Stage one: trim your spending
Last year was an annus horriblis for many of us – starting in January, when the UK was officially declared to be in recession, and ending with the unemployment rate hitting its highest level in 14 years (nearly 2.5 million were people out of work in September).
But the torrid times have at least taught us a few lessons: the years of easy credit and heavy spending are gone and it’s up to us to make the most of what we’ve got.
There couldn’t be a better time, as we see out the old year, to give your finances a thorough spring clean so that you can end 2010 on a financial high. Simply follow Moneywise's five-part plan to get the Financial Feelgood Factor.
Step one: Trim your spending
In Santander’s 2009 survey on New Year’s resolutions, kicking the spending habit was a bigger priority for most of us than wanting to stop smoking or to find love. And this trend is set to continue.
However, wanting to reduce the amount you spend probably isn't enough - it can take real will power to cut back. Seeing exactly how much you spend - and on what - is a good way to shock yourself into tightening the purse strings.
Download Moneywise's free money diary and record all your spending for a month so that you know exactly what makes your bank balance shrink. For example, that daily cappuccino before work or that weekly trip to the curry house could easily take a large chunk out of your disposable income.
Once you’ve kept a money diary for a month or longer you should be able to identify where you can make cut-backs.You can also include this information in your larger budget plan.
Separate all your non-essential and essential outgoings. Your mortgage or rent, household bills and any loan repayments would be essential, while money for clothes, going out and holidays should be seen as optional.
At the more frivolous – but fun – end of the spectrum come clothes, gadgets and money for going out and holidays.
Somewhere in the middle are the things you really should be putting money towards but might well have stopped or paid less attention to recently, from child trust funds to pensions, savings products, investments and insurance policies. You may also have to include here unavoidable costs such as optician’s fees and childcare.
Don’t forget to budget for less regular expenditure such as your quarterly energy bills, holidays, birthdays and Christmas – these costs could easily break an otherwise well planned budget.
Be honest with yourself about how much you spend and include every last thing, even if they only cost a couple of quid, such as that takeaway coffee or car magazine.
Fixed essential costs should always take priority – if you don’t pay your mortgage, for example, you could lose your house, and non-payment of utility bills could result in heavy fines or having your services cut off.
Next, consider ways of reducing your expenditure on essentials and non-essentials. Take a look at some simple steps that could help boost your cash levels without forcing you to cut back on anything. Shopping around for a better deal could save you more than you think.
For example, switching utility providers could save you up to £350, according to uSwitch.com.
Finding alternative ways to pay your bills, such as a monthly direct debit or opting for paperless bills, could also help your bank balance.
As well as these pain-free steps, you may also want to take more belt-tightening decisions to get the elasticity back into your monthly income. These may only need to be short term, especially if the cash they release helps to pay off loans and credit card bills.
If you are constantly spending more money than you are earning you need to reassess your spending - but if that’s not possible, consider making your budget less stringent, as there is no point being on a tight budget if you can’t stick to it.
|Don't pay over the odds for broadband|
|Be a savvy shopper|
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.