlighted research papers that looked at whether freelancers using online marketplaces such as TaskRabbit and Fiverr had fewer favourable reviews because of their gender or race and whether hosts of a certain demographic made less money than others on Airbnb.

While the CMA’s objective in the long run is to identify problematic algorithms and look at whether and how they might be policed, doesn’t it make you wonder whether you should regularly shop in incognito mode or think about readjusting your privacy settings?

PS, the deadline for the third Self-Employment Income Support Scheme (SEISS) grant is coming up on 29 January so make sure you apply if you haven’t already.

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