Monthly Archives

August 2022

Aug 24
0

The energy crisis – how it could change everything

By | Financial Planning

The rising cost of gas and electricity is a worry for many UK households in 2022. In November 2021, the energy price cap (set by Ofgem) was £1,277. By April 2022, however, it had risen by 54% to £1,971. Now, projections suggest that the 12-month cap could reach £3,420 by October. By April next year, however, it could even rise to £4,200 (over 3x more than in 2020).

Understandably, such an outcome would leave households considerably worse off and will have a huge impact on the political and economic landscape. Below, we suggest how things could play out in the coming years and how this could affect your financial plan.  

 

Less spending power

In December 2021, there were 29.5m payrolled employees in the UK and the average person earned £31,772 p.a in salary. Net of tax, this is £27,972. A yearly energy bill of £4,200 would, therefore, take away 15% of this take-home pay. The 2021 cap of £1,277, by contrast, might have taken closer to 4.57% of average UK net income.

Of course, many people do not earn the UK average salary. Recent graduates and part-time workers (e.g. parents), for instance, might earn a salary closer to £24,000. The UK’s poorest 20% of UK households had an estimated £12,798 of disposable income in 2018, making them very sensitive to energy price shocks. 

By contrast, The UK’s richest 20% of households had £69,126 – putting them in a much better position to weather the storm. Other groups (by household income) had disposable income of between £21,000-£39,000. Naturally, a higher energy price cap will mean less money to spend in the wider UK economy. Most households in 2022-23 are likely going to need to make tough choices about where to cut back on luxury spending – such as overseas holidays, dining and digital subscriptions – as more income is devoted to covering essentials.

 

Implications for financial planning

Of course, no one has a crystal ball and anything could happen between now and April 2023. Maybe Russia pulls out of Ukraine and re-opens oil pipelines to the west, leading to a fall in global oil prices. Perhaps the UK government initiates a huge financial support package (like the furlough scheme during the Covid pandemic) to help households cope with their surging energy bills, although this would put considerable strain on the public finances.

Yet households cannot depend on such outcomes. Generally, it is wise to prepare for the worst whilst hoping for the best. Here are some ideas to get your wealth and finances in better shape before further potential rises in the energy price cap:

  • Optimise your mortgage (likely your biggest monthly expense). Those on a variable rate might benefit from moving to a fixed rate deal, which is typically cheaper.
  • Clear costly debts (e.g. personal loans and unpaid credit cards).
  • Review your tax plan to ensure you are getting the most out of your income. Our recent article on this topic offers 5 ideas to help you here.
  • Review your budget and eliminate needless spending – such as digital subscriptions or gym memberships that you hardly ever use.
  • Get your protection plan up to date. Policies such as life insurance, critical illness cover and income protection can provide much-needed financial stability and support to your loved ones should the “worst happen” to you.

 

Invitation

Interested in finding out how we can optimise your financial plan and investment strategy? Get in touch today to arrange a free, no-commitment consultation with a member of our team here at WMM. 

You can call us on 01869 331469 

 

This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult us here at WMM (financial planning in Oxfordshire).

 

Aug 17
0

5 tax-planning strategies to improve your income

By | Money Tips

With rising energy prices putting pressure on households, many are looking at ways to tighten up their budgets to maintain financial stability. Yet have you considered how your tax plan might also aid your efforts? At WMM, our financial planning team in Oxfordshire offers five ideas to help you save on needless tax and free up more disposable income.

 

#1 Check your tax code

It is estimated that millions of people are on the wrong tax code – often leading HMRC to claim more in tax than is necessary. Some people have managed to claim back £1,000s after being on the wrong code for years. This can happen, for instance, when you change jobs and might be placed on “emergency tax” (which does not grant your Personal Allowance). Check your pay slip to be sure. The most common code for employees is 1257L.

 

#2 Claim all relevant expenses

For sole traders and those with self-employed income (e.g. a side business), make sure that you keep thorough records of your expenses. Claim everything you are entitled to, since your profits will likely be subject to Income Tax. Did you buy a new computer for your graphic design projects, for instance? What about software subscriptions that you use for work? You may also be entitled to claim travel expenses too.

 

#3 Raise children with tax-efficient income

New parents know how eye-watering childcare fees are today. The average price of an after school club, for instance, is £62.13 per week (£2,423 a year during term time; i.e. 49 weeks). Moreover, 50 hours of day nursery (for a child under 2) is £263.81 per week. 

Many households feel like they have no choice, therefore, but for one parent to stay at home whilst the other works full-time. However, depending on your circumstances, it may improve your overall household income for both parents to work part-time – with each person doing a day, or two, at home with the kids each week. 

