Christmas budgeting: 12 tips to save money during the holidays
Christmas is just days away, but there are still ways to save ahead of the holidays. It’s also a great time to think about next year too.
There’s no doubt that Christmas is an expensive time of year. From turkeys to crackers – gifts and travel, we spend a lot to be with our families and friends at this time of year and that puts pressure on everyone’s budgets.
With inflation rampant and energy bills getting higher as the weather gets colder, it pays to keep saving money at the front of our minds as we go through the holidays.
But it’s not just this year you should be preparing for – the best time to think about how to make Christmas 2023 more affordable is now!
Here are some ideas to help your money go a bit further.
Christmas 2022
- Set expectations
There is understandably a lot of pressure at Christmas to buy lots of gifts, get your loved ones the latest gadgets and generally to spend a lot of money. It has become a highly commercialised holiday.
But this year, more than ever, it’s important to set the right expectations. If you feel like buying lots of gifts for all your friends and loved ones is going to stretch you too far, it’s important to talk to them so they understand why you might want to go more low-key.
Good alternative solutions include Secret Santas, setting price limits for gifts and opting for ‘free’ gifts such as giving each other time together instead.
- Use cashback and vouchers
Cashback is an easily forgotten trick to save money when making purchases. Using websites such as Quidco and Topcashback can save you valuable pounds when buying big ticket items at a variety of high street retailers. It can also save money on the Christmas food shop.
There are no catches either, as the retailers are paying the cashback firms to bring them your business.
- Don’t overspend your salary
It’s quite common for salaried employees to get their pay early before Christmas. Employers do this as a perceived act of kindness to help people through the holidays.
But this act of kindness can come with a sting in the tail because it accidently lengthens the time in which you have to stretch one month’s pay to the end of January (depending on when you normally get paid).
If you do get your salary early this month, make sure you’re planning for those days in January long after Christmas is over.
- Make sure you’re getting a good deal
It’s easy to get sucked into the hype when retailers push big ‘sales’ to shift products. This becomes all the more true the closer Christmas comes and the more products they have unsold.
But these discounts aren’t always as they seem. Make sure you shop around for the best price on the product and use services such as Camelcamelcamel – which can tell you if products on major sites such as Amazon really are a good price.
- Look for second hand
With the cost-of-living crisis, the second-hand market for all sorts of products is looking pretty rosy. People are looking to raise a bit of extra cash for their stuff, and there are many great services to match sellers and buyers.
Services such as eBay and Facebook Marketplace are the go-to, but other upstart apps such as Depop and Vinted are soaring in popularity. Be prepared to haggle though, and don’t send any money without being 100% certain you’ll get the item. This is especially true on Facebook Marketplace, where there’s little buyer protection in place.
- Don’t overbuy
It’s easy to think you need reams and reams of food, drink, and other consumables over the holidays. Afterall, what is Christmas for but a bit of indulgence? It’s also easy to think that shops will be closed, so you need to stock up as much as possible.
But the truth is that most retailers are open again by Boxing Day, so not overbuying could save you some money overall. A quick trip to the supermarket to top up on the food and drink after Christmas could also yield some big discounts, as shops look to shift unsold items too.
- Buy at the right time
Similar to the above – buying in advance can be a counterproductive strategy. As we get closer to the holiday days, shops will put more items on discount as they look to clear shelves.
Just be careful though as this can be risky if things go out of stock completely. This is especially true this year with a turkey shortage on the cards. But, if you have a good selection of supermarkets in your local area, trawling through them can really do the trick.
- Do online comparisons
Another supermarket trick people often forget is to do a comparison on the prices of essential Christmas goods. As above, you can trawl around local shops looking for the best prices, but it’s possible to do all that from the comfort of your own living room.
Sites such as Mysupermarketcompare do a great job of showing what items are most keenly priced and where, so do your research and save!
- Have a potluck
Christmas dinner can be an onerous task if you’re the host. It costs time and money and burning the pigs in blankets will not help anyone’s stress levels!
