It’s the start of a new year, so that means 12 new months ahead, a clean slate, a raft of good resolutions to stick to – and a whole heap of increased costs to deal with. From train fares to fuel, the new year has a sting in its tail.
Commuters have come back to reality with a bump after the festive break. The average rail ticket has risen by 3.4% across the UK, in the biggest increase to fares for five years.
Overall the cost of living is increasing and set to go higher. Inflation rose to 3.1% in November and it’s forecast to remain above 2%. That means it has more than doubled since this time last year and now stands at a near six-year high.
Add in the fact that at the same time average wage growth is at a mere 2.3%, while household fuel bills have risen (who can forget that 12% rise in electricity bills that British Gas implemented in August) and so has the price of fuel at the pumps (this time last year the average you’d pay was 111.9p a litre on the supermarket forecourt, now its 116.5p) and it's little surprise that consumers are feeling the pinch.
However, it’s not all bad news. Petrol prices could flatten or even possibly fall slightly this year if attempts by the Organisation of the Petroleum Exporting Countries (OPEC) to increase prices can be offset by a continuing rise in US shale production.
And, while it will undoubtedly have a battle on its hands between choosing whether to stimulate growth or discourage further borrowing, the Bank of England may well choose to keep any interest rate hikes this year small and to a minimum, as the UK continues to experience high inflation but weak economic growth.
1. Be prepared
Day-to-day price rises are always a shock to the system, but what’s important is not to let the threat of inflation knock your savings and investments off course. At times like these it is more important than ever that you get your money working hard for you.
Make sure you use your annual ISA allowance. We can each save up to £20,000 in an ISA in the current tax year. As well as enabling you to build a substantial pot of money, which will grow over time, you also shelter all the gains from the tax man. The current tax year ends on 5 April, so take advantage of your ISA allowance before then.
The easiest way to work savings and investments into your household finances is to set up a small but regular monthly sum into your ISA. You can save as little as £50 a month and invest in any of the preferred funds in our Select 50. You choose where in the world you invest and what you invest in.
2. Keep an eye on the future
And don’t neglect your even-longer term savings. In April, millions of people will see a larger slice of their monthly salary automatically diverted to their pension as the total minimum paid rises from 2% to 5%. For someone on £20,000 a year, it means they will pay in an extra £33 a month.
The state pension is also set to rise. From 6 April, pensioners with a full 35 years of National insurance contributions will be entitled to the full new state pension which rises from £159.55 to £164.35 a week. The old basic state pension will rise from £123.30 a week to £125.95.
However, as these figures show, even the full state pension isn’t enough to live off. Having adequate pension savings is essential as we’re living longer in retirement.
Putting your hard-earned money to work and keeping it working hard is essential for your retirement success. If you already save the maximum you want to through your employer’s workplace pension scheme, or you’re self-employed, then in addition, you could consider saving into a SIPP.
With a Fidelity SIPP you can invest from as little as £80 into your pension every month. This will then be automatically topped up to £100 because of the tax relief that pension contributions get.
And if you are self-employed and have a limited company, consider making contributions from your limited company. These will then be considered employer contributions and these can usually be offset as a business expense which will reduce your potential corporation tax liability. However, unlike personal contributions, employer contributions do not attract tax relief.
3. Keep it simple
Keeping track of a number of different ISAs, savings pots and pensions can make checking how your investments are doing and whether you’ll meet your goals, difficult. It might be better to consolidate your savings and investments, where it’s appropriate.
For instance, if you have a number of small pension pots from a number of previous employers it may be an idea to consolidate these into a SIPP. That way you can keep track of them more easily, you may also find that consolidating helps cut costs, plus you gain the ability to choose what your SIPP invests in.
4. Stay informed
And lastly, make sure you stay up to speed in 2018.
You can start by putting your questions directly to our investment director Tom Stevenson in his first live webcast of the year. Join us online at 7.30pm on Tuesday 9 January to hear Tom’s latest Outlook for the year and to have the opportunity to put your investment questions directly to him. Join us on online on Tuesday evening and put your questions to Tom ahead of then here.
To get a head start on what to keep an eye out for, take a look at the latest episode of MoneyTalk. We asked a number of investment experts for their view on what investors should expect in 2018. You can watch the full Outlook 2018 interviews with the experts here.
The value of investments and the income from them can go down as well as up, so you may not get back what you invest. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment. Eligibility to invest into an ISA or a SIPP and the value of tax savings depends on personal circumstances and all tax rules may change. Withdrawals from a pension product will not normally be possible until you reach age 55. The Select 50 is not a recommendation to buy or sell a fund. Fidelity Personal Investing does not give personal recommendations. If you are unsure about the suitability of an investment, you should speak to an authorised financial adviser.