This is partly because both parents can earn up to £12,570 per year, tax-free, under their Personal Allowance. It is more tax-efficient, for instance, if two parents both earn £40,000 between them than if only one person earns £40,000 (where £27,430 is subject to the 20% Basic Rate, leading to a £5,486 tax bill).

 

#4 Review your dividend-salary balance

If you not only take a salary but also a significant dividend (e.g. company directors), then you might want to check that you are getting the best tax deal from the arrangement. You can earn up to £2,000 in dividends each year, tax-free. After that, the tax rates on dividends are lower compared to income tax bands (8.75% and 20% for the Basic Rate, respectively, and 33.75% and 40% on the Higher Rate, respectively). 

Increasing your dividends and lowering your salary might, therefore, help you save on overall tax and boost your household income. However, bear in mind that dividends are not guaranteed (e.g. if your business has a bad year) and mortgage lenders may not offer you as much if/when you approach them.

 

#5 Check your council tax

Council tax bills rose 3% on average for most English households earlier in 2022. Many were placed in bands that were too high, leading to claiming back £100s or even £1,000s. However, 100,000s have still not challenged potential banding errors. 

You can check the valuations of your neighbours (and properties like yours) using the government’s VOA website here. From there, you can use free house price websites to check what your home is likely worth. Take care, however, as this process does not only lead to your council tax going down. After a “reassessment”, it could go up! So, make sure you do a thorough check and are confident you have a strong case.

 

Invitation

Interested in finding out how we can optimise your financial plan and investment strategy? Get in touch today to arrange a free, no-commitment consultation with a member of our team here at WMM. 

You can call us on 01869 331469 

 

This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult us here at WMM (financial planning in Oxfordshire).

 

Aug 10
0

How much should I have saved by 40?

By | Retirement Planning

By age 40, many people have already achieved key milestones in their life. Perhaps you are firmly on the housing ladder, married and with young children. However, many goals still lie ahead of you – such as retirement – and you need savings to help you move towards them. Yet how much should you have saved by age 40? Below, our Oxfordshire-based financial planning team at WMM outlines the UK savings landscape in 2022, some ideas for a healthy savings target and how to integrate this into a wider financial plan.

 

What is the average UK savings amount at age 40?

Let’s first distinguish between common savings and pension savings. The former includes cash held in an ISA or regular account and is often used for purchases like a house extension, a new car or a family holiday. It is also used as a “rainy day fund” (for emergencies). Pension savings, however, are locked away until age 55 (rising to 57 in 2028) and are commonly used to fund a retirement lifestyle. 

Around 1 in 8 UK adults (6.5m people) have no cash savings to their name whilst a third have less than £2,000 to their name, leaving many vulnerable to shocks such as sudden job losses. Those aged 35-44, however, typically have £16,000 in cash savings.

 

How much should I have saved by age 40?

As a general rule, it is wise to have 3-6 months’ worth of living costs ready in easy-access savings account for emergencies. This helps prevent you from turning to debt if, say, you need to suddenly take unpaid leave to help care for a terminally ill relative. Here in Oxfordshire, the average monthly living costs for a family of 4 (excluding rent) are £2,473. Therefore, saving £15,000 in emergency savings might cover 3-6 months’ worth of living costs in an emergency.

 

Building cash savings at 40 – some considerations

Of course, £15,000 is a lot of money and would take time for many people to build up. It also imposes a potential “opportunity cost” on your finances (i.e. money saved towards your cash buffer could be put to better use elsewhere, such as overpaying the mortgage). Bear in mind that your target may be higher or lower depending on your needs and circumstances. 

Consider speaking to a financial adviser about how to best build your emergency fund so that your other savings/investments are not neglected (e.g. pension contributions). Be careful, also, not to save too much in cash. Historically, cash has been a poor asset for keeping up with inflation. In 2022, interest rates on savings accounts have gone up, but are still far below the currently 9.4% rate of inflation. This means that cash will almost certainly lose value over time and so households should consider investing in other asset classes (which have the potential for higher returns) once their cash buffer is ready.

Another thing to be mindful of is your use of ISAs. In 2022-23, you can put up to £20,000 into your ISAs and receive interest, capital gains and dividends tax-free. However, committing cash to your ISAs is almost certainly going to be a waste of your ISA allowance. Remember, you can generate up to £1,000 in interest outside an ISA each tax year (£500 for those on the Higher or Additional Rate). Assuming you limit your cash savings to your target 3-6 month emergency fund, therefore, most people are unlikely to need to use an ISA to save on tax on interest. This then allows you to use more of your £20,000 ISA allowance towards other investments such as equities or bonds.

 

Invitation

Interested in finding out how we can optimise your financial plan and investment strategy? Get in touch today to arrange a free, no-commitment consultation with a member of our team here at WMM. 

You can call us on 01869 331469 

 

This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult us here at WMM (financial planning in Oxfordshire).