Potlucks are a potential alternative idea for Christmas dinner. Popular in the US, especially around Thanksgiving, it involves all the guests at your big dinner doing one dish themselves. This relieves some of the cost (and stress!) of hosting.
Christmas 2023
- Christmas in January
Christmas in January?! It’s the best time to start preparing. With the holiday season, crackers that cost £30 could cost £3 as supermarkets offload everything that didn’t shift.
The same goes for things like decorations, toys, electronics and pretty much anything else. Save your money by buying in advance and you’ll be set for the next one before you know it.
- Fund your gifts with clutter
It’s a little late to be paying for gifts with things you sell this year, but this is a great strategy to cover costs for 2023. Having a clear-out of items you don’t use or want any more is a great way to raise some extra cash in any event, but that money can be put towards the next Christmas pot to alleviate the costs.
- Save a year in advance
One of the best long-term strategies for paying for the costs associated with Christmas is to start early. With interest rates at more than decade highs, savings rates haven’t looked so good in a while.
There are a number of ways to go about saving money for next year. If you have a lump sum, a 12-month savings account can generate a return of around 4.35% at the moment. If you want to save small amounts regularly, an interest-paying current account could be a great option too.
Christmas savings clubs are an option too but come with some risk attached to them – sometimes providers go bust, leaving families without money as these schemes are generally not protected in the same way as normal savings. They can also put limits on where you spend the money, making it quite inflexible.
Generally, then, it is better to go DIY and put the money into a saver that will give you a nice little return for something extra next year.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 13th December 2022.
The World In A Week - They think it’s all over
Written by Chris Ayton.
Global equity markets were up in local currency terms last week; however, Sterling’s continued recovery left the GBP return for the MSCI All Country World Index up just +0.4%. In fixed income, the Barclays Global Aggregate Index was up +0.9% in GBP Hedged terms.
The S&P 500 Index was up +1.2% for the week in local currency terms but just +0.1% in Sterling terms. The US Dollar fell back sharply over the week as data suggested that both core inflation for consumers and cost pressures for the manufacturing sector were easing. A speech from Fed Chairman, Jay Powell, also raised hopes that the Federal Reserve would slow its pace of future rate rises. Similarly in the UK, the FTSE All Share Index rose +0.7% as data from the Bank of England suggested that inflationary pressures may be easing here too, potentially giving the Bank of England’s Monetary Policy Committee some room to be less aggressive on rate rises going forward.
Euro Area producer price inflation slowed more than expected, influenced by weakening foreign demand for German exports and strained supply chains. EU member states agreed to implement a $60 ceiling on global purchases of Russian oil in a deal designed to dent Russia’s oil revenues. The cap is set to also be adopted by G7 countries, allowing countries such as China and India to continue to buy Russian oil but at a lower price. That said, China and India have not yet confirmed they will implement the cap.
Emerging Market equities enjoyed another good week with MSCI EM up +2.5% in GBP terms. China was the key driver of this, with MSCI China up 7.6% on the week despite ongoing protests surrounding China’s Zero-COVID policy.
In Asia, India continued to perform well as investors are attracted to India’s strong GDP growth (predicted at 6.5%-7% for FY23) and they were further buoyed by a Reserve Bank of India bulletin signalling that inflation was slowing. Japan was the laggard as MSCI Japan fell back -3.0% in local currency terms although the losses for GBP investors were dampened by the continued rebound in the Yen which is being driven by hopes that the Federal Reserve in the US will start to slow its rates increases as well as the Bank of Japan’s efforts to prop up the currency.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 5th December 2022.
© 2022 YOU Asset Management. All rights reserved.
The World In A Week - Giving thanks for what?
Written by Shane Balkham.
