Want to help your child become an investor for life? If you have a junior ISA on the go, then you’re already on track!

Junior ISAs are very similar to adult cash ISAs and stocks and shares ISAs. They can teach children a huge amount about how to invest – lessons we can all benefit from, actually! Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, has revealed five investment ‘secrets’ or insights we can learn from junior ISAs – or JISAs. Let’s break them down. 

[top_pitch]

1. Anyone can invest

This is a lesson for us all, actually: investing is for everyone, and you don’t need to make huge deposits to get started. By opening a JISA, you’re making investing less intimidating for kids because they can learn how easy it is to become an investor. JISAs are open to any child under 18 living in the UK, and they’re well worth considering if you feel they make sense for your family.  

Do you already have a JISA? Then guess what: you’re an investor, and you have been since the moment your account was opened!       

2. Invest for the long haul

What’s great about a JISA is that children can’t access the money until they turn 18. Why is this a good thing? Well, it teaches youngsters how to think long term.

Remember, investments can rise and fall over time. JISAs help young people understand what this means and why it’s so crucial to see investing as playing the ‘long game’. What’s more, there’s never any guarantee you’ll get back what you invest, no matter how careful you are. A JISA teaches the value of building a diverse portfolio to help mitigate such risks.    

3. Anyone can learn how to invest

Sure, investing can be complicated. However, anyone can learn what it means to invest money and how to choose investments – including children. If your child has a JISA, and you feel they’re old enough to understand investing, talk them through what it means to have shares or investments. 

Are you a JISA holder? Think of your JISA as a learning tool that teaches you how to invest. It’s key to building your confidence in investing and learning what it takes to build a portfolio. Ask your parents for help – the more you learn, the more you’ll feel empowered to make your own decisions later.    

4. Investing can be fun 

It sounds like it shouldn’t be a secret, but here it is: investing isn’t scary. In fact, it can be highly rewarding, especially if you’re investing in something you’re passionate about. Although it might seem a little daunting at first, investing can be a fun experience once you know more about how to invest. 

If your child has a JISA, try to include them in some investment decisions once they’re old enough to understand the process. You don’t need to be an expert. Just teach them what you know and introduce them to the wide range of investment possibilities out there. A child can take charge of their JISA once they turn 16, so it pays to start educating them early so they’re ready. 

5. Investing has long-term benefits

Although children can access their JISA money once they turn 18, Hargreaves Lansdown notes that 90% of their JISA clients still have money invested a year later. What does this tell us? Well, it shows that these JISA clients have learned what it means to invest for life. Investing isn’t just about the here and now – it’s about the future.

What’s the secret here? It’s simple: whether you want to use your investments to build a nest egg or start a business, or you just want to build a diverse portfolio, investing can improve your quality of life in the long term.  

[middle_pitch]

How to open a JISA

A JISA is more than just a first investment account. It’s a hugely powerful learning tool that can teach you how to invest for long-term success. They’re available from a range of providers, including banks and building societies. Simply choose the provider you want and complete the application form.

• To open a JISA for a child, you will need proof of your child’s identity and proof that you’re the parent or legal guardian.
•  Don’t have a JISA yet? If you’re aged 16 or 17 you can open your own JISA. You’ll need proof of your identity and date of birth.  

If you’re aged 16 or 17, you can open an adult cash ISA, so don’t forget to check our selection of cash ISAs available now!

The post 5 investment secrets from your junior ISA appeared first on The Motley Fool UK.

More reading

• Want to start investing in the stock market? Have a spare £200 or £300?
• Lloyds shares just dipped below the £1 mark!
• £10,000 put in a Cash ISA a decade ago is now worth…
• Are Diageo shares about to pull a Rolls-Royce?
• 1 big question to ask when thinking about what Nvidia stock could be worth

Passive income: maybe it sounds too good to be true. After all, don’t you need to work harder to earn more money? It seems the answer is no – at least, not always! In fact, this ‘work harder’ mentality has led to a burnout epidemic, meaning many of us are exhausting ourselves as we strive to reach our financial goals.

