Spring is traditionally a time when we clean our homes and spruce up our gardens, and it can be a good idea to extend this to our finances so that our money is working as hard as it possibly can.
If you’re very organised when it comes to money matters, you probably give yourself a financial health check on a regular basis. But if you’re the kind of person who just manages to get by from month to month, you may not have the time or inclination to take a step back and see what you’re really doing with your money. But it’s worth taking some time to do this. If the task itself fills you with dread, concentrate on how you’ll feel after you’ve finished and – if necessary – line up a little treat to reward yourself afterwards.
Here, we look at five ways to spring clean your finances and hopefully save a bit of money at the same time.
1) Work out how much you owe
There’s always a lot written about debts just after Christmas, but for many people the pain doesn’t start until a little later in the year. Spring is often when we’re not only still trying to pay off our festive debts, but we might also have put a summer holiday on our credit card, or have over-stretched ourselves trying to cover rising living costs.
If you can clear your debts all in one go, great, if not, make a plan. A good starting point is to work out a budget: it’s the best way to see how much money you can spare to start paying down your debts. A budget is simply a document that sets out how much money you have coming in, how much you have to spend on things like mortgage/rent, food, insurance etc and how much you have left over. Find out more in our guide How to make a budget and stick to it.
If you’re spending more than you’re earning, you’ll need to come up with ways of cutting back on your spending. Different methods work for different people, but you might find a spending diary works for you if you regularly end up with more month than money.
It’s not the same as a budget, it’s just a note of money you spend, what you spend it on and when you spent it, so you can identify some of the money habits which are costing you the most.
2) Make a plan to tackle your debts
Once you’ve worked out how much you owe, it’s time to think about ways you can pay off your debts.
The best plan of attack is to start with the debt charging the highest interest rate first. That’s because if you’re paying off debts you need every pound to work as hard as it can. The most effective way to do this is to target the credit card or loan charging the highest rate and pay the minimum on the rest.
If you work your way down through your debts, always paying the maximum on the one charging the highest rate of interest, you won’t use so much of your money on interest. Find out more in our guide How to take control of your debts.
3) Are there any ways you can boost your income?
If you’re finding it difficult to make ends meet, or would like to bring in a bit of extra cash each month to make life more comfortable, there may be several things you can do to boost your income. For example, you could have a clear out at home and sell any unwanted items you have. Alternatively, you could take on a side hustle, such as renting out your car or working as an online tutor. Find out more in our guides 24 ways to earn extra money and boost your income, 10 Best Side Hustle Ideas to Make Extra Money and 10 second jobs to boost your income.
If you don’t have time to take on a second job, but have a spare room in your home, you might want to consider letting it out to a lodger. Under the government’s rent a room scheme, you don’t have to pay any tax on the income you get from renting out a room, so long as this income doesn’t exceed £7,500. Find out more in our guide Renting out a room – What you need to know.
4) Look at ways to reduce your outgoings
If you don’t think you can boost your income using any of the ways outlined above, you might be able to free up a bit of extra spare cash each month by reducing some of your outgoings. For example, do you have subscriptions that you’re paying for that you no longer use, or could you reduce your food bills by sticking to a menu plan each week? Find out more in our guides
How to save money – 21 best money saving tips, Are you losing money on subscriptions you don’t need? and 21 ways to save money on your food bills.
Bear in mind that your mortgage is likely to be your biggest outgoing every month, so it’s worth making sure you’re on the best possible deal. Many people in their 50s and 60s stay on their lender’s SVR – usually the most expensive mortgage rate – because they think remortgaging isn’t an option that’ll be available to them because of their age. However, age shouldn’t be a barrier and several banks and building societies will lend up to the age of 80 and beyond – subject of course to passing their affordability checks. Find out more in our article Mortgages if you’re over 50: what you need to know.
If you are struggling to get a standard mortgage because of your age, you may want to consider other options such as a retirement interest-only mortgage, or a lifetime mortgage.
Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage. If you’re looking for somewhere to start, you can speak to a Rest Less Mortgages advisor and get high quality advice on residential, retirement interest-only, equity release and buy-to-let mortgages.