American families congregated together to celebrate the harvest and give blessings for the year that is passing. Thanksgiving and its subsequent commercialisation being Black Friday, will be an interesting reflection point for 2022. What, if anything, will the American consumer be grateful for? With the cost-of-living crisis continuing to squeeze Middle America and as central banks blindly continue to hike rates, was there any salvation for retailers over the weekend?
Mastercard has forecast that Black Friday will see the American consumer spend 15% more on the equivalent day in 2021. This projection itself seems inflated, however, the forecast represents the strategy that retailers are offering short-term promotions in order to clear inventories that have built up in a slowing economy. Interestingly, it is expected that Black Friday online sales will surpass $9 billion for the first time, according to Adobe Digital Insights. After two years of pandemic-related anxieties, shoppers are expected to return to physical stores this year.
The minutes from the Federal Open Market Committee (FOMC) were published last week and described a desire to slowdown the pace of rate hikes but fell short of signalling an actual pause. These minutes were taken over three weeks ago, and since then we have had several members of the FOMC give speeches that reinforce the growing expectation that the Federal Reserve realise that policy may have gone beyond what is needed.
With the next FOMC meeting a little over two weeks away, there is insufficient time for the data on which the decisions are heavily reliant to show what the market already suspects; that inflation is slowly being tamed and central banks have seemingly delivered adequate rate hikes. This leaves the FOMC with a difficult decision on 14th December, as there is an inherent lag between monetary policy actions and the behaviour in economic activity and inflation. Based on Chairman Jerome Powell’s previous comments on maintaining a firm stance on combating inflation at all costs, it is likely that we will see a fifth successive 0.75% rate hike. Whereas the decision in the September meeting was unanimous amongst the members of the FOMC, it is likely that this next vote will be split.
Across to the opposite side of the world, China reported the first COVID-19 fatalities for over six months. There is widespread expectation that China will ease restrictions, however this is only likely once China has approved its own mRNA vaccine (similar to the Pfizer-BioNTech and Moderna vaccines) and roll out programme. Until then, a continuation of lockdowns and restrictions will remain in place. However, a zero-tolerance towards COVID-19 policy can only work if the population believes that the frequent lockdowns will actually work. It would appear that many do not have that faith with protests held in Shanghai and Beijing over the weekend.
It is unusual to see the Chinese people challenging the authorities, with banners protesting against President Xi Jinping and his policies, reminiscent of the Tiananmen Square protests in 1989. Although the protestors represented a relatively small portion of the population, it does show the need for China to tackle the virus quickly, especially against a slowing and faltering economy.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 28th November 2022.
© 2022 YOU Asset Management. All rights reserved.
The World In A Week - Far East Market Frenzy
Written by Cormac Nevin.
Global equity markets were broadly flat in local currency terms last week, however there was a significant weakening in the US Dollar vs Sterling and other currencies which left the GBP return for the MSCI All Country World Index down -1.6%.
The weakening dollar was driven by hopes that slowing economic data might prompt the Federal Reserve in the US to slow, pause, or even reverse its path of monetary tightening to combat inflation. This caused a rally in Emerging Market equities and Fixed Income which have come under significant pressure from the incredible strength of the US Dollar over recent years.
This rally was particularly pronounced in China, as the MSCI China Equity Index is up +20.0% for the month of November to date in GBP terms. This rally has been spurred by the unveiling of support for over-indebted property developers by the authorities in Beijing, as well as tentative rumours of a potential relaxing of the economically disruptive COVID-Zero policy. Whether these measures prove substantial and lasting remains to be seen, but they provided enough hope for markets to rally significantly, having taken a significant beating and reaching more attractive valuations.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 21st November 2022.
© 2022 YOU Asset Management. All rights reserved.
The World In A Week - The markets loved the surprise
Written by Millan Chauhan.