However, there’s good news: earning money doesn’t have to be this challenging. If you want a more hands-off approach to investing, read on to learn how a so-called ‘robo-advisor‘ might help you earn some passive income.

[top_pitch]

What is a robo-advisor?

A robo-advisor is basically an automatic or automated investment tool. This unique software, based on algorithms, matches you with an investment portfolio based on your personal preferences.

• You choose an account type, such as a stocks and shares ISA or personal account. 
• When you open an account, you’ll answer a few questions, such as how much you want to invest and how much risk you’re comfortable with.
• The algorithm selects investments that may suit your preferences, such as stocks, mutual funds or government bonds.
• You pay a platform fee (fees vary by provider).

Some accounts are completely automatic, meaning there’s no human oversight, while others do involve some human management. 

Can robo-advisors help you make passive income?

Yes, they can. However, just remember that there’s always risk involved when you invest, and you might not get back what you put in. That said, here’s why a robo-advisor could help you earn passive income in the long run: 

• It’s easy to get started, so there’s little upfront effort required from you.
• You might improve your chances of making passive income by diversifying your portfolio. Adding a robo-advisor account to the mix could help you do just that.
• The robo-advisor manages your portfolio, so you don’t need to worry about choosing or managing your own portfolio. This is great if you’re short on time or you’re busy managing other investments.

If your investments via a robo-advisor pay off, you’ll earn money by doing almost nothing, allowing you to focus your valuable time and effort elsewhere. 

[middle_pitch]

How do you open a robo-advisor account?

First, think about what you want from your account. Consider:

• What services you need from a robo-advisor;
• How much automation works for you (just because it’s a passive income stream doesn’t mean you have to be completely hands-off!); and
• What you’re willing to pay in fees for the services you want. 

There are many providers to choose from, including InvestEngine and Wealthify. When you’ve chosen, simply visit the company’s website, choose your plan and apply for an account.  

Are there downsides to using robo-advisors?

As with any investment opportunity, there are some drawbacks to using a robo-advisor for passive income. 

• You might find there’s not much scope to personalise your investments. 
• There’s always the risk of your investments dropping in value – using a robo-advisor doesn’t eliminate this risk. 
• The fees can be high, although they’re usually less than you’ll pay for a human financial advisor.   

Slightly unnerved by the idea of being ‘hands-off’? Don’t be. Some platforms, like InvestEngine, give you the option of managing your own DIY portfolio, so always compare options before applying. 

Combat burnout with passive income

If you’re looking for a passive income stream to help you reach a financial goal, then consider using a robo-advisor. Although there’s no guarantee your investments will pay off, robo-advisors offer a unique, hands-off approach to investing that might suit your lifestyle. 

• Consider your investment goals carefully before choosing a robo-advisor.
• Never invest more than you can afford to lose. 
• Get financial advice first if you’re unsure whether services like robo-advisors or stocks and shares ISAs are right for you. 

Ready to choose a robo-advisor? You can find a selection of providers offering these services over on our top-rated robo-advisors page!

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in the future. The content of 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.  

The post Could passive income help combat burnout? appeared first on The Motley Fool UK.

More reading

• Want to start investing in the stock market? Have a spare £200 or £300?
• Lloyds shares just dipped below the £1 mark!
• £10,000 put in a Cash ISA a decade ago is now worth…
• Are Diageo shares about to pull a Rolls-Royce?
• 1 big question to ask when thinking about what Nvidia stock could be worth

If you’re a saver, you might be worried about how spiralling living costs and rising inflation could affect your money. How do you protect your hard-earned nest egg right now? And how do you get the most from your money? Well, a stocks and shares ISA could be the answer. Here’s why.  

[top_pitch]

What is a stocks and shares ISA?

