Take control of your personal finances
13-steps to a more healthy bank balance
What’s the quickest way to make a bit of money? No, not that. It’s by sorting out your personal finances.
Look at all your bills and find ways to cut them down. Impossible? Not so. You’ll probably discover you’re paying out for some things you don’t need to or paying over the odds for others.
Even if you can’t save money on bills, you could make money by being a smarter spender. That means making the most of cashback, discounts and a range of other offers on financial and related products.
Talk about it
Talk about money. Why? The more you talk about money the better you’re likely to become at managing it.
That’s because it not only helps you to focus on the way you spend and save, but by discussing things with others – friends and family or workmates – you’ll pick up their tips. For instance, why don’t more people switch energy supplier when there are hundreds of pounds to be saved? Because they don’t realise how easy it is.
Talking about spending and saving is the quickest way to hear new ideas that improve your own money affairs. Few people can resist passing on the ways they’ve managed to save money. But if you can benefit from them too, then it makes sense to share.
And, you know what? If you’re in debt, talking about it can be especially helpful. It’s part of the crucial process of admitting your situation which is a major step towards dealing with debt.
What’s the secret to money management? In one word, it’s budgeting.
To put it simply that means planning your spending. That may seem like common sense but few people actually plan properly. Instead they spend while they’ve got the money and stop spending when they run out. But by planning your spending, there may not be a need to run out.
If you don’t make a shopping list, start one and keep to it. It will help ensure you don’t run out of money before the end of the month. And it will also make sure that you don’t fall for retailers’ tricks. These include dubious discounts or offers that are designed to make you spend more rather than saving money.
The dodgy deals are usually at eye level in stores to try and tempt you into spending out on something you hadn’t planned to. That doesn’t mean ignoring the deals. Instead the savvy spender makes a shopping list, and then finds the best deals or cashbacks on the things they need to buy. That’s the only real way to make major savings on spending.
To budget properly you need to make a list of all your income and outgoings. That means writing down – or typing up – all your regular bills, including food, heating and other essentials.
You should also take account of everywhere else you spend money, such as holidays, clothes, and nights out. If you don’t take account of all your expenses, you won’t be able to budget properly and the exercise will be a waste of time. Do it on a monthly basis and divide annual expenses, such as holidays and insurances, into 12 to get an idea of how much you actually need.
This is the point of budgeting, to work out how much you need to spend to get by. The key to successful budgeting is to include the fun stuff, such the cost of a night out or trip to the cinema, or even a few quid every week to pop down the pub. Without fun to look forward to, trying to budget and counting the coppers is going to prove difficult.
In other words be realistic about budgeting for all the things you like to do as well as need to spend money on. Then compare how much you reckon you need to spend against how much your income is, how much cash you actually have. If you’re living within your means, that’s great, you may even be able to afford to save money. If you’re spending more than your income, you need to make changes.
Living within your means
If you’ve worked out that your spending too much every month then you need to act positively. They doesn’t necessarily mean cutting back, but it does mean taking a close look at your spending habits and finding ways to make your money go further.
For starters, every time you’re thinking about splashing out, look for deals and discounts to cut the cost. A pound saved here and there can very quickly mount up to a decent amount, which can mean the difference between slipping into debt, or actually being able to save for the future.
Look at everywhere you spend out and find out if you could save money. Even regular bills such as gas and electricity are worth examining. In fact, if you’ve never switched energy suppliers it’s likely you could save around £300 a year by moving to a better deal.Other regular outgoings could also be cut back after bit of research tracking down better deals.
Statement of intent
Here’s what could prove a simply way to save money: check your bank statement.
Having a good look at your statement can reveal an old direct debit or standing order you set up a long time ago and forgot to cancel. Lots of people have old gym memberships, for instance. You could have stopped going to a health club months or years ago but your wealth could still be getting strained by continuing monthly charges.
Other expenses to look out for that you may be able to scrap include subscriptions to magazines you no longer read or even insurance payments to an old firm that you’ve forgotten to cancel. We spend around £15 a month on useless subscriptions for such things as beauty boxes, grocery deliveries and cinema memberships that we don’t use anymore.
Examining your statement may also reveal wrong payments, such as direct debits taken out twice, which may simply need to be corrected with your bank to get a cash boost to your account. More crucially you’ll see just how much you’re really paying for your gas or electricity or mobile phone or other regular bills. Seeing in print – or online – how high are the monthly or annual charges you’re forced to pay may encourage you to do something about it and switch to save.
Cash in hand
One simple trick to help keep your spending under control is to use cash when you go out.
If you spend in notes and coins it will help you avoid getting an expensive shock the next day. Ahead of a night out, for instance, decide in advance how much money you’re happy to spend and then only take that much with you and leave your plastic at home.