Last week, we saw inflation in the US slow for a fourth month in a row with year-on-year inflation printing at 7.7%, which was 0.3% lower than estimates. This was also 0.5% lower than the September reading. The month-on-month inflation rate was 0.4% and it does look like inflation has slowed, thanks to recovering supply chains and reduced consumption levels, as the Federal Reserve’s run of rate rises start to bite. Core CPI (which strips out energy and food prices) rose by 0.3% over the month and 6.3% on a year-on-year basis. A decline in the inflation rate simply means that prices are not rising as quickly.
Following the lower-than-expected reading of CPI, in the US we saw a rally in growth-exposed or longer-duration assets (assets that are more sensitive to interest rate changes), with the S&P 500 closing +5.5% in local currency terms last Thursday alone. For the week, the S&P 500 closed +5.9% and the technology heavy NASDAQ 100 closed up +8.9%, both in local currency terms. Markets responded well to the inflation news. It was announced that the Democratic Party also retained control of the US Senate, but the Republican Party is inching closer to securing a House of Representatives majority.
Elsewhere, Jeremy Hunt signalled that ahead of his announcement of the Autumn budget this Thursday, the Government is planning to implement a large package of spending cuts and tax increases to finance an additional £70 billion of additional borrowing.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 14th November 2022.
Cost-of-living crisis scams: what to watch out for
Cost-of-living crisis themed scams are on the rise and the public are being warned to watch out for fraudsters looking to take advantage.
Banking industry trade body UK Finance has warned the public that the cost-of-living crisis has made people more receptive to unprompted and potentially fraudulent approaches offering too-good-to-be-true investments in particular.
One in six (16%) of Brits say the rising cost of living has made them more receptive to such approaches according to the trade body, while more than half (56%) of adults are likely to look for income-boosting opportunities as inflation and interest rates bite.
Young people in particular are more at risk as their financial situation tends to be more precarious. One in three (34%) 18- to 34-year-olds said they were more likely to respond to an unsolicited approach about an investment or loan opportunity.
Three in five (60%) people are worried about falling victim to a scam, highlighting an awareness of the prevalence of financial scams among the public after years of rising losses suffered by individuals.
In the first half of 2022 some £610 million was lost to financial fraud according to UK Finance figures.
Katy Worobec, managing director of economic crime at UK Finance, comments: “The rise in the cost of living can be worrying and stressful and for many keeping on top of finances might be a struggle. It’s important for everyone to be conscious of criminals taking advantage of people’s anxieties around finances by staying alert for fraud.
“We encourage everyone to follow the advice of the Take Five campaign – always be cautious of any messages or calls you receive and stop and think before sharing your personal or financial information. Avoid clicking on links in unsolicited emails or text messages”.
What scams should you watch out for?
UK Finance lists some typical scams that everyone should be aware of and has three key messages to help people protect themselves.
Those scams are:
1. Purchase scams. This is where someone looking for a cheap deal online finds a product for a too-good-to-be-true price. Often through search engines, fraudulent websites offer items such as expensive electronics at unbelievable prices. But if the website looks odd, has few reviews or the payment method is through an unusual format such as bank transfer, it is likely a scam.
2. Impersonation fraud. This is where criminals convince victims to pay for something while pretending to be from a trusted organisation. There are rising reports of fraudsters hacking service provider accounts – such as the emails of a solicitor, broker or other high-value professional service. The scammer then convinces the client to make a money transfer payment out of the blue using the hacked account. Anyone asked out of the blue in such a way should make efforts to speak to the known party either face-to-face or over the phone to confirm if the request is legitimate.
3. Payment in advance fraud. This is where a scammer offers a product, loan or other offering which seems too good to be true, with the fraudster requesting a payment in advance of receiving the product or service. The product paid for then never materialises or the fraudster vanishes and becomes impossible to contact.
4. Investment fraud. With the cost-of-living crisis worsening, UK Finance found 14% of people are more likely to search out new ways to earn money through investments. But this leaves many at risk from investment frauds – where unrealistically high interest rates, yields or other returns are promised in exchange for large cash investments. Like other scams this then typically either vanishes, becomes impossible to remove the cash from the scheme or a company will go ‘bust’ with the scammer absconding with the investor cash.
