Should I overpay on my mortgage? Will I pay double tax on a side hustle? 9 of YOUR most common money questions answered

IT’S no secret that us Brits would much rather talk about the weather than about our finances.

But the subject is on everyone’s mind – we know because our Consumer team’s inbox is often flooded with money questions from readers.

So we’ve spoken to our trusted experts and put together a guide answering your most commonly asked money questions.

Here’s everything you need to know…

What is the best way to budget?

Budgeting is a struggle for lots of us, but your smartphone could be the key to more organised spending.

Money apps such as Plum or Emma can connect to your bank accounts and offer features to help you budget based on your spending.

Plus, digital banking apps like Monzo and Starling can automatically categorise your spending so you can see where your money is going each month.

App Snoop even offers personalised money saving suggestions based on your spending.

Kate Steere, personal finance expert at comparison site Finder, says it’s worth checking if your banking app lets you set up “savings pots”.

This means you can ring fence money for specific expenses like groceries or transport, giving you a better idea of how much you’re spending and preventing you from going over budget.

Rajan Lakhani, personal finance expert at Plum, also suggests seeing where you can cut down on expenses.

For example, you could cancel any subscriptions you’re not using, see if you can move to lower cost plans, or share a plan with friends or family.

Or, you could try a no-spend month – where you only buy ‘necessary’ items and cut out things like treats, meals out and shopping splurges.

Should I put my money into cash savings or stocks and shares?

The answer is to have a mix of both.

First, you should have an emergency fund set aside with enough to cover your living costs for between three to six months, and also have paid off any high-interest debt you owe.

Your emergency fund should be kept in cash savings as you’ll need a financial safety net if you face a sudden job loss or an unexpected large expense.

Pick an easy access savings account that ideally has an interest rate above inflation (currently 3%) – the top easy access account currently is from Chase, which offers 4.5%.

Once you have your emergency fund set aside and your debt is paid off, investing is a better way of growing your money.

James Norton, head of retirement and investments at Vanguard, says: “Given how high inflation is, it is very hard to achieve long-term goals like retirement or a house deposit through cash savings only.

“So, make sure any excess cash you have is working harder for you.”

If you invested £1,000 in the global stock market five years ago, it would be worth £1,700 today (accounting for inflation), according to Vanguard.

If you’d put that money into cash savings, it would be worth £790 in real terms because inflation would have eroded its value.

When you are looking at investing it is worth using a Stocks and Shares ISA because you can deposit up to £20,000 tax-free, meaning less of your returns go to HMRC.

However, you should also consider what you’re saving for and if you’re planning to make any big purchases soon.

That’s because experts recommend you should invest for a minimum of three years, but ideally five to 10 years, so your money has time to recover if there are any dips in the market.

So if you’re saving for a house and planning to buy in the next couple of years, investing may not be for you and a high interest savings account could be a better option.

How can I start investing?

Investing doesn’t have to be complicated.

You can start by working out what your goal is, how long you plan to invest for, and what level of risk you’re willing to take on.

Then you should look at whether you will be investing a lump sum upfront or if you want to pay money in each month to gradually build up your pot.

If you choose to invest regularly, this can help protect you from any big fluctuations in the market.

You can set up a monthly direct debit into your Stocks and Shares ISA so you don’t even have to think about it.

Vanguard’s James Norton says: “We would caution against trying to time when to invest in the market or trying to pick individual stocks or shares.

“This is very difficult and even professional investors struggle.”

Instead, you can increase your chances of a good return by simply keeping your cash invested for as long as possible in a fund that has already been picked by experts.

A fund is a bit like a shopping basket of different investments, which are small stakes in companies that you can buy.

A good option for newbies is to invest in a “tracker fund”, such as the FTSE 100 or S&P 500. These follow the top companies in a certain stock market index.

You could also choose a managed portfolio, where experts do all the hard work for you, through platforms like Bestinvest, Vanguard and InvestEngine.

Just be aware that these often have higher fees.

Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, recommends reviewing your portfolio at least once a year to make sure it’s performing well for you.

Investment platforms such as Vanguard and Hargreaves Lansdown also offer a range of resources to help get you started.

How can I get the best return on my savings?

If you’re putting your money into cash savings, you should make sure the account offers an interest rate above the level of inflation (currently 3%) so your money is not losing value.

Plum’s Rajan Lakhani says you shouldn’t rely on your high street bank to offer the best rates.

Digital banks, building societies and newer banks often offer better rates, but just make sure they offer you FSCS protection so your cash is safe.

“If you’re paying higher or additional rates of tax, it’s almost always a good idea to opt for a Cash ISA, even if you see a strong interest rate elsewhere,” Rajan says.

That’s because if you’re in a higher tax band, your personal savings allowance is reduced so you might start being taxed on the interest you earn from your savings.

A Cash ISA will shield up to £20,000 of your money from being taxed on interest.

How do I check what type of pension I have and how much I can get?

If you’ve been living and working in the UK, you will likely have been accruing a state pension – this is a pension plan from the Government that pays out when you hit state pension age.

The current new state pension is a maximum of £230.25 per week, which can be claimed once you hit state pension age – currently 66 years old.

