Life isn’t all about money, but knowing how to manage it properly can really contribute to a life well lived. As we launch into the new year for 2019, we wanted to share some ideas with you about how to potentially increase your spending power and save on unnecessary tax.
We hope you find the following helpful. Please note this is for information purposes only, and should not be taken as financial advice. If you would like to discuss starting a tailored financial plan, then we invite you to get in touch with us for a free consultation.
#1 Prioritise debts
Many people think they should prioritise building savings before clearing debts, but this is actually the wrong way around.
Consider for a moment what £3,000 in savings would bring you in the form of interest. You’d do well to get an interest rate of 1.5% these days on a savings account, which would produce £45 interest. However, £3,000 outstanding on your credit card would cost you £567 a year on 18.9% APR. Really, you should, therefore, consider focusing on clearing this debt first in order to free up that £567.
#2 Check your tax code
It is estimated that millions of people are currently on the wrong tax code. It is very quick and easy to check whether you are on the right code, and correcting any mistakes here could put hundreds – even thousands – back into your pocket.
Find your tax code by looking at your latest payslip, P45 or P60. Alternatively, you can contact HMRC directly with your national insurance number in hand. It might be, for instance, that you are entitled to a Personal Allowance (which allows you to earn £11,850 tax-free in 2018-19) but you are on the wrong tax code.
#3 Use your home, space or driveway
Do you live in a part of town where it is expensive to park? Do you own a car parking space, but never use it? You might want to look into websites such as JustPark or YourParkingSpace in order to rent it out to commuters and travellers.
Alternatively, you might want to rent out some empty storage space, rent out your home to film sets during times when you are away, or offer a room through Airbnb, Easyroommate or Spareroom.
#4 Cut your mobile phone bill
The arrival of the latest iPhone X ushered in a new era – one where people are willing to spend over £1,000 on a mobile phone. Naturally, we aren’t going to tell you that you can’t have one if you really want it!
With that said, mobile phones are an excellent area to look at if you are looking to free up spending money. If you are not too fussed about having the latest hot gadget, then there are lots of alternatives, second-hand devices which still offer top functionality (e.g. a high res camera).
Check your current monthly bill. If you are paying more than £20 per month, there’s a good chance that you can find a better deal by haggling with your current provider, or by shopping around elsewhere. Check your usage for minutes and data, and ask whether you are paying for more than what you really need.
#5 Check your tax plan
The income tax brackets are set to change from 6th April 2019. For UK residents outside of Scotland, the Personal Allowance will be going up to £12,500, and the higher rate threshold will go up from £46,350 to £50,000.
For those earning between £46,350 and £50,000, this would, therefore, mean that the tax you pay on your income within this bracket will be halved.
Effectively that amounts to about £60 a month. However, National insurance contributions within this bracket will be going up from 2% to 12%. This means that whilst your income tax here is reduced from 40% to 20, your NI contributions here will increase by 10%. The net increase to your earnings within this bracket is therefore only 10%.
At the same time, changes to auto enrolment mean that employees will be required to contribute a minimum of 5% towards their workplace pension (instead of the current 3%).
These developments likely have important implications for how you organise your financial affairs. Their precise arrangement might affect the amount of tax you pay, so speak with an independent financial adviser to check whether any improvements can be made.
#6 Check your spousal benefits
If you are a business owner and have a spouse, civil partner or long-term partner who does not work, then you might be some opportunities to save on tax.
For instance, if they are not already a shareholder in your business then you might consider making them into one. That way, you can each take advantage of your £2,000 tax-free dividend allowance when the company profits are distributed.
This rearrangement would mean more money ultimately makes its way to your household.
#7 Save on travel
Commuting costs are often a huge area where earnings are sucked up. This is especially the case with railway fares, which have increased by 3.1% from January 2019.
Check to see if there are ways you can cut costs here, as they can add up to big savings across the year. The 16-25 Railcard is an obvious consideration, which gives a third off qualifying rail fares. For those who are older, you might want to check out alternatives such as the Two Together Railcard – which offers discounts for couples travelling together.
For those who commute by car, you might want to consider sharing petrol with a fellow traveller. This might a colleague from work who shares your route. Or you could try a car-sharing website like Liftshare.
#8 Save on childcare
For parents with young families, the cost of childcare can be crippling – often wiping out the equivalent of one parent’s earnings. Therefore, make sure you take hold of any benefits held out to you by your work, our family and friends or the government.
For instance, if your employer offers childcare vouchers and you are not already taking advantage of this, then consider doing so. This can offer up to £55-worth of childcare a week (i.e. £243 a month), which is free of tax and National Insurance.