The three key messages from UK Finance’s Take Five to Stop Fraud campaign to keep people’s money safe are:
- STOP: Taking a moment to stop and think before parting with your money or information could keep you safe.
- CHALLENGE: Could it be fake? It’s ok to reject, refuse or ignore any requests. Only criminals will try to rush or panic you.
- PROTECT: Contact your bank immediately if you think you’ve fallen for a scam and report it to Action Fraud.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 9th November 2022.
Energy shortages: can you get paid to use less electricity this winter?
The energy crisis has put extraordinary pressure on household budgets as the price of gas has soared this year on the back of the war in Ukraine.
As a result, the Government has been moved to take steps to soften this blow for families who might otherwise face difficult spending choices.
Among help already in place is the Energy Price Guarantee which is designed to keep average household bills around £2,500 per year this winter, with a cap on the unit costs of the energy each home uses.
Plus, families will also be receiving a £400 rebate through their direct debits, paid monthly. There is also more targeted help for pensioners and those on benefits.
But another scheme is being launched that could pay households to use less energy still.
National Grid Electricity System Operator (ESO) is launching a scheme which would pay households with a smart meter to use less energy, by for example shutting off appliances such as tumble dryers and washing machines, at peak hours.
The National Grid ESO is one of the operators of the energy network infrastructure in the UK. It works with suppliers such as British Gas, which administer the process of providing energy into homes.
Why is this happening?
The issue the UK is facing is worse than just high prices at the moment. Worst-case scenario planning has the UK potentially facing blackouts in January and February because the energy network simply doesn’t have enough fuel to power everyone’s homes and businesses.
Plans are in place to implement a system of rolling timed blackouts, affecting different homes around the country at certain times.
But much of the jeopardy comes because people tend to use energy in their homes at similar times, particularly in winter. Think – coming home from work in January, putting on the heating and washing your clothes. We all tend to do similar activities at the same time.
Energy payment scheme explained
The National Grid ESO trialled the scheme with customers of energy firm Octopus who had a smart meter earlier this year. This trial is now being rolled out nationally between November and March.
The scheme operates through whoever your energy provider is at home, but not all suppliers will necessarily sign up. If yours does, and you have a smart meter, they will contact you with the details. You’ll get notice 24 hours ahead that if you reduce usage between peak hours, you’ll get a rebate on your energy bills.
The plan would be for any household with a smart meter that avoids using energy-intensive appliances at peak times (between around 4pm and 9pm) will get paid around £3 for every kilowatt hour (kWh) they don’t use compared to an average.
Reports estimate that some households could earn as much as £10 a day for avoiding peak times. There are currently just 12 test days planned between now and March for the scheme, which means participating households could get up to £120 back.
Customers of some providers already get discounts on bills if they use electricity late at night instead of peak times, such as Octopus’s Economy 7 tariff.
Other providers such as Ovo already have a trial scheme in place to ask customers to cut their consumption. Those that manage to lower their usage to the firm’s threshold will get up to £100 for their efforts.
National Grid has launched a campaign to raise awareness of the scheme but it’s up to energy suppliers to administer, so keep an eye out for further details from yours.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 9th November 2022.
NS&I hikes rates again – are they a good deal?
National Savings & Investments (NS&I) has upped the rates on its savings products again in the wake of the Bank of England hiking the bank rate on consecutive occasions.
NS&I now offer a Direct Saver with a return of 1.8%, up from 1.2% and 1.75% on its Direct ISA. Income bonds now also offer 1.8% returns – the highest level since 2012. Earlier in October it also increased the prize fund rate from 1.4% to 2.2% in premium bonds.
This is not a guaranteed level, but the average rate it says savers can now get based on prize wins in its premium bonds. That means you could win the top £1 million prize – or nothing at all. In practice the 2.2% rate is the average of what most savers will see as a return on their cash each year.
