Be your own chancellor with Moneywise's 2012 Budget
So instead of focusing on what Chancellor George Osborne has and hasn't decided to do with the UK finances, now is the time to look at our own budgets. To help you on your way, here's the Moneywise 2012 Budget that will create no losers:
1. Be smart when paying debts
Step one is to pay off your debts in a clever way. Ok, so paying off those credit card bills is never much fun, but there are some simple rules that will help minimise the pain.
Firstly, don't try to squirrel money away if you've still got loans and cards to pay off. While it feels great seeing your savings grow, the interest earned on your cash will never be as much as the interest you will have to pay on a loan.
Secondly, always meet the repayments on essential debt first (such as your mortgage), and then try to pay off the debt with the highest interest rate. If you have credit card debt with a high APR, see if you could switch to a 0% balance transfer card. For example, Barclaycard currently offers 0% for 22 months. There is a balance transfer fee of 2.9%, but this could be far less than the high APR you're currently paying on a monthly basis.
2. Don't pay more than you have to
Step two is to make sure you don't pay more than you have to for your essentials. This includes shopping around for everything from gas and electricity deals to car insurance premiums.
While loyalty is a great trait in a friend, unfortunately this is not the case when it comes to being a customer of the financial services industry – so if your current provider can't or won't offer you a good deal, vote with your feet and take your custom elsewhere.
Once you've accumulated some wealth, the third step is to make sure you get the most out of your money.
There are a couple of things to bear in mind here. If you're putting your money into a deposit account, make sure you have a look around for competitive rates on a regular basis - most accounts tend to offer good rates for about a year and then they plummet, which means it's time to switch.
If you're investing, watch out for charges; some fund managers charge an extortionate amount despite not delivering great returns. Also avoid investing with your bank. Not only are the banks criticised for flogging poor-value investments, but using a bank could also leave you in the hands of a rather dubious 'adviser' who is on a mission to earn commission.
3. Be tax-efficient
Lastly, always make sure you save or invest in the most tax-efficient way possible - a report by unbiased.co.uk show that savers and investors could lose out on more than £400 million over the next tax year by not using their ISA allowances – don't be one of them.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
Moving money from one account to another, whether switching bank accounts or more likely transferring the outstanding balance on your credit card to another card that charges a lower – or 0% – rate of interest. Some card providers may charge a transfer fee that can be a percentage of the balance transferred.
This is used to compare interest rates for borrowing. It is the total (or “gross”) interest you’ll pay over the life of a loan, including charges and fees. For credit cards where interest is charged at more frequent intervals, the APR includes a “compounding” effect (paying interest on interest). So for a credit card charging 2% interest a month (equating to 24% a year), the APR would actually be 26.82%.