Get financially fit with the Moneywise boot camp
If I told you that you could transform the state of your finances in just two days, you probably wouldn't believe me. But there's no catch - providing you're prepared to put in some hard work. We've devised the Moneywise boot camp to help you shape up your finances in a weekend and have them fighting fit by Monday.
Today is all about limbering up your financial products and making your money work as hard as possible. Start by getting up early, give yourself some energy with a big healthy breakfast, then dig out statements and account details for every product and service you hold.
"It makes sense to start with what is probably your biggest debt - your mortgage," says Paul Merrigan, chief executive of mortgage brokers Lifetime. "It's important to understand that it's really only as long as your current deal - which tends to be two, three or five years."
When your mortgage deal comes to an end, your lender will automatically switch you to its standard variable rate, which can be as high as 7.75%.
Gather together your mortgage documents and check the rate you're paying. If you're paying the SVR, or your current deal is due to end soon, the savings to be made are huge. Speak to your current provider first, before you consider remortaging with another provider. "All lenders have retention policies to keep your custom, so it's worth asking what options are available. This is often all it takes to get a better deal," Merrigan adds.
If you're not happy with what your current provider has to offer, speak to an independent mortgage broker who will search the market to find you the most suitable deal.
Workout: Credit cards and loans
Credit cards can be handy for big purchases or when finances are tight, but if you're unable to pay off your bill every month, they can be a very expensive form of borrowing. Even if you have no trouble paying your bill off each month, you could free up more money by switching to a better deal. It's important to use a credit card suited to your usage, which may mean holding more than one card. For example, one for balance transfers and one for purchases.
If you can't pay off your balance immediately, switch to a card that offers 0% on balance transfers. Alternatively, if you mostly use your credit card for spending, go for a card which has a 0% APR deal on purchases for 12 months.
While we often shop around for insurance the first time we buy it, it's tempting to just renew with the same insurer each year because it's quick and easy. However, if your premiums have increased or you haven't shopped around for a better deal in the past year, your insurance could need toning up.
Dig out your insurance policies to identify exactly what you're covered for and how much you're paying, and to determine whether your policy still meets your needs - you could discover that you're either underinsured or paying for cover you don't need.
With several price hikes last year, followed by a series of price cuts in the past six months, it's tricky to keep on top of how much you are paying for fuel. But, as a general rule - if you haven't already switched suppliers this year - you'll be able to save money on a better deal.
Study your utility bills to identify the amount of energy you've used in the last year and how much you paid for it. Then take a look at one of the switching websites, such as uSwitch.com or SimplySwitch.com. You will need to enter details such as your postcode, the name of your tariff and the number of people living in your home to enable them to find the cheapest supplier in your local area.
Online duel fuel tariffs where you pay for both your gas and electricity are the best value, and you can make further savings by paying by direct debit instead of on receipt of the bill.
"The best step to reduce your communication bills is to understand your usage," explains Steve Weller, head of communication services at uSwitch. "Far too often, people are being charged for services they do not require, be it high download limits for broadband or unused limits on mobile phones."
Look at your bills and compare your actual usage against the deal that you pay for. For broadband, visit uSwitch.com, where its 'usage barometer' will help you understand the level or download limit or 'cap' that you require.
Weller advises contacting your suppliers to tell them you are thinking of leaving. "It's worth seeing what they have to offer - they maybe able to give you a better deal, but make sure you compare this with other new offers."
Today is focused on putting good habits in place to keep you financially fit for life. Yesterday's workout will have made sure your regular fixed expenses are as lean as possible. Now you can focus on making those savings work hard and take control of your spending.
You need to start by getting a clear picture of where you stand financially, says James Falla, managing director of debt consultancy, Thomas Charles. "It's important to get back to basics and understand what you have coming in and going out each month," explains Falla.
Many of us are frightened by the word budget because we think it'll mean living on a shoestring and putting our social life on hold, but it's a simple and effective way to figure where your money goes and how much you have to spend. Start by jotting down your monthly income, then refer to your bank statements and list all the fixed monthly payments established yesterday, such as rent or mortgage payments, insurance, utilities and other regular expenses such as travel, gym membership and groceries.
"What you have left is your surplus income, which can be used to either pay off debts, save or spend, depending on your situation," says James Falla. Look at outstanding debts and prioritise the ones with the highest rates.
Once you've worked out your surplus income, the best way to keep track of your spending is to work in cash. While you can mentally account for all your fixed expenses within your budget, they are unlikely to all come out of your account on payday.
Save, save, save
One of the main aims of the boot camp is to become financially fit for the future - and developing a healthysavings plan is key. Even if you already put away some money each month or have a lump sum sitting in an account, you're not off the hook, as it's likely your money could be working harder. In the short-term, it's important to build up an emergency fund so you aren't forced to borrow on a credit card or dip into your overdraft if an unexpected expense crops up.
Every mortgage lender has a standard variable rate of interest, or SVR, on which it bases all its mortgage deals, including fixed and discounted rate and tracker mortgages. When special deals come to an end, the terms of the deal usually state that the borrower has to pay the lender’s SVR for a period of time or pay redemption penalties. The lender’s SVR is, in turn, based on the Bank of England’s base lending rate decided by the Bank’s Monetary Policy Committee (MPC). Every time the MPC raises its rate, mortgage lenders generally increase their SVR by the same amount but when the MPC lowers its rate, lenders are often slow to pass this on or don’t pass on the full cut to borrowers.
An overdraft is an agreement with your bank that authorises you to withdraw more funds from your account than you have deposited in it. Many banks charge for this privilege either as a fixed fee or charge interest on the money overdrawn at a special high rate. Some banks charge a fee and interest. And other banks offer a free overdraft but impose very high charges for exceeding the agreed limit of your overdraft.
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.
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%.