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Transform your finances

MONEY MATTERS: Get a hold on your finances this year

IT IS TRADITION at this time of the year to take stock and set resolutions for the year ahead – why not make tidying up your finances one of them?

Let’s be honest, most of us ditch our New Year’s resolution to, say, cut down on booze or chocolate consumption and go to the gym more before the end of the month, but keeping tabs on your money is something that you can’t afford to let slip by the wayside. After all, money matters. This is the theme of this new regular column. They will be jammed packed with guidance to help you make informed financial
decisions.

BUDGETING

You would do well to consider the acronym ‘BSM’ when reviewing your spending habits. The ‘B’ stands for budgeting, the ‘S’ is savings, and the ‘M is shorthand for managing debts – but let’s focus on budgeting for now.

Reducing your monthly expenditure by limiting the amount of coffee you purchase from Starbucks and cutting down on the number of takeaways you order, for example, is good practice.

Life throws a few curveballs once in a while, so it is a good idea to hold surplus cash into a savings account that allows you to access it if and when you need it without penalty. The rule of thumb is to try and have three months of your usual salary in an instant access account.

If you are fortunate enough to have spare cash after building up an ample savings cushion, you might want to consider investing – I’ll cover this topic in greater depth in a later column. However, you can make your money work harder without expelling much effort. Switching your current account is a prime example but, unfortunately, Brits are more likely to get divorced than change who they bank with. Yes, you read that correctly. We are more faithful to the institutions whose lax lending sparked the financial crash of 2007/08 than we are to our other half.

What’s more, over a quarter of us follow in our parents’ footsteps with who we bank with according to the Payments Council, the trade association for the UK banking and financial services sector now known as UK Finance. The figure is higher for those aged between 18 and 24 years old (59 per cent).

However, jumping ship and moving your money over to another bank or building society could bolster your financial position. First Direct, for example are offering £125 of free cash for those who switch to their account through price comparison website MoneySupermarket. There is a small caveat, though. The account requires you to pay in £1,000 or have an average monthly balance of £1,000 to avoid a £10 monthly fee after six months.

Meanwhile, Nationwide is paying five per cent interest on balances up to £2,500 for the first year – providing you pay £1,000 every month into the account. There is a misconception that switching banks takes a lot of effort on your part, but it doesn’t.

The introduction of the seven-day switching in September 2013 had made the process easier. All you have to do is ask your new bank or building society to move your old account. Your salary, Netflix, Spotify and other direct debits would be transferred into your new account in seven working days.

SAVING FOR RETIREMENT

It is difficult to think about saving money for the future in a society that promotes the ‘carpe diem’ message of living in the here and now but it is important to do so. The harsh reality is that ethnic minorities are more likely to live in poverty or have less cash at retirement than white people, according to numerous studies.

An interesting study by thinktank Runnymede Trust, found that BAME people are less likely to have a private pension – even those who are in work. Black African households hold on average £21,000 in wealth at retirement – significantly less than the £221,000 held by the average Caucasian pensioner.

The Government kick-started the auto enrolment scheme in October 2012 to help people save for retirement. The initiative makes it compulsory for employers to automatically enrol their eligible workers and pay money into a pension scheme. The scheme will be extended to 18-year-olds under new Government plans. You can opt out of the scheme, but you would lose out on ‘free’ money from your employer’s contribution if you do so. This topic will also be explored in more detail in a future instalment.

Finance is not always the easiest topic to get your head around but having a good handle on your own financial position is imperative. You can track of your money and still have fun – you just have to know how to slice up your pay cheque. A pound saved today could go towards making that dream of jet-setting a reality.

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