A stocks and shares ISA is a tax-efficient way to invest money. Let’s break down the key features:

• You can invest in a wide range of funds, shares, bonds and investment trusts.
• You won’t pay tax on interest, dividends or capital gains.
• If you’re over 18 and a UK resident for tax purposes, you can open a stocks and shares ISA (one per tax year). 

Unsurprisingly, you can only invest so much in ISAs each tax year. The government’s ISA allowance is £20,000 for the current tax year. That means you can either invest up to £20,000 in a single ISA or spread your money around various ISAs. Either way, you can only invest up to £20,000 in total.  

How can a stocks and shares ISA help your finances?

It all comes down to ‘diversification’, or spreading your money across different types of investments. For example, you might keep some savings in a cash ISA or a savings account with a competitive interest rate and place some money in a stocks and shares ISA.   

Why diversify? It’s simple: diversity allows you to manage risk while still making your money work for you. So, you could keep some of your nest egg in a cash ISA, because they are low risk, but invest some money in a stocks and shares ISA with the aim of making more significant returns.

What’s more, rising inflation rates erode the value of your money over time. In real terms, this means that the relatively low interest rates offered by savings accounts at the moment are chipping away at your hard-earned cash. You can offset some of these negatives by:

• Investing what you can afford in a stocks and shares ISA
• Choosing your investments wisely and keeping an eye on how they’re performing       

[middle_pitch]

Are there any risks you should know about?

Well, all investment carries some risk and there’s never any guarantee you’ll get back the money you put in. After all, the value of any investment can fall as well as rise. So, for this reason, stocks and shares ISAs are considered riskier than cash ISAs or regular savings accounts.

However, the value of your investments could rise, too, so if you’re prepared to take on some degree of financial risk, a stocks and shares ISA is an option. You might not want to invest your whole nest egg, though. Remember to only invest what you can afford to put to work, and always keep some emergency cash in a savings account so you can weather any unexpected financial storms.   

How do you open a stocks and shares ISA?

Stocks and shares ISAs are available from various providers like banks and building societies. However, it’s often cheaper (and easier) to go for an online investment platform. 

Depending on your preferences, you can either choose your own investments or opt for a ‘robo-advisor’ that chooses and manages your investments based on your personal risk profile. What works for one investor won’t necessarily work for another, so explore your options carefully before choosing an ISA.

Ready to open a stocks and shares ISA? Compare our top-rated stocks and shares ISAs and check out our top-rated robo-advisors!

Please note that tax treatment depends on the individual circumstances of each client 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. 

The post Don’t let inflation destroy your nest egg: consider a stocks and shares ISA appeared first on The Motley Fool UK.

More reading

• Want to start investing in the stock market? Have a spare £200 or £300?
• Lloyds shares just dipped below the £1 mark!
• £10,000 put in a Cash ISA a decade ago is now worth…
• Are Diageo shares about to pull a Rolls-Royce?
• 1 big question to ask when thinking about what Nvidia stock could be worth

If your credit score is on the lower side, you might be asking whether you can get a credit card with bad credit (and be worried about the answer). Well, here’s the lowdown on whether you can get a credit card with a low credit score, and what to consider before applying.

[top_pitch]

Is it possible to get a credit card with bad credit?

Yes. Just because you have a low credit score (or maybe no credit history at all) doesn’t mean you can’t get a credit card. In fact, there are credit cards out there specifically aimed at people trying to build their credit scores! Here’s a look at some of their key features:

• Credit limits can be on the lower side, but that’s a good thing because it stops cardholders from losing track of their finances.
• Some credit building cards come with no annual fee, so cardholders don’t need to worry about an extra bill. 
• Interest rates can be high, but if the balance is cleared in full each month, there’s no interest to pay. 

So, if you’re looking to rebuild your credit, or you have no credit history and you’re looking for a line of credit, these cards are worth exploring.  

How do you apply for a credit card with bad credit?