5) Sort out your savings
With no banks and building societies paying inflation-beating returns at the moment, putting money in a savings account may feel like a bit of a waste of time, even though interest rates have risen over the past year. However, it’s vital to make sure your savings are earning as much as they can to stop rising living costs eating into their purchasing power.
Anna Bowes, founder of savings website SavingsChampion.co.uk, said: “It remains vital for savers to choose the highest-paying accounts to try and mitigate the effects of inflation.
“Based on the current CPI rate of 10.4%, if you leave your funds languishing with one of the worst paying easy access accounts paying just 0.25%, a deposit of £50,000 would have fallen to just £45,403 in real terms in just one year. If you were to choose the best easy access account available today, paying 3.40% AER, while the real value of your money would still be much lower, it would be worth £1,427 more, at £46,830.”
You can find the best easy access savings rates in our guide Best instant access savings accounts which is updated weekly.
If you have long-term financial objectives, for example, helping grandchildren to get onto the property ladder when they’re older, you may want to consider investing, although you’ll need to be comfortable accepting the risks involved. Stocks and shares ISAs have historically tended to provide higher returns than cash ISAs over long-term periods, as well as the possibility for long-term investment growth from compounding returns. Many offer a range of ready-made investment portfolios that match different levels of risk, so you don’t have to spend hours picking investments yourself.
If you’re looking to invest in an ISA, fund platforms such as Fidelity, Hargreaves Lansdown and AJ Bell can help narrow down your choices with recommended fund lists, which might highlight 50 funds out of the 3,000 plus available to UK savers. They also offer ready-made funds for a range of different risk profiles if you don’t want to pick investments yourself. Bear in mind that there are charges associated with stocks and shares ISAs and you’ll pay a fee to the platform as well as for the funds held.
6) Build an emergency fund
If you’ve let the savings habit slide in recent years, think about setting up a direct debit or standing order so you can pay a little into your savings every month, so you can build up a cash buffer. Even if you can only afford a modest amount each month, it’s better to start saving today than to wait until you can afford more. You can always increase the amount you save once you’ve made a start.
The main benefit of this is that you’ll have money set aside so that if you have an unexpected expense (or even a planned one, such as a holiday) you won’t have to borrow money at high rates of interest.
Try and save enough for three months’ expenses. This may feel like a tall order so set yourself intermediate goals – £1,000, one month’s expenses and so on.
If you’re the kind of person who finds it easier to spend money than save it, give yourself a treat once you’ve reached a particular goal. Saving money means having less to spend now, but focusing on the rewards makes it feel like it’s less about deprivation and more about achieving something positive. Learn more about building a cash buffer in our guide How to build an emergency fund.
7) Pay off your mortgage early if you can
If you have money to spare, consider paying off your mortgage early. But beware that this may not be the right step for everyone as you won’t be able to access your savings once you’ve used them to overpay your mortgage.
Make sure you won’t have to pay penalties if you make overpayments either. Many mortgage lenders will let you make extra payments up to certain limits (often around 10% of the outstanding balance or £500 a month). If you pay more than this you’ll be charged an early repayment penalty.
Learn more about whether overpaying could be right for you in our guides Should I overpay my mortgage? And Paying off your mortgage early – how to get the best results.
8) Review your protection policies
If you have protection policies such as life insurance, income protection or critical illness cover, it’s worth reviewing them to see whether they still provide you with the cover you need and offer value for money.
For example, there might be another policy out there that offers a similar level of coverage for lower premiums. Or, there might be a one with a particular feature or area of coverage that you currently do not have, and would like.
You might also want to think about whether there are any features included with your current policy that you’re unlikely to take advantage of. Finding a similar policy without these extra perks could work out a bit cheaper for you. If you have health insurance, you can find out more about some health insurance features you might not be aware of in our article Six surprising benefits of private health insurance.
Alternatively, you might have undergone a major life change such as getting married or divorced and so may want to think about reviewing your cover to check that it still meets your needs. Find out more in our guide Am I protected financially?
If you’re not sure whether you have the right protection cover in place, it’s worth seeking financial advice. There are a number of fee free brokers available in the market, but if you’re looking for somewhere to start, you can get fee-free advice from a Rest Less life insurance expert**. All you need to do is book a no-obligation call to get personalised fee-free advice and quotes from the whole market.
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