Many of us have had the traditional map reading argument with a loved one after discovering we have lost our way. It is certainly difficult to get to where you are going, if you don't know where you are! But as men are apparently from Mars and women from Venus perhaps we should anticipate a few misunderstandings along the way. The skills needed to effectively manage your money are not unlike those required for successful navigation. It takes close analysis of current spending habits to know exactly where you are, combined with an understanding of the existing financial climate, before any action can be taken to keep on the right financial track.
As I write the Bank of England has reduced the base interest rate to 1.5%, the lowest level since it was formed in the 17 th century. Whilst this is good news for mortgage borrowers on the whole, those who rely on their savings for income are feeling the pinch. The UK and a number of Governments around the world have implemented policies to increase public spending. But, just as with individual's borrowings, which is how most of this spending will be funded, there comes a period of reckoning when it has to be paid back. Even so, I suspect most of us would prefer to keep our jobs and pay slightly higher taxes in future years, if that's what it takes.
So with the health and fitness of your wallet in mind, and springtime being a good time to turn over a new leaf (new year resolutions having been long forgotten), lets consider a few financial exercises that should minimise the risk of taking a financial wrong turn.
Exercise 1
Make a note of all your spending over the next month, calculate the annual impact of each area of expenditure, and take a long hard look at the total. Is it all worthwhile? The coffees, sandwiches, newspapers, magazines, sweets, cigarettes, the pint or glass of Pinot on the way home? These are all incidental types of expenditure that once curtailed, help us balance the books, and maybe even save money.
Exercise 2
One way to monitor and efficiently manage your regular spending is to use a different credit card for each significant expenditure group. For example use one for motoring costs and another for food.
I am certainly not suggesting you build up debts, but that you make use of the interest free period you have at your disposal until you pay each card off in full, which is on average 56 days.
Exercise 3
Having scrutinised and prioritised your day-to-day outgoings, the next task is to review all unavoidable expenditure to check you are still getting value for money. Here are some of the key areas to consider that can have the maximum impact:
• IDENTIFY CHANGES IN YOUR CIRCUMSTANCES Have you been posted overseas, changed jobs or got married in the last two years? Make a list and consider the implications of each change.
• REVIEW YOUR TAX POSITION
If your circumstances have changed are you claiming the appropriate Tax Credits?
Check you are not paying unnecessary tax on your income if you are living overseas. You may need to complete form P85 at www.hmrc.gov.uk .
If you are ordinarily resident in the UK , and not a taxpayer, check any interest on your savings is not taxed. Use form R85 at www.hmrc.gov.uk to register your bank or building society account.
If you are not ordinarily resident in the UK , but are posted or living overseas, you may be able to receive your interest on UK savings without tax taken off by your bank or building society, by completing form R105 at www.hmrc.gov.uk .
• SWITCH & SAVE Are you getting the best deal for your utility services like gas, electricity, phone and broadband? A quick visit to www.forcesfinancial.com will enable you to check your current suppliers' rates against the competition.
• CONSIDER TAKING OUT INSURANCE to cover eye tests and dental checks. Missing vital check-ups can lead to bigger bills later. Go www.forcesfinancial.com for information on Health Cash Plans.
• CHECK THE FEATURES OF YOUR INSURANCE POLICIES Ensure you are not covered for something twice and therefore paying over the odds.
Exercise 4
One of the simplest and most effective things you can do is open an additional bank account to act as a budget management account. Arrange for all your direct debits and standing orders to be called from this account, and have the necessary amount transferred from your normal account into this budget account at the start of every month. This automatically saves any confusion as to how much money you have left to spend each month, and can prevent charges for exceeding overdraft limits and failed direct debits (mind you in the current climate insufficient funds could equally apply to you or your bank). Remember, insurance cover could be at risk if you miss premium payments because of failed direct debits.
I hope some of these suggestions will help you tighten your belt and navigate the recession prudently. Knowledge gives you the power to make the necessary adjustments to ensure you are heading in the right direction, and are fit to take advantage of opportunities when it comes to an end. So good luck!
Al Voice, MD Forces Financial
|