While there’s no guarantee you’ll be accepted, it’s easy to apply.

First, research a range of credit cards for bad credit and choose one to apply for. Then, you’ll need to provide some details including your:

• Name
• Address
• Employment status
• Annual earnings  

After you complete the application, you often get an instant result. Otherwise, it might take a day or two for a decision.

If you’re accepted, then you’ll be told your credit limit and you’ll get your card through the post within around 14 days.  

What should you consider before applying?

If you’re ready to apply for a credit card, here’s what to consider before you do;

• Make sure you can afford your existing bills before applying for another line of credit.
• Even if you can afford your current monthly outgoings, think about whether you can afford to add another repayment into the mix. 
• If you don’t keep up your repayments, you could lower your credit score. This can be especially damaging if your score is already low. 

Credit is a big commitment, so make sure you’re ready before you apply for a new financial product. 

[middle_pitch]

How do you improve your credit score?

If used wisely, a credit card for bad credit can actually help to build your credit score. However, unless you need credit in the next few months, you might prefer to improve your score before applying. So, here are some tips for doing just that:  

• Check your credit report and make sure there are no errors that might lower your score. 
• Always pay your bills on time. Keeping up with monthly payments improves your score over time. 
• Make sure you’re on the electoral register and check you’re registered at the right address. 
• Close any unused store cards or credit cards. 

Ready to research credit card options? Start by trying our free eligibility checker – it won’t affect your credit score, and you’ll get an idea of the types of cards that could suit your circumstances.

The post Can you get a credit card if you have bad credit? appeared first on The Motley Fool UK.

More reading

• Want to start investing in the stock market? Have a spare £200 or £300?
• Lloyds shares just dipped below the £1 mark!
• £10,000 put in a Cash ISA a decade ago is now worth…
• Are Diageo shares about to pull a Rolls-Royce?
• 1 big question to ask when thinking about what Nvidia stock could be worth

Are you self-employed? Did you miss the Self-Assessment tax return deadline? Well, you’re not alone. It seems over two million people failed to file a return on time, according to HMRC. But what happens if you missed the deadline? And how do you pay your tax bill?

First, take a deep breath and don’t panic. All is not lost, and here’s why. 

[top_pitch]

When was the tax return deadline?

The deadline for filing your 2020/21 tax return online was 31 January 2022. For those who file paper returns, though, the deadline was 31 October 2021.

For clarity, the information below only relates to online Self-Assessment returns. If you file paper tax returns and you haven’t filed yet, contact HMRC to discuss the situation.

What happens if you missed the tax return deadline?

Okay, so you missed the tax return deadline and now you are (probably) panicking. But fear not – it’s not all bad news.

Normally, customers pay a £100 penalty for missing the tax return deadline. However, this year, customers have until 28 February 2022 to file a tax return without paying the penalty. This means you won’t pay the late filing penalty unless you submit your return on 1 March 2022 or later. 

Why is this the case? Well, HMRC recognises the challenges posed by the Covid-19 pandemic. As a result, they’re giving businesses a grace period to file their returns. That said, you should still submit your return as soon as possible, and here’s why.   

Will you pay interest on late payments?

Although you won’t pay a late filing penalty if you complete your return by 28 February 2022, you need to consider what’s known as the late payment interest and the late payment penalty. 

From 1 February 2022, late payment interest will apply to any outstanding balances. The interest rate is 2.75%. If there’s still tax outstanding by 1 April 2022, and you haven’t set up a payment plan, you’ll pay a 5% late payment penalty. 

What does this all mean? In short, it’s a good idea to pay as soon as possible to minimise the interest payable. If you can’t pay your whole tax bill, again, don’t panic. You can set up a payment plan. Just make sure you at least file your return as soon as possible and then contact HMRC if you can’t pay in full. 