You need to be very disciplined to make it work. So if you take £20 to the pub and spend it, you’ll know it’s time to head home. It may prove a little difficult at the time, but it will help avoid that sinking feeling the next morning when you find a credit card slip in your pocket for an outrageous amount that you splashed out in your happy state the previous evening.
Are you one of the two-thirds of people who have never switched their energy supplier? The amount you could save by moving to a different tariff has hit a seven-year high. And it’s not small change.
The average saving made by those switching deals soared to £337 last year. That means in some cases the amount people saved topped £500. That could be enough for a week’s holiday. That should be a strong reason to look into switching energy supplier.
Put it another way, for an hour’s or so work researching energy companies online and arranging to switch companies you could be up to £500 better off. Surely everyone would be interested in that offer. Even better is the fact you can may be able to get cashback by switching. Some firms will hand over up to £50 if you move to them.
Saving on insurance
Here’s a tip: don’t let your insurance company automatically renew you for another year’s cover.
Whether you have car or home insurance, you should ensure you get the best deal every year. And the fact is that the best deal is unlikely to be offered to you by your existing insurer. That’s because they tend to offer great deals to attract new customers and then hope that they stay for years.
When it comes time to renew insurance many firms simply increase costs by something like 10% in the knowledge that many people will compare the price to last year’s and assume it’s a reasonable increase. But insurance prices don’t automatically climb every year. In fact in recent years they’ve fallen for a variety of reasons.
That means that you’ll need to shop around again every year to ensure you’re not being ripped-off. And many insurers offer cashback to new customers, which can mean saving even more. You can get up to around £50 cashback on car or home insurance, which could mean switching will help you save even more money. But even if you find a better deal elsewhere it’s worth haggling with your existing insurer. If you tell them the better deal you’ve been offered elsewhere, they will often match it to avoid losing you.
Saving on banking
Do you pay for your bank account? You don’t need to. There are plenty of free accounts out there.
Nine out of 10 current accounts now charge a fee and it’s not cheap. Those paying a management fee shell out around £130 a year on average. If you go into the red the charges can mount up even more with hundreds of pounds added in charges if you go into an overdraft without permission from your bank.
Getting your finances in order should help avoid the pain of slipping into the red and help save money at the same time. Switching to a free account can save money, but you could actually be better off with an account you pay for that pays cashback. Some accounts pay cashback on essentials, such as petrol or energy, and depending on your bills, could really pay their way.
Cutting the cost of debt
If you owe money it’s crucial to ensure you pay the most expensive debt first.
If you have a credit card, overdraft or loan it’s likely you’ll be charged interest at different rates. The most effective way to pay off your debts is to pay as much as you can on the debt charging the highest rate of interest.
For interest if you have two credit cards, with one charging 19.9% and the other 12.9%, it makes sense to reduce the more expensive card first as it will reduce the overall amount of interest you’ll have to pay. Then move onto the debt charging the next highest rate of interest, and so on until they’ve all been repaid. But make sure you pay the minimum or what you need to on your other cards and loans to avoid getting extra charges.
If you owe money on credit cards it can be a good idea to switch to a card offering a 0% balance transfer deal.
Some cards now offer more than three years of interest-free credit which can be a great way to reduce the amount of interest you’re being charged and help you get your finances back in order. However, you’ll need a decent credit record in order to be successful in applying for a 0% deal, but if you’re turned down there may be other deals you can get with interest charges lower than the one you’re currently on.
Don’t just apply randomly as being turned down can hit your credit score and make it harder to get the best loan deals. Check which cards you are likely to be accepted for before applying. It’s also important to check the interest charge. Some cards charge up to 3% of the balance so, if you owed £5,000, for example, you’d be hit with an instant £150 charge as soon as you transfered.
While that can be added to the amount you owe, if you don’t repay the debt within the interest-free period, then you’ll end up being charged interest on the balance transfer fee as well as the amount you transferred.
If you’re thinking about taking out a mortgage do look beyond the headline interest charges.
On the downside there are often huge admin fees, sometimes up to as much as £3,000, which can turn what looks like a cheap rate into an expensive one. On the other hand three out of four mortgage deals offer gimmicks such as free legal fees or valuation.
The secret is to do your sums properly and weigh up the costs to work out which is the best deal for you.
Invest in yourself
Sorting your personal finances isn’t all about saving cash or just trying to get by.
It’s also about helping you to plan for the future and giving yourself a wide variety of choices. Investing in yourself can be as simple as putting a little aside every month, for instance, to get that dream holiday.
Or if you have other hopes or ambitions you choose to skip a night out and use the cash instead towards your dreams, whether that’s paying for training for a professional qualification or building up a nest egg to help ensure a healthy and wealthy retirement.