To find out what your state pension age is, as it is set to change, and how much you’re on track to get, you can check on the Government website or download the HMRC app.

You’ll likely also have a separate pension pot that you’ve either set up yourself or that you’ve been enrolled into by your employer.

If you have a pension scheme set up by your employer, it will be made up of contributions from you, your employer, and tax relief from the Government.

Most people will have a defined contribution pension, which gives you flexibility on how and when you take out the money but doesn’t give you a guaranteed income in retirement.

Robert Cochran, retirement expert at Scottish Widows, says: “The simplest way to keep up to date with these types of schemes is usually to download your provider app and register, that way it’s easy to keep track of your pension.”

Defined benefit pensions are mostly offered by public sector roles and give you a guaranteed income in retirement.

The money you get when you retire is based on your salary and the number of years you’ve been in the scheme.

Some private sector workers may also be on a defined benefit scheme, so it is worth checking.

If you’re not sure what type of pension you have, you can use Moneyhelper’s tool.

You can also check how much you’ll need in retirement and how much you’re likely to have here.

Should I fix my mortgage now or wait for rates to fall further?

Mortgage rates have been falling and lenders are currently competing hard, which means buyers have plenty of choice for mortgage deals.

But these rates depend on what the financial markets think the Bank of England will do with its base rate, so they can go up or down.

Fixed rates had increased in recent months but they’ve been slowly coming back down again.

David Hollingworth, associate director at L&C Mortgages, says it’s difficult to find the right moment to fix so it’s best to start searching for a new deal three to four months before your current loan ends.

Even if you’ve chosen a deal, you can switch onto a cheaper one up until the point the mortgage completes.

“If rates edge higher, then you are protected as the new deal is already secured but if fixed rates do improve, there should still be the opportunity to switch to a better rate,” he says.

David warns the “biggest danger” in waiting to fix is that you could fall onto your lender’s expensive standard variable rate (SVR). 

This is the rate you fall on to if you haven’t chosen a new deal by the time your current mortgage ends.

These can often be close to 7% or even higher in some cases, and sticking with the SVR for even a couple of months could easily outweigh any slight reduction in rates. 

Should I overpay on my mortgage?

If you already have a mortgage and you have some spare cash, overpaying could be an option for you.

Increasing your monthly payment means you can pay off your mortgage more quickly and slash the amount of interest you will pay overall.

But David Hollingworth says there are a few things you should check first.

If you have other debt with a higher interest rate than your mortgage, you should pay this off first.

Plus, if you’re on a fixed rate deal you’ll likely have early repayment charges.

Most lenders will allow some overpayments, usually up to 10%, without a penalty so you should check what the terms of your deal are.

You don’t want to be penalised for paying off your loan too fast.

You should also check whether you would’ve accrued more money by keeping the extra cash in a savings account instead.

Mortgage rates will generally be higher than the interest rates you can get on a savings account, so in this case it’s worth prioritising overpaying your mortgage.

However if you’re locked in a super low fixed mortgage rate, you might want to consider putting your money into savings instead so you can earn interest on it.

If you do choose to overpay, always keep some cash easily accessible in case you have unexpected costs as it’s difficult to get the money back once you’ve made an overpayment.

Where can I get financial advice for free? 

Bestinvest’s Alice Haine says financial education and the power of good advice “should never be underestimated”.

“People who turn to a financial adviser or financial planner to prepare for retirement are typically much better equipped to fund the type of life they would like in the final years,” she says.

But you don’t need to pay for a financial adviser to get help with your finances, and you can get help with more than just retirement planning.

You should check if your employer offers free financial coaching or mortgage guidance – some companies offer it as part of their workplace perks.

If not, MoneyHelper is a Government-backed organisation that offers free financial advice to help with debt, retirement planning and budgeting.

Those who want help with their savings and investments can book a free 45-minute virtual session with a financial coach through Bestinvest.

Digital bank Moneybox is rolling out an AI service called Aurora that provides customers with personalised financial guidance, although it isn’t available for all users yet.

If you’re struggling with debt, you can access free advice from organisations like Citizens Advice, the Debt Advice Foundation and StepChange.

For advice on energy bills and keeping warm at home, you can call National Energy Action.

Will I pay double tax on a side hustle?

A side hustle can be a useful way to boost your income, but you should be aware of when you’ll need to pay tax on your earnings.

Whether you get cash in hand or money paid to your bank account, you’ll need to tell HMRC if you’re making more than £1,000 a year.

You can check if you need to tell HMRC by using its online checker tool.

If so, you will then need to fill out a self-assessment tax return to register as a sole trader.

You can fill out this online form to register – make sure you have your National Insurance number and details of your income to hand.

Susan Hope, retirement expert at Scottish Widows, says you can’t be taxed twice on the same pound from your side hustle income.

But when your side hustle money is added to your main income, it could push you into a higher tax bracket.

The basic rate for taxpayers is 20% on incomes between £12,571 and £50,270.

But this doubles to 40% on income between £50,271 and £125,140.

Susan says to be aware that if you fail to update HMRC properly, you may face “unexpected tax bills and penalties”.