So, for clarity, here’s a summary of the timeline:

• 31 January 2022: normal tax filing deadline. 
• 1 February: interest begins to accrue on outstanding balances. 
• 28 February: the last day to file a return without paying the £100 late filing penalty. 
• 1 April: the last day to either pay outstanding tax or set up a payment plan without paying the late payment penalty. 

[middle_pitch]

How do you file your tax return? 

To file your tax return for 2020/21, simply log on to the HMRC online service. Follow the step-by-step instructions to submit the return and make a payment.

Do you want to set up a payment plan (Time to Pay) arrangement? You can do this from your online account once you’ve submitted your return.  

Takeaway

The key takeaway? It’s not advisable to miss the tax return deadline. However, if you were unable to file, for whatever reason, then it’s crucial you take action as soon as possible. And if you’re struggling to pay your tax bill, contact HMRC to discuss what help is available. You may be able to pay in instalments or reach another arrangement. 

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.

The post Over 2 million Brits just missed the Self-Assessment tax return deadline! appeared first on The Motley Fool UK.

More reading

• Want to start investing in the stock market? Have a spare £200 or £300?
• Lloyds shares just dipped below the £1 mark!
• £10,000 put in a Cash ISA a decade ago is now worth…
• Are Diageo shares about to pull a Rolls-Royce?
• 1 big question to ask when thinking about what Nvidia stock could be worth

Let’s face it: no one likes tax rises. But with living costs spiralling and inflation at a record high, should the UK government suspend its planned hike in National Insurance contributions (NICs)? Here’s a look at what’s happening with National Insurance and why now is maybe not the time for a rise.

[top_pitch]

National Insurance: what’s going on? 

As it stands, NICs will go up by 1.25% from 6 April 2022. This will affect the majority of people working right now, whether employed or self-employed, and it will affect employers, too. 

How much you pay in NICs depends on how much you earn. If you’re employed and you earn less than £9,564 a year, then don’t worry – the rise won’t affect you. However, if you earn £20,000 a year, for example, you’ll pay an extra £130 on your tax bill. And if you earn £40,000, that’s an extra £380 to the taxman.    

Why is the UK government raising NI?

Well, there are two main reasons: the NHS and social care. 

Firstly, the NHS faces a huge backlog right now. The NI rise could help fund the NHS and cut waiting times, which could help more people get access to the medical treatment they need. 

Secondly, the government wants to overhaul social care. It aims to:

• Cover social care costs for those with assets under £20,000;
• Contribute to social care costs for those with assets worth between £20,000 and £100,000; and
• Ensure no one pays more than £86,000 for social care, no matter how much money they have.

The government plans on funding social care reform through the NI rise. And at the moment, despite widespread criticism, the government is pressing ahead with the rise. 

[middle_pitch]

What does the NI rise mean for your money?

Unsurprisingly, the NI rise will pinch your wallet. So, here’s how you might manage the squeeze:

• Start an emergency fund if you don’t already have one.  
• Not got a savings account yet? It’s always a good time to open one – even a few pounds a week can go a long way eventually. 
• If you’re self-employed, think about how the tax increase affects you and prepare for the higher bill in advance. 
• Shop around for the best prices on things you need (e.g. food and petrol).
• Up your pension contributions to lower your NI bill. 

Should the government pause the NI hike for now?

According to Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, the government should scrap its plans.

She explains: “There’s no doubt that the NHS and social care need the additional funding, but tax hikes weren’t considered during the peak of the health crisis, and they shouldn’t be brought in at the peak of a cost of living crisis either.”

So, although there’s a clear need to reduce waiting times, clear the NHS backlog and fund social care, an NI rise might not be proportionate right now. And if the UK government does press ahead with the rise, it should also act to reduce living costs for everyone. For example, they might look to reduce inflation and stop energy prices from rising further. 

Will the government ‘press pause’ on the NI rise, though? Right now, it’s uncertain, but we should learn more in the coming months. 

Please note that tax treatment depends on the individual circumstances of each individual and may be subject to future change. The content of 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.

