Five New Year money resolutions for 2009
Most people start each new year with a list of goals and lofty ambitions that they would like to achieve over the coming 12 months.
While many of these will be abandoned during January, there is no harm in thinking big and aiming high when it comes to matters of money. In fact, the new year is the perfect time to make plans to adopt better financial habits; not only are you likely to get a shock when you receive your credit card bill from Christmas, but with January traditionally a frugal month you’ll may well find it easier to cut-back and reconsider your finances without sacrificing too much fun along the way.
With a recession on the horizon, there is little doubt now that 2009 will be a tough year for many households, so what better opportunity to make the most of your good intentions and think about what aspects of your finances you’d like to change?
Now that 2008 has been and gone, it’s time to wave goodbye to bad financial habits of the past and embrace a new you. The forecast for the next 12 months isn’t good, but ensuring you are as prepared as you can possibly be is the best way to survive the downturn and possibly come as stronger than before.
1. Write (and stick to) a budget
The top priority on your list of money resolutions for 2009 should always be to write a budget - and stick to it. This may sound like something of a dull task, and you may be reluctant to look too closely at your bank balance after the excesses of December, but more likely than not you will feel better for it.
More importantly, your finances will be stronger and better able to cope with the economic rollercoaster ride that lies ahead. Sit down with a few months worth of bank statements, a highlighter pen and work out exactly where your money goes, how cut-backs can be made and where any savings would be better spent.
For example, if you manage to save a few hundred pounds by ditching that unused gym membership, or moving your home insurance to a more competitive provider, then don’t just let that money sit in your current account. Instead, think about whether it would be best used to pay off existing debt, put into a savings account, ISA or pension or even spent on home improvements.
Read our step-by-step guide to writing a budget here.
While writing a budget is the best way to ensure you make better use of your money over the long-term, but many people also want to adopt a more immediate money resolution.
Keeping a money diary is a great way to see exactly where your money goes on a day-to-day basis. How many times have you withdrawn £20 only to see it whittled down to a handful of coins with days despite you seemingly having bought nothing? A money diary will highlight your weak points – such as those morning coffees or magazines – thus enabling you to make cut-backs. At the same time, the psychological effect of keeping a money diary may well encourage you not to be so eager to part with your cash – potentially a big saving in itself.
You can download a free Moneywise money diary here.
2. Reduce your spending
Seeing as you have already put some time aside to write a realistic budget for 2009, it is probably worth also giving your financial documents a spring clean. Keeping all your records in a filing cabinet may seem like being organised, but when was the last time you went through all those bits of paper, shredding the information you no longer need?
While you’re at it, why not consider moving all your financial filing online to a safe a secure home? Register for free with Moneywise and you’ll receive a free five-year membership to Allfiled, an online financial administration solution that would normally cost you £175.
This high security website works like a thinking filing system and diary, allowing you to store all your financial information securely in one place where you can access it from any computer anytime, anywhere.
Allfiled will then remind you when policies need renewing - so all you need to do is check the details online and start looking for a new, more competitive deal.
Find out more about free membership to Allfiled here.
3. Be more organised
Once you’ve sorted all your financial affairs it should be a lot easier and quicker to deal with them on an ongoing basis. So take the opportunity to shake off apathy and start taking control over your essential spending.
For example, how many people let their car insurance or home and contents insurance roll-over each year without thinking about whether they could save money elsewhere.
In the same vein, many people who took out savings accounts with 12-month bonus rates should make sure they look for a new home for their money as soon as that introductory bonus expires.
4. Ditch the cigarettes
Giving up smoking at new year is nearly as good for your bank balance as it is for your health. For one, you will start to save money immediately from ditching the cigarettes – a 20-a-day smoker will save around £45 a week, nearly £200 a month and £2,400 a year by quitting now.
Just make sure you now put those savings to good use (such as paying off debt or boosting your savings account).
In addition, after one-year of not smoking you should see your life and critical illness insurance premiums reduce by up to 50% because life insurance companies start to class you as a non-smoker.
5. Don't let your credit card balance rack up
With tens of thousands of credit card bills due in January, now is a great time to start being more sensible with your spending and borrowing.
While it may not be possible to pay off your January credit card balance in full, try to clear as much of it as you can in order to avoid being hit with interest charges. And going forward, it is always a good idea to pay off your balance in full and on time each month – that way, you won’t have to pay interest and you can still use a card (perhaps to defer payments until payday or benefit from purchase protection) when you need to.
If you can’t afford to clear your balance each month then you have to ask yourself whether you should really continue to spend on credit. If you can’t see how to cut back on spending on credit, then consider contacting a debt charity who may be able to help you cope.
These are, of course, just a few of the many good financial habits you should be looking to adopt in 2009 - share the money resolutions you'll be sticking to below...
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.
Generally thought of as being interchangeable with life assurance, but isn’t. Life insurance insures you for a specific period of time, at a premium fixed by your age, health and the amount the life is insured for. If you die while the policy is in force, the insurance company pays the claim. However, if you survive to the end of the term or cease paying the premiums, the policy is finished and has no remaining value whatsoever as it only has any value if you have a claim. For this reason, life insurance is much cheaper than life assurance (also called whole of life).
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.
Critical illness insurance
This cover pays out a tax-free lump sum if you become seriously ill. All policies should cover seven core conditions: cancer, coronary artery bypass, heart attack, kidney failure, major organ transplant, multiple sclerosis and stroke. You must normally survive at least one month after becoming critically ill, before the policy will pay out. Payouts are determined by premiums and premiums are determined by the severity of your illness, the less severe the lower the premiums.
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.
Does exactly what it says on the tin: covers the contents of your home for theft and damage and also may insure certain possessions (jewellery, cycles) outside of the home. Things to watch for include the excess and also the maximum payout on individual items. Another grey area is kitchen fittings, as some contents policies say these are not contents but part of the fabric of the property and covered by buildings insurance and some buildings policies don’t cover them because they regard them as contents.