Do you break out in a sweat when you have to check your bank balance? Do your eyes glaze over when you hear the word ‘pension’? You are not alone.
A quarter of adults have little or no confidence in managing their money, according to the Financial Conduct Authority, the financial services industry regulator, and nearly half say their knowledge of financial matters is “low”. Separate research found that more than half of adults surveyed had overpaid for something because they didn’t understand the jargon in a contract they had signed. Meanwhile, the Institute of Education at UCL says a woeful lack of maths ability in the UK is impacting on our finances. A quarter of adults struggle to work out how much change they should get in a shop, let alone how much interest they will end up paying on a credit card or payday loan.
We could all do with a helping hand. Here are five things that you should know to get a grip on your own personal finances.
Your credit history is REALLY important
It is a myth that you have one credit score. All financial companies have their own mysterious way of working out whether you are a reliable borrower; a good score means cheaper interest rates. Frustratingly their bespoke scores are kept under wraps but there are things that are guaranteed to boost your chances: make sure you’re on the electoral roll, never miss a bill payment, pay down debts (student loans don’t count) and disassociate your finances from any ex-partners with whom you shared joint finances.
You should save before you spend, but not necessarily in an Isa
The only way I can successfully save money is by paying myself first. As soon as my earnings come in I move a chunk into a separate account for bills. You can do this on your phone by setting up ‘pots’ through new online-only banks such as Starling or Monzo. If you save into an Isa the interest you earn on your money is tax free, but you get an annual tax-free savings allowance of up to £1,000 if you are a basic-rate taxpayer, or £500 for higher-rate taxpayers. A regular savings account, where you deposit a set amount monthly, will offer a better rate.
Do not ignore where your pension is invested
If you have an employer you will have been automatically enrolled into a pension. You contribute a minimum of five per cent, made up of a slice of your salary, employer contribution and tax relief. This will rise to nine per cent in 2019, but financial advisers warn that even this may not be enough. They suggest 12.5 per cent a month – some say take your age when you start saving and halve it; that’s the percentage you should contribute. A cheaper way to improve your pension is to think about where it is invested. You can move your money into a different fund – if you take more risk you may be able to grow your pot over time without having to give up any more of your salary.
Keep a close eye on your bills
Last week I heard from someone who has paid £3,500 for a mobile phone contract that he thought he had cancelled eight years ago. Mobile companies will continue to charge you if you don’t cancel your contract whether you actually use your phone or not. They will also overcharge you if you don’t search for a better deal as soon as your contract comes to an end – by as much as £494 a year, Citizens Advice found. The same applies to insurance, broadband, mortgages and energy, which means you could be paying £900 a year too much on utilities.
If you pay for the magazine you should always take it. Vendors are working for a hand up, not a handout.
Use or lose tax breaks
If you are married, one of you is a basic-rate taxpayer and the other earns under the threshold for tax (currently £11,850), you can receive £238 a year in marriage tax allowance. You could have claimed this since 2015, though 2.2 million of those eligible have not. Parents can also claim up to £2,000 a year to pay for childcare for each child aged under 11.
Don’t lose out on a full state pension, too, by not having enough national insurance contributions – you need 35 years. If you have had a break from employment you might need to top up contributions. This happens automatically if you are claiming child benefit, but higher earners who are not eligible for child benefit may miss out. You will need to proactively make up the gaps.
Laura Whateley writes about money, property and consumer issues. Money: A User’s Guide is out now (Fourth Estate, £7.99).