The post Should the UK government ‘press pause’ on the NI hike? appeared first on The Motley Fool UK.

More reading

• Want to start investing in the stock market? Have a spare £200 or £300?
• Lloyds shares just dipped below the £1 mark!
• £10,000 put in a Cash ISA a decade ago is now worth…
• Are Diageo shares about to pull a Rolls-Royce?
• 1 big question to ask when thinking about what Nvidia stock could be worth

Are you a BT phone or broadband customer? Then you could see your bills rise by more than 9% later this year. But how much is the price increase? Which customers are affected? And what can you do about the price hike? Let’s take a look. 

[top_pitch]

What is BT’s price increase?

Most BT customers face a price increase of 9.3%, according to BT. Essentially, this works out at around £3.50 per month for the average customer. The increase applies from 31 March 2022, so customers won’t notice a change in their phone or broadband bill until then.

BT reserves the right to raise prices once a year in line with its T&Cs. So, although there’s a price hike from March, you probably won’t face any more increases until next year. 

Why is BT raising prices so much?

Well, we can blame inflation, for one thing.

Consumer Price Index (CPI) inflation now sits at 5.4%, which is an almost 30-year high. BT uses the CPI inflation rate to guide its prices, meaning the higher the rate of inflation, the higher the price rise. 

However, inflation’s not the only reason we’re seeing price hikes. Here are some other key reasons: 

• Customers are using more data than ever before. So, to keep up with consumer demand, BT must invest in building larger networks. 
• BT prides itself on answering 100% of customer calls. This level of customer service requires investment in staff and resources. 

BT intends to write to all customers setting out this year’s price hike and what’s behind the increase. So, if you’re a customer, look out for correspondence heading your way.  

Is BT the only company raising prices?

Inflation affects all businesses. As it stands, you’ll see price hikes if you’re with:

• EE
• O2
• PlusNet
• TalkTalk
• Vodafone

However, this list isn’t exhaustive. You should check with your provider to confirm the size of any price increases on the way. 

[middle_pitch]

Which customers will be affected?

The price change affects most BT phone and broadband customers. However, prices won’t change for some financially vulnerable customers on the following plans:

• Basic
• Home Essentials
• Home Phone Saver 

If you’re in any doubt over whether the price change will affect you, just reach out to BT for advice. 

Can you cancel your contract with BT?

Yes, you can – but you might pay a penalty.

Since BT’s T&Cs allow it to raise prices once a year, you agreed to any increases when you signed up. This means that although you can cancel your contract, you’ll probably pay an early exit fee if you’re still within your contract period. 

However, if you’re outside your minimum contract period, it might be possible to leave BT without paying a penalty. Contact BT to find out more. 

Takeaway

With living costs spiralling, higher phone and broadband bills will only increase the pressure on the average UK household. So, if you’re a BT customer and you’re unhappy with the price increase, you should consider switching providers. Just remember to shop around and compare broadband deals – don’t just settle for the first deal you find! 

If you’re worried about how the price increase will affect your finances, check out our tips for managing living costs.

The post BT customers beware! You’re facing higher bills in 2022 appeared first on The Motley Fool UK.

More reading

• Want to start investing in the stock market? Have a spare £200 or £300?
• Lloyds shares just dipped below the £1 mark!
• £10,000 put in a Cash ISA a decade ago is now worth…
• Are Diageo shares about to pull a Rolls-Royce?
• 1 big question to ask when thinking about what Nvidia stock could be worth

UK inflation recently soared to 5.4% – the highest level in almost 30 years. But what is inflation? And how will it affect your finances? Let’s break it down. 

[top_pitch]

What is inflation?

When we talk about inflation, we talk about how much the prices of goods and services increase over a period of time.

The Office for National Statistics (ONS) measures inflation in the UK. For our purposes, the figure we’re discussing is the Consumer Price Index (CPI). The CPI looks at how much the price of the goods and services we buy increases each year. For example, if the price of, say, a loaf of bread is higher today than it was this time last year, we’re seeing inflation in action. 

