It’s coming up to that time of year when we all promise ourselves a New Year makeover – to drink less beer and eat more vegetables, spend more time at the gym and less at the takeaway. This year, for a change, why not focus on your financial health? Kay Hill offers a 10-step plan to pile on the pounds next year!
Review your financial health
As with any self-improvement resolution, you need to know what you are dealing with before you can make sensible decisions – it’s no use going on a diet if you don’t know your weight or BMI! So, the first job is to work out exactly where you are right at this moment in time. Gather together your current account statements, check the balances in all your savings accounts and ISAs, make a note of the current value of any shares or investments and look at what you owe on credit cards, store cards, loans or overdrafts, plus any tax owed if you are self-employed. Ideally, put all these figures on a spreadsheet or in a notebook so you can revisit it regularly over the year and see if things are getting better or worse.
Focus on the debts
Now take a good look at the debts you have, and find out the interest rate you are paying on each. There are some things like student loans that are not usually worth paying off (as they are eventually written off), and interest-free loans for furniture that won’t save you anything by repaying, but others, such as credit card debts, could be racking up 30% interest a year! In addition, reducing your debts will help you pass affordability checks when you look for a mortgage. In general, if you have savings, and they are earning less interest than the rate you are paying on your debts (in the current climate you can take that as a definite), then try to repay what you owe, while holding some back for emergencies.
Look at your outgoings
Next turn to your current account. If you’ve ever got to the end of the month and wondered where the money goes, this is the opportunity to find out! Firstly, check to see if there is anything on there that shouldn’t be – subscriptions you’ve forgotten about, duplicate insurance policies and so on. Then weigh up carefully the regular payments you do have – do you actually go to the gym you’re paying for, watch the Sky or Netflix subscription, read the magazine?
Cut your bills
When you’ve pruned anything you are paying for that you don’t use, see if you can cut the price of the ones you do. If you are renting and pay your energy bills direct to the supplier, did you know that you can change suppliers? Even if you are on pre-payment meters you may be able to move to a cheaper deal. Broadband, mobile phone and TV subscriptions have generally become cheaper in recent years, so consider changing supplier or ringing up to negotiate a cheaper tariff. Make a note in your diary to shop around when annual policies like contents insurance, pet insurance and car insurance are due.
Watch the pennies
Sometimes small savings can add up, so as well as looking at the big items in your monthly spending, consider whether you can make small but regular savings – cycle instead of using the tube or car, make your own coffee and lunch, try own-brand products on your weekly shop, cook at home more. In the words of one supermarket – every little helps!
Make a plan
When you have your outgoings under control, you should be in a good position to set some realistic goals for the future. Work out a budget (a spreadsheet could come in handy – you can find a downloadable or printable spreadsheet, plus some really useful advice on making a budget, at moneysavingexpert.com/banking/budget-planning/). When you have factored in all the necessary spending for the year, along with things like Christmas and birthday celebrations, you will have a good idea of how much you can save each week or month while still having enough for the occasional treat or unexpected cost.
Open a LISA
When you’ve worked out how much you can save, think carefully about how best to do it. First of all, open a Lifetime ISA (LISA) if you haven’t done so already and if your purchase is at least a year away. These are individual savings accounts, so if you are buying with a partner make sure they open one too. Each person can save up to £4,000 a year and the Government will add a 25% bonus, so that’s potentially £1,000 of free cash each year towards your deposit, as well as tax-free interest. The best paying LISA at the time of writing was Moneybox, paying 0.6%.
Optimise savings
After that, depending on your timescale, you could look at fixed rate accounts – Zopa, for example, pays 1.35% if you can lock away £1,000 upwards for a year, or 1.61% if you take a two-year fix. If you plan to buy sooner then you could consider a notice account – Secure Bank Trust pays 1.1% if you can give 120 days’ notice; a regular saving account with an early withdrawal option – Coventry Building Society will pay you 1.05% if you commit to a regular deposit of up to £500 a month; or stick to instant access – at the time of writing, Shawbrook Bank was offering 0.67%. You might also consider changing your current account to one that pays interest (Nationwide FlexDirect pays 2% interest on up to £1,500), or one that allows you a high-interest savings account (RBS and NatWest customers, for example, can save £50 each month into a linked account paying 3.04%).
Boost your earnings
There are lots of ways to make a little bit extra, and the Government allows you to make up to £1,000 trading income each year without paying tax on it. So, for example, you could make things to sell on Etsy, do babysitting or dog walking, mow lawns and so on without being bothered by the tax man. Selling secondhand items that you have previously owned and used yourself never attracts tax, so if you have a wardrobe full of unwanted clothes or a loft full of vintage childhood toys, selling via eBay, Depop etc can give your savings a tax-free boost.
Make a Will
Yes, we know you don’t want to think about it, but making a Will enables you to make sure that your savings end up with the right person if the worst happens. If you are not married to your partner, for example, and you die without leaving a Will, the money will go to your parents, not to your partner. We would recommend seeing a solicitor (expect to pay upwards of £100), but at the very least use a Will writer (from £50) or, as a last resort if your affairs are extremely straightforward and you read the instructions carefully, buy or download a Will template, fill it in and make sure it is properly witnessed. If you get married or enter a civil partnership it automatically invalidates a previous Will, but divorce does not, so make sure to update it as your circumstances change.
