Due to the success of the Covid vaccination programme, the UK is finally starting to emerge from the pandemic. However, there have been some worrying economic developments in recent months that show we’re not quite out of the woods yet.

These issues can seriously eat into your wealth if you’re not careful, which can affect your progress towards your financial goals. Thankfully, this is where working with an expert can help you.

If you want to avoid running into any problems in 2022, here are three important financial issues that you should seek professional advice for this year.

1. Rising inflation could reduce the real value of your money

One major issue that is likely to affect your finances in 2022 is the rise in the rate of inflation. According to figures from the Office for National Statistics, the Consumer Price Index (CPI) rose to 5.5% in the year to January 2022. This means prices were, on average, 5.5% higher in January than they were a year ago.

The reason why inflation is a problem is because it eats away at the buying power of your money over time. If you want to see the impact that this can have over time, the Bank of England’s inflation calculator can be useful.

For example, goods and services that cost £10,000 in 1991 would have cost £22,844 in 2021, due to an average annual inflation rate of 2.8% over that period.

Rising inflation can particularly be a problem if you hold a large portion of your wealth in cash. While experts typically recommend keeping some of your money in this way to act as an emergency fund, having too much might mean your savings are losing their real value over time.

This is because the interest rates you receive on your cash savings are likely to be significantly lower than the inflation rate.

If you want to reduce the impact inflation has on your finances, you may want to seek professional advice, so you can make properly informed decisions.

For example, a planner may recommend that you reduce the amount you hold in cash and invest some of that wealth instead. This is because investments typically see stronger returns, which may outpace the rate of inflation.

2. The Bank of England may raise interest rates further this year

The second issue that you might run into in 2022 is that of higher interest rates, which could make mortgages and other loans more expensive.

As the UK’s central bank, one of the responsibilities of the Bank of England (BoE) is to keep inflation under control. Typically, they aim to keep it at 2% and, when it is higher or lower than this amount, they often take steps to address it.

To combat inflation, one of the most useful tools that the BoE has at its disposal is the ability to raise the base rate. This is essentially the interest rate that they charge commercial banks to borrow money from them which, in turn, influences the interest rates that lenders offer.

In response to persistently high inflation, the BoE raised the base rate to 0.5% in February and has hinted that there may be further increases to come.

While this move may be good for the economy, it could make variable- and tracker-rate mortgages more expensive. It could also push up the cost of other products, such as fixed rates.

If you’re concerned about this, you may benefit from seeking professional advice. For example, a broker can scour the market on your behalf to find the most appropriate mortgage deal for you.

3. The government’s planned tax rises may mean you have less take-home income

The third and final issue that you may want to seek advice for in 2022 is the fact that the government’s planned tax increases may mean you have less take-home income. This is obviously a problem as it may slow your progress towards your financial goals.

According to the Guardian, between the rising cost of living and these proposed tax rises, you could be worse off by as much as £1,200 this year.

To help support the NHS and cover the social care crisis, the government plans to increase taxes in April 2022. Most notably, your National Insurance contributions (NICs) will increase by 1.25 percentage points.

Which? report that, from April 2022, someone earning £40,000 will pay around £380 in additional NICs a year.

If you want to minimise the impact that these tax rises may have on your long-term plans, you may benefit from seeking professional financial advice.

For example, a planner might recommend that you use salary sacrifice to reduce your NICs. This is essentially when you voluntarily reduce your salary in exchange for other benefits, such as greater pension contributions from your employer.

Of course, while this can help you to reduce your NICs and save more for your future, this isn’t suitable for everyone. Indeed, the resultant reduction in your salary from increasing your pension contributions may reduce the amount a bank might lend you when you come to take out a mortgage.

If you want to gain more confidence that financial disruptions won’t affect your progress towards your financial goals in 2022, working with a planner can help.

Get in touch

If you’re concerned about any of these issues affecting your financial wellbeing, we can help. To find out more about how we could help you or if you have any questions about our services, email enquire@london-money.co.uk or call us at 0207 808 4120.

Please note

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

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