Why is inflation so high right now?

CPI inflation hit 5.4% in December 2021. According to Sarah Coles, personal finance analyst at Hargreaves Lansdown, this is actually the highest level of CPI inflation since we started measuring it back in 2007. If we’d measured CPI for longer, this would be the highest level of inflation recorded since March 1992!  

So, why are we seeing such high inflation? There are a few causes:

• Spiralling petrol costs: Fuel prices rose sharply last year, which made it more expensive to fill up at the petrol station.
• Energy price hikes: A rise in wholesale gas prices means we’re all paying more on our gas and electricity bills right now.  
• Rising food prices: Noticed your weekly food shop is more expensive than before? That’s because the prices of staples such as bread, meat and vegetables increased over the year.
• Clothing price increase: Clothing prices rose by 4.5% in the year, according to research by Hargreaves Lansdown. 

[middle_pitch]

Is high inflation a ‘bad’ thing?

Well, a little inflation can be good, because it encourages more people to buy things now before they possibly rise in price again. Such spikes in consumer spending can help the economy. 

Too much inflation is a different matter. If prices rise but wages don’t rise with them, then the cost of living spirals. People may find they can’t buy what they need, which means living standards drop. 

As it stands, the outlook is slightly concerning. Wages aren’t keeping pace with inflation, which means your salary won’t go as far as it did this time last year. That said, things could change: if inflation falls and wages recover, then living costs become easier to manage. 

What does high inflation mean for your wallet?

While there’s no way to completely ‘inflation-proof’ your wallet, there are steps you can take to ease the burden:

• Create a budget and be strict about how much you can spend on non-essentials. 
• Always shop around and do some research before buying products. You might, for example, switch to own-brand items or find similar products on special offer. 
• If you’re looking for services (e.g. for home improvements), compare quotes from several contractors before hiring.
• Don’t be deterred from saving money. Instead, if you’re looking to open a savings account, shop around for the best interest rate you can find. Easy access savings accounts, for example, could be helpful for some savers trying to build an emergency fund.
• If you’re saving money you don’t intend to access in the next few years, you might try to secure a fixed rate. However, depending on the rates on offer, this might not make the most financial sense for your needs. Again, it’s worth doing some research!

Takeaway

There’s no doubt that a 5.4% inflation rate is a little alarming, especially since it could still climb higher in the coming months. However, don’t panic just yet. It’s possible to combat the impact of high inflation by budgeting carefully and avoiding the urge to overspend.

If you’re a saver, look for a savings account with a competitive interest rate, and consider fixing your rate if it makes sense for your goals. 

The post Inflation spirals to 5.4%: here’s what it means for you appeared first on The Motley Fool UK.

More reading

• Want to start investing in the stock market? Have a spare £200 or £300?
• Lloyds shares just dipped below the £1 mark!
• £10,000 put in a Cash ISA a decade ago is now worth…
• Are Diageo shares about to pull a Rolls-Royce?
• 1 big question to ask when thinking about what Nvidia stock could be worth

Maybe you’ve heard of ISAs, but do you know what they are and how to get one. According to Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, many people are still in the dark about how ISAs can help them. So, to help shed some light on how ISAs work, here are the answers to 10 frequently asked ISA questions. 

[top_pitch]

1. What is an ISA, anyway?

ISA is short for Individual Savings Account. This means an ISA is simply a type of savings account. There are a few different types of ISAs:

• Lifetime ISA 
• Cash ISA
• Stocks and shares ISA
• Innovative finance ISA  

Please note that tax treatment depends on the individual circumstances of each individual and may be subject to future change. The content of this article is provided for information purposes only. It is not intended to be, neither does is 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.

2. How does an ISA work?

No matter what type of ISA you open, they all have one thing in common: you don’t pay tax on the money or investments you hold in them. For example, if you open a cash ISA, you won’t pay tax on your savings or interest. And if you have a stocks and shares ISA, you won’t pay tax on the stocks or shares inside. 

