How employees can take control of their finances in 2022

Many employees are aware that they should be paying off their debts, saving more, or spending less, but actually taking control of their finances and making decisions, can be daunting.

2022 is set to be a financially challenging year. Rising inflation, increasing bills and rising energy costs, coupled with possible interest rate hikes will all put pressure on household finances. As such, now is a great time for employees to commit to organising their financial affairs, and to work out how they are going to pay for those increased costs.

Here are our list of tips for employees to help them take control of their finances in 2022:

Create a budget

Employees should work out exactly what their income is, and what liabilities they have e.g. mortgage/rent, debt, childcare, insurance and utility bills. If the amount of money they need each month is more than the amount they have coming in, they can then work out what action they need to take to cover their costs. MoneyHelper has a great budget planner.

Review all outgoings

It is important for employees to check bank statements and make a list of what is being spent each month. It is also helpful to divide these into utility bills (gas, electricity and water), mortgage or rent costs, council tax, supermarket shopping, monthly contracts for TV, broadband and mobiles, insurance, regular subscriptions, and other spending. This will highlight where money is going and where savings could be made. Unused subscriptions, or unused memberships should be cancelled.

Make managing debt a priority

There are many different types of debt with varying rates of interest, and it is often a good idea to make paying off expensive debts a priority. Credit cards and overdrafts can have rates of 18–40%, with payday loans having rates of 1,500% and more! For example, a debt of £3,000 with a rate of 18% APR, could take 10 years and 10 months to pay off if paying £50 a month, with a total interest paid of £3,495. If that monthly payment was increased to £100 a month, the debt would be paid off in three years and four months, and interest paid would be only £908.

A good option for any employee would be to consolidate any debts onto a 0% or low interest balance transfer card, as more money will go towards paying the debt off and enable them to clear it over a shorter time period.

Be a savvy shopper

By switching brands it might be possible for employees to significantly reduce the price of their regular shop. In addition, by planning for the weekly shop in advance, it may help them to search for deals and reduce expenditure on non-essential items.

Discount vouchers are often available through voucher and discount websites, and some employees have access to discounts through their employer. This could be crucial if they have to make a big purchase, such as replacing a washing machine.

Check for savings on household bills

It is possible to make significant savings on a range of household bills such as car, home and pet insurance, and broadband and mobile suppliers. Price comparison websites can help to make it easier to compare the different deals available. However, increases in wholesale energy costs mean fewer deals are available right now, so it may not be a good time to try to change utility suppliers, but there are still significant savings available on other bills.

Watch out for auto-renewals

Many insurance policies for cars, homes and travel, automatically renew each year, but employees may be paying more than they need to if they allow this to happen. To get the best deal and to avoid any potential price hikes with auto-renewals, employees should ensure they find out when their contract is due to end, and put it in their diary for a few weeks earlier, so they have plenty of time to shop around and switch or haggle where appropriate.

Set up a savings Direct Debit

If employees pay off expensive debts, and they can afford to save, it is often a good idea to set up a direct debit for saving into an ISA, pension or company share scheme. Often this means that they don’t notice that the money is going into their savings.

Start saving early

If an employee starts to save when they are younger, then that money has time to grow. ISAs are a great way to start saving, and enable access to savings should they be needed. It is also important to make sure that employees are saving into their pension from early on. Many are already paying 5% of their salary into their workplace pension through auto-enrolment, with an additional 3% employer contribution. However we know that many employers match additional contributions (up to certain limits). In fact, if an employee is in their 20s, by saving an extra 1% a year with their employer matching this, it is possible to increase their pension pot in retirement by 25%.

Beware of scams

Scammers tend to sound completely legitimate when they contact anyone. It’s easy to see why so many employees are fooled and it isn’t small amounts of money which are being taken. Action Fraud reported a doubling of the average amount lost by pension scam victims between January and May 2021 to almost £51,000 from around £23,689 in 2020. If someone contacts an employee with an offer which seems too good to be true, it’s vital to check whether the company is registered with the Financial Conduct Authority (FCA). The FCA’s ScamSmart website is also a good site to visit as it includes a warning list of companies operating without authorisation or running scams.

Take action

An employee shouldn’t worry if they don’t know where to start with their finances as there is plenty of help available. It’s always worth speaking to lenders to see if they can help if an employee is struggling with repayments, and Citizens Advice can help them understand how to deal with any debts.

Many employers also offer staff help through financial education and guidance.

The author is Jonathan Watts-Lay, director at WEALTH at work.

This article is provided by WEALTH at work.