The big squeeze: 7 financial challenges we’re facing in 2022

New year, new challenges! Here are seven of the biggest financial issues we could face in 2022 and how you can protect your money.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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Worried about money this year? Well, that’s not surprising! According to findings by Hargreaves Lansdown, it’s the year of the ‘big squeeze’, meaning we’re facing serious problems, such as higher living costs and rising debt. But what can you expect from 2022? And is there anything you can do to escape the big squeeze? Well, here are the seven key financial issues set to challenge us this year, and some tips to prepare for them.     


1. Higher energy costs

Energy costs are spiralling, and we’ll probably see further rises in the energy price cap throughout 2022. This could affect low-income families the most, but we’ll all feel the impact. Luckily, there are some things you can do to minimise the damage:

  • Improve your home insulation to save money in the long term.
  • Use your heating sparingly throughout the day. 
  • Shop around for a better deal using price comparison sites (although, you might struggle to find a cheaper deal at the moment).

2. Rising interest rates

It’s possible that interest rates will rise a few times in 2022. Essentially, higher interest rates mean we can expect products like credit cards, new loans and mortgages to be more expensive, so here’s how you might escape the worst effects.

  • Pay off your credit card balances. Ideally, you should pay your balance in full each month to avoid paying any interest.
  • Looking for a new credit card or a balance transfer? Consider a 0% credit card.
  • Don’t take out a loan unless it’s essential and you know you can afford it. 

3. National Insurance increase

National Insurance Contributions (NICs) will increase by 1.25% from April. This means a drop in take-home earnings for many of us at a time when living costs are spiralling. To manage the NICs increase, you could:

  • Ask for a salary sacrifice, which means you’ll get a lower salary but you’ll pay more towards your pension. Since your salary goes down, you’ll pay less in NICs.
  • Start an emergency fund or open a savings account.  

4. Tax allowance freeze

The personal income tax allowance is frozen until 2025/2056. Why does this matter? Well, depending on how wages increase over the next few years, many of us could face paying more income tax. So, although the tax freeze might not affect you this year, it’s worth considering its potential impact by 2026.

To offset this challenge, Hargreaves Lansdown suggests you consider a salary sacrifice, which can help lower your tax bill and boost your pension wealth. 


5. Dividend tax rise

Do you receive any income from share dividends? If you do, take note that from April 2022, dividend tax will rise by 1.25%.

  • Investments inside ISAs are unaffected since ISA savings are tax-free (subject to the annual limit of £20,000).
  • Outside ISAs, everyone has a £2,000 annual allowance for dividends. You’ll pay tax on dividends over this amount.    

Want to avoid paying more dividend tax than necessary? Where possible, place your investments in an ISA – especially the ones with the highest dividend yields.  

6. Inflation 

Inflation means the rise in prices over a period of time. This one’s hugely relevant right now. From fuel to food, it seems like so many things cost more now than they did not too long ago! But is there a way to beat rising inflation? Not really, unfortunately. However, there are still steps you can take to reduce its impact on your wallet: 

  • Before you buy anything, shop around for the best deal.
  • Next time you’re in the supermarket, consider your options (e.g. own brand products might be cheaper than premium brands and be just as good). 
  • Avoid impulse purchases. 
  • Set a strict budget for non-essential items.

7. Negative inflation

According to Hargreaves Lansdown’s research, the value of your wages could fall for the first few months of 2022. In other words, you might find your money doesn’t go as far as before. 

The good news? There’s hope we’ll see a wage recovery in late 2022, so we shouldn’t be too despondent about this one just yet. Still, here’s how you might handle the impact of falling wages or ‘negative’ inflation this year. 

  • Have you been promoted recently, or do you have more responsibility than before? Then consider asking for a pay rise
  • Look for a new position – you never know, another employer might pay you more for the same job you’re doing now! 

You could also try learning new skills to increase your chances of securing a promotion – or a pay rise. 


Put simply, none of us can avoid the big squeeze completely. However, it’s possible to reduce the pinch on your wallet with some careful financial planning. Set yourself a strict budget, shop around for the best deals on products you need, and always seek help from charities like Citizens Advice if you’re struggling. 

Please note that tax treatment depends on the specific circumstances of the individual and may be subject to change in the future. The content in this article is provided for information purposes only. It is not intended to be, nor does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

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