So, you can think of an ISA as a ‘tax wrapper’, protecting your savings and investments from taxation. 

3. How much can you save in an ISA?

Everyone has an ISA limit, which is a limit on how much you can save in ISAs during the tax year (6 April to 5 April).

Right now, the ISA allowance is £20,000 in a single tax year. 

4. Are ISAs transferable?

Yes. It’s possible to transfer between:

• ISAs of the same type; and
• Different types of ISA.  

There’s one caveat: don’t withdraw the money from one ISA to move it to another. Otherwise, the money will come out of your allowance and could be subject to tax. Instead, contact your provider to arrange an ISA transfer. 

5. Can you have more than one ISA?

Sure! That said, there are two key points to consider:

• You can only open one of each type of ISA per tax year. That means you can’t open two stocks and shares ISAs in one tax year, and so on.
• You can only pay into one of each type of ISA in a tax year. So you could pay into a cash ISA and a stocks and shares ISA, but you couldn’t pay into two cash ISAs in the same year.  

Over time, you could be running multiple ISAs. 

6. When should you open an ISA?

Whenever you’re ready! Here are some points to bear in mind, though: 

• According to Hargreaves Lansdown, January and February are popular months for opening ISAs. Opening an ISA before the tax year ends gives you a chance to invest some money and take advantage of the ISA allowance before the new tax year begins.
• If you open an ISA at the start of the tax year, there’s more time for the ISA to grow in value before the tax year ends.   

Weigh up the pros and cons, and open an ISA when it makes the most financial sense for you. 

7. Where should you invest your money?

Well, it depends on your personal goals, how much money you can afford to invest and your appetite for risk. Remember, there’s always risk involved when you invest money in a stocks and shares ISA, and there’s no guarantee you’ll get back what you put in.

If you’re ready to invest, you might check out our guide to share dealing. 

[middle_pitch]

8. Where does your ISA go when you die?

Good question! Here’s what happens:

• If the ISA grows in value before probate is completed, this interest will still be tax free.
• ISAs often pass to the surviving spouse after probate without affecting their annual allowance.
• If the ISA goes to anyone other than the spouse, they may pay inheritance tax (IHT) on the amount. 

9. How much should you put into an ISA?

It depends on your budget. The ISA allowance may be £20,000 per tax year, but that doesn’t mean you can afford to save that much! It might be a good idea to make regular monthly deposits to build a savings habit, so review your finances and decide how much you can commit to your ISA. 

10. How do you choose an ISA?

Again, it’s all about your goals. For example, if you’re saving for a first home and you’re under 39, a Lifetime ISA might be worth exploring. Or if you’re keen to start investing, then you might look at longer-term options, like a stocks and shares ISA. 

And depending on your circumstances, you might decide against an ISA and opt for a different type of savings account entirely! Always explore your options before making any financial decisions. 

The post Important questions answered ahead of ISA season! appeared first on The Motley Fool UK.

More reading

• Want to start investing in the stock market? Have a spare £200 or £300?
• Lloyds shares just dipped below the £1 mark!
• £10,000 put in a Cash ISA a decade ago is now worth…
• Are Diageo shares about to pull a Rolls-Royce?
• 1 big question to ask when thinking about what Nvidia stock could be worth

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.     

[top_pitch]

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. 

[middle_pitch]

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. 

Takeaway

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.

The post The big squeeze: 7 financial challenges we’re facing in 2022 appeared first on The Motley Fool UK.

More reading

• Want to start investing in the stock market? Have a spare £200 or £300?
• Lloyds shares just dipped below the £1 mark!
• £10,000 put in a Cash ISA a decade ago is now worth…
• Are Diageo shares about to pull a Rolls-Royce?
• 1 big question to ask when thinking about what Nvidia stock could be worth