So, with these rates now at a decade-long high, is it time to put our cash back in the national savings bank?
Better rates elsewhere
NS&I holds a special place in the public’s imagination. Premium Bonds in particular are popular because of the prize-draw element of the savings product.
But in reality, the firm’s rates are inferior to other savings providers by some margin.
For example, at the time of writing, the best easy access account rate comes from Marcus By Goldman Sachs, with a 2.5% rate of interest on its savings account and its cash ISA, and no notice necessary to withdraw your money.
If you save for one year, you can get 4.6% from RCI Bank. For a five-year fix this rises to 4.95% from the same firm. If you want to shelter cash in an ISA, you can get a one-year bond from Aldermore for 3.65% or a five-year cash ISA from Leeds Building Society paying 4.31%.
It goes without saying then that NS&I is definitely not the most competitive. But it is also true that it will pay you a better rate than most high street banks, where you might hold your current account.
The interest rate outlook
The issue with these rates is while they look much better than in recent years, they still sit way behind inflation, which currently stands at around 10%. If you plump for the top-rate one-year bond, you’re still seeing your savings devalue by around 5.5% in a year.
On 3 November, the Bank of England staged the largest single rate hike since September 1989, hiking 0.75% and taking the base rate to 3%. This will no doubt push savings rates up even further.
But if we look into the detail of what its Monetary Policy Committee (MPC) said about the trajectory of interest rates, it believes financial markets are now overpricing its interest rate path, thanks to softening economic data.
What does this mean in practice?
Despite the big fresh hike, many firms that price their products on interest rate expectations, such as savings and mortgage providers, may now be overestimating how high the ‘terminal’ bank rate will go.
This terminal rate is essentially the high-water mark for the actual bank rate. If the economy is now largely overestimating this high-water mark, interest rates, counterintuitively, could now fall -or at least moderate – somewhat.
In short, this means that interest rates on financial products could already be near their high point and will at least remain well-short of inflation until price rises come back to normal levels, something the MPC only sees happening in 2024.
In the short term, having some cash set aside can be a good tool for anyone building wealth. See our article here on that. But in practice, investing still offers the best route for anyone thinking about long-term wealth growth.
Although investment performance is not guaranteed, it has generally been a better tool for wealth growth over a long-time frame.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 9th November 2022.
How to protect your wealth in tough economic times
We’re not yet at the end of 2022 and it’s clear it has been a tough year for investors.
A toxic cocktail of inflation, rate hikes, quantitative tightening and Government instability leading to tax hikes has combined to create one of the toughest climates in decades for anyone looking to build their wealth.
But while it has been a difficult climate for many to deal with, there are some key measures anyone can take to protect and improve their wealth in such times.
The key to this is effective and active financial management and getting the right advice at the right time. Here are some ideas.
Hold some cash
This is a very basic idea, but it needs to be reaffirmed. Have a cash buffer. If you’re younger, have a family with dependents to look after, bills and a mortgage to pay it is essential to have a rainy-day fund to protect you in the event of a job loss or other problem that could leave you without an income or needing to pay a big bill.
If you’re in work, a rule of thumb is to look at your overall monthly outgoings and consider saving in cash up to a level of three to six months cover. You might want more or less, but consider how quickly you think you’d be able to get a new job and have that regular income coming back in.
If you’re in work, it’s also essential to have income protection plans in place and life insurance were the worst to happen. The younger and healthier you are, the cheaper the policy will be for you.
If you’re retired or not reliant on a wage for your living costs, then a cash buffer is really important in volatile markets. This is because if you’re using your wealth to pay for your cost of living, having to sell out of an asset when valuations are down will bake in losses permanently. Having cash to draw on is important for this in the short term.
Of course, holding cash is always at risk of devaluation thanks to inflation. This is an acceptable risk though with short-term framing for the use of this cash. To mitigate it, spread the money into savings accounts that pay decent rates. Put some in an instant access account and others in longer-time releases to benefit from better rates.
