Getting back into your best physical shape after Christmas and New Year might seem like a Herculean task, but for many of us getting in financial shape is even more daunting.
Now is the perfect time to tackle debt, review your spending and kick start savings plans. The sooner you act, the quicker you’ll see the benefit.
Here is our easy to follow wealth workout to help you reach peak financial fitness.
Without a proper budget, there is a good chance you will plunge back into debt
DEAL WITH YOUR DEBT BEFORE IT BALLOONS
If you are still counting the cost of Christmas, you are not alone. A survey by debt charity StepChange found that a third of Britons went into debt as a result of Christmas spending with many not expecting to pay it off until the summer at the earliest.
Tina Harrison, professor of financial services, marketing and consumption at the University of Edinburgh Business School, believes it is vital for households to prioritise the clearing of problem debt.
She adds: ‘If Christmas has left you with a hefty credit card balance, consider switching to a zero per cent interest credit card which allows you to transfer your outstanding credit card balance and be charged no interest for a fixed period.’
Websites such as MoneySavingExpert, MoneySupermarket and Money.co.uk list credit cards with 0 per cent deals for balance transfers. Many allow you to do a ‘soft search’ which means you can find out which card offers are available without impacting your credit record.
Once the switch has been made, Harrison urges borrowers not to use the card and to concentrate on paying down the debt.
If you are likely to take longer than the card’s interest-free period, an unsecured personal loan may be a better option.
GET YOUR SPENDING UNDER CONTROL
Without a proper budget, there is a good chance you will plunge back into debt. There are many budget planning tools available from the likes of the Money Advice Service, or specific budgeting apps such as Money Dashboard.
Many mobile banking apps – for example Monzo and Revolut – include a budgeting tool which categorises your spending. Little changes can make a difference. Giving up your daily coffee on the way to work can save around £600 a year.
Many mobile banking apps – for example Monzo – include a budgeting tool which categorises your spending
Citizens Advice estimates that the average Brit spends £640 a year on unwanted subscriptions – everything from fitness apps and Amazon Prime to gym memberships, business tools such as Dropbox and LinkedIn and dating apps. Now is as good a time as any to cancel those you do not get value for money from.
Check your bank statements for regular payments and double-check via your smartphone. iPhone users can see what they have signed up for by selecting Apple ID and subscriptions. You might be surprised.
REVIEW ALL YOUR UTILITY PROVIDERS
It’s likely you can get a better deal for your broadband, various insurances, gas and electricity by shopping around or asking existing providers if you are on the most competitive tariff.
Investment platform AJ Bell calculates that by taking an axe to pricey bills, the average household can save up to £5,000 a year, but while lots of people keep meaning to hunt for a better deal, many never get around to it.
The Government estimates that the average household could save £300 or more just by switching energy supplier, particularly if you are on its most expensive standard variable tariff.
It’s likely you can get a better deal for your broadband, insurances, gas and electricity by shopping around or asking existing providers if you are on the most competitive tariff
Study your most recent energy bill and go to a comparison website which will work out the best deal based on your usage. Then do the same with phone bills, broadband and TV channels.
Ask yourself: do you really use that expensive Sky subscription, or would a Netflix subscription for just £5.99 a month be better, or even Sky-owned Now TV which has no subscription costs but has all channels on catch-up and you can buy extra packages on a month-by-month basis?
Also, do you need the latest phone? When you reach the end of your contract, you could switch to a SIM-only deal to slash your bills.
For example, Vodafone has an £8 a month SIM-only contract with 5GB of data if you sign up for 12 months, while the latest iPhone 11 will cost you £68 a month for unlimited data for 24 months.
SWITCH TO THE BEST MORTGAGE DEAL
If you are sitting on a mortgage provider’s standard variable interest rate, you are probably shelling out far too much in interest payments. It is time to move.
For example, NatWest offers borrowers a two-year fixed rate loan priced at 1.41 per cent, based on 80 per cent loan-to-value. This is the percentage lenders use to assess the amount of your borrowing compared with the value of your home, on a £200,000 repayment mortgage over 25 years. This compares with its standard variable interest rate of 4.24 per cent.
The equivalent monthly costs are £791 and £1,082 – a difference of around £3,500 a year.
If you are happy with your mortgage and have any spare cash, make overpayments. Provided you are not breaking any overpayment limits, you could shave years and thousands of pounds off the loan.
START SAVING SPARE CASH
Once you have tackled debts and outgoings, it’s time to start saving. According to the Money Advice Service, 11.5million people have less than £100 in savings while one in eight have no cash savings at all.
The good news is that small savings can make a big difference. By using a savings app that rounds up spending to the nearest pound – diverting the difference into a saving account – you can painlessly save around £450 on average a year.
If you are able to save a bit more, set up a standing order to make regular payments into a savings account on the day you get paid. Visualising a specific savings goal can also help to keep you on track.
With interest rates so low, many people do not think it is worth switching to a better savings deal, but AJ Bell’s Laura Suter says nothing could be further from the truth.
She says: ‘The chances are that if you have had your savings account for more than a year, you have fallen on to a measly interest rate. The top easy-access accounts are paying 1.35 per cent. For someone earning just 0.1 per cent on £10,000 of cash, switching to Ford Money, for instance, would result in extra annual interest of £125.’
PEP UP YOUR INVESTMENTS
You can save or invest up to £20,000 a tax year in a tax-friendly Individual Savings Account. You can contribute regularly, save into cash or invest in shares (or do both) and you can withdraw money at any time. It’s a use or lose it allowance so try to squirrel as much money inside it as possible.
You can save or invest up to £20,000 a tax year in a tax-friendly Individual Savings Account
Now is a good time to search out details about old company pension schemes and see whether it might be best to consolidate them into a single self-invested personal pension, or leave them alone so as not to lose valuable benefits.
You can also see how they are performing, whether you need to increase your pension contributions if you are still working, and ensure you have nominated a beneficiary to receive any pension payable in the event of your death.
Giving any investments the equivalent of a detox makes sense. This means weeding out any that might no longer work for you – and rebalancing your portfolio so that it remains broadly diversified and in line with your goals.
Jason Hollands of wealth manager Tilney says: ‘Now is a really good time to consider whether you should entrust your investments to a private client investment manager or adviser who will select your holdings and monitor and adjust them throughout the year to make sure they remain suitable.’
FINALLY, BOOST YOUR INCOME
Extra money coming in will help clear debts faster and turbocharge your savings. There are many ways to generate extra cash – from offering tuition or handyman services, renting out a spare room, a driveway or garage space or selling unwanted gadgets and clothes.
Clare Francis, director of savings and investments at Barclays, says: ‘You’d often be amazed at what people would pay good money for. There are plenty of websites that will take old bits of equipment off your hands in exchange for cash.
Search online for ‘gadget recycling’ to see how much you could raise, while doing your bit for the environment by not sending them to landfill sites.’
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