Now that the New Year is upon us, and the excesses of the festive season are fading into memories, it is a good time to make some financial plans for the next 12 months (or so). In this first article of 2010, I thought it might be a good idea to give a few financial tips, to improve your personal wealth to some degree. It is worth my saying, from the outset, that I think this year will again be a difficult one for many, but some money making and saving ideas should be of use to most of us.
Firstly, don’t let financial institutions get away with anything: they make quite enough money as it is. If you carry a balance on your credit card(s), try looking at switching to a card that has a 0% interest period for as long as possible. Pay as much as you can afford off the account each month, as outside interest-free periods, it is an expensive way to borrow. Review your account at the end of the incentive period. If you pay off your balance every month, you might consider taking one of the ‘cash-back’ cards that pay you back a percentage of everything you spend, each month.
Saving money for the future is an eminently sensible thing to do, but for anyone who has any form of borrowing (certainly any borrowing at an interest rate of, say, 4% or more) the objective should be to repay as much as possible. It is almost inconceivable that there are people stashing away money, on which they are earning 1% to 2% a year, yet paying anything from 15% to 30% on credit or store card balances, yet thousands are! Whilst maintaining minimum payments where applicable, pay as much as you can off the debt with the highest interest rate, until it is cleared, then move on to the next.
Check the cost of your utilities, if you can, with a cost comparison website. If you have a mobile phone, internet access or home telephone, check with your provider at the end of each contract period, to see if you are on the best tariff. If you wish, consider switching providers to get a better deal. If you have a bank account for which you pay a monthly fee, check what ‘extras’ you get for your fee. Then make sure you do not duplicate any of these benefits. (I recently found that I had been paying for both mobile phone, and travel insurance, when both were covered as part of my current account package!).
I am generally a fan of regularly checking the cost of insurance, but it is fair to say that having a good ‘track record’ with an insurer can prove very useful, in the event of a claim. The cheapest is not always the best. The value is what is important. On the subject of insurance, it is a good time to check the cost of your life cover. It is cheaper than it has been for a quarter of a century, yet on average, insurers pay out some 50% more in claims, than they collect in premiums: surely a sign that such premiums will be reviewed, given these difficult times, and an increase could be on the cards. I have reviewed several cases of late, and reduced clients’ costs by a reasonable margin. If you have family or business commitments to protect, and have no cover, then now is a good time to buy.
As regards medium to long-term saving, I am reasonably positive about 2010, but would still advocate spreading investments by way of monthly saving schemes, if you have concerns about the markets.
I wish you all a happy, healthy and financially fitter New Year!
David Foot
In my last article, I promised a more detailed comment on the Budget changes to the tax treatment of pensions, but it seems that these changes are not yet ‘cast in stone’. There have been some alterations since the Budget, as I last wrote, and we may not have seen the end of these. Briefly, the changes only affect those earning in excess of £150,000 and are applicable until 5th April 2011 when further restrictions on pension contribution tax relief will be put in place. If you are fortunate enough to be in this position, then the important parts are: all regular contributions (monthly or quarterly) in existence before the 6th of April 2009 will continue to receive full tax relief, as will those pension investors that have made irregular contributions – who will benefit from full tax relief on the lesser of the average of three years ‘infrequent’ contributions or £30,000. The changes do not apply to those members of occupational ‘defined benefit’ (final salary) pension schemes, only ‘money purchase’ arrangements. Confused? You should see the unabridged version! It is not inconceivable that there may be other alterations to pension tax relief – which still remains a valuable benefit for many – so watch this space.
“Here we are again, happy as can be. . . ”, as my dear old Dad used to sing, when we were setting off on our summer holidays. Well, you could be excused for thinking that happy days are here again, if you read the right papers, or listen to the right radio stations: the ‘Footsie’ is up by something approaching a thousand points since my last column, mortgage approvals up by 19% in February and 16% in March and the Nationwide’s house price index actually rose in March! Years of experience have taught me to not to get too carried away, when things are starting to go well. In fact, I am less optimistic about the short-term future of the UK stock market, than I was when writing my piece for the February/March issue, when I said “when things are looking bleak, it is usually a good time to invest”. Not that I am pessimistic about markets, I still feel that many stocks and bonds are undervalued, but just not as cheap as they were. Many other economic factors are still negative, and there is a lot of bad news that needs to work its way through the system. Unemployment will go up, and house repossessions with it, and they will not be the only ‘bitter pills’ that will have to be swallowed. But ever the long-term optimist, I continue to believe that – barring earth shattering events, this year will be a positive one for stock markets.
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