Savings rates in cash accounts are still well behind inflation but are better than they were even just a few months ago.
Beyond that if you’ve already got that cash buffer in place, top it up to an equivalent level to match your rising costs each year – or by the level of inflation if that’s easier to figure out.
Pay off debts
Debt in the current environment can be particularly toxic, but it falls into a couple of different camps.
In the past decade the economy has been largely fuelled by cheap debt. We’re used to seeing lurid stories of companies like Deliveroo taking payment by credit instalments for a pizza.
In short, it has been really easy to take on new debt. This era is coming to an end with rising interest rates. Rising rates – by design – make debt more expensive to manage. But there’s a couple of different kinds of debt to worry about here.
The most painful and urgent to fix is credit card and other unsecured debts which see rates move freely. If you have these kinds of debts paying them off should be prioritised over saving because the cost is simply going to get harder to manage.
Rising rates don’t just affect credit card APRs – they also reduce the availability and quality of deals such as balance transfer cards. In short, it’s time to kick the debt habit.
Fixed debt such as mortgages and loans function slightly differently though. Loans will often have a fixed rate which makes it more manageable to pay while mortgages come with fixed terms too and should be manageable as long as you’ve got time left on your deal.
Regular contributions
Once your cash position and debt levels are in a good place – think about the state of the market. While performance is never guaranteed, as global economic growth has progressed in the last century, so have investments in the markets that represent it.
If your investment values are down, this is ok. Generally, as markets recover so do investments.
But making continued regular contributions or even increasing your contributions can be a good strategy in this environment as it takes advantage of cheaper valuations and smooths out volatility in your portfolio through pound-cost averaging.
With that logic in mind, when asset prices are depressed, it can present a considerable buying opportunity with a well-thought-out strategy in mind.
Tax sheltering
We’re in very specific economic circumstances at the moment. With high Government debt levels and little in the way of leeway for it to borrow on international markets to fund its agenda, tax rises are coming.
That makes careful tax planning extremely important. Using up allowances for ISAs, pensions and other useful schemes are a great way to soften the blow any taxes rises might bring. But the rules are potentially changing quickly as a result of Government instability, making considered planning tricky.
Tax planning can be a complex process, so unless you’re well-versed in tax laws and financial planning, it’s probably best to get advice to ensure your wealth is working as hard as it can be within the rules.
If you would like to discuss this or any of the other themes expressed in this article, don’t hesitate to get in touch.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 9th November 2022.
The World In A Week - House of Cards
Written by Millan Chauhan.
Last week, we saw the release of further economic data which included US Producer Price Inflation (PPI) which surprised to the upside, coming in at 7.4% on a year-on-year basis with expectations at 7.2%. The US market did not react well to this data release and, as markets had estimated, there was a much faster slowdown in inflation. This saw the S&P 500 Index close down -4.0% in GBP terms last week. Markets are now looking towards the next Federal Open Market Committee meeting which is set to take place on Tuesday and Wednesday of this week, where we will learn the Fed’s decision on how aggressively it will increase rates in the US. Since June 2022, the Federal Reserve has forcefully hiked up rates in an attempt to slow down inflation which has seen rates climb to 4.0%. The expectation is that the Fed will begin curbing these hikes with a 50 basis point increase expected on Wednesday.
In the UK, house prices have fallen for the third month in a row which is also the fastest pace at which they have fallen since the housing crash of 2008. This has been caused by buyers being put off by higher monthly mortgage payments which have surged following a string of interest rate rises by the Bank of England. Halifax announced that average house prices declined by -2.3% between October and November which is the highest monthly price drop for 14 years. The Bank of England is set to announce its interest rate decision on Thursday and expectations are that we are likely to see a 50 basis point increase to move interest rates to 3.5%.
We will be taking a break from penning The World In A Week and will return on 3rd January 2023. We wish you all a Merry Christmas and a Happy New Year.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 12th December 2022.
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