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10 financial planning tips for gaining pounds in 2013
Losing pounds from your waist but adding pounds to your pocket should be the aim for the next 12 months.
by Michelle McGagh on Jan 02, 2013 at 11:36
Everyone wants to lose a few pounds of weight but gain a few pounds in their pocket as part of their New Year resolutions. Here are 10 ways for your to boost your financial health in 2013.
Scott Gallacher, director of Leicester-based independent financial advice firm Rowley Turton, recommends making small tweaks to your finances to boost your income and make sure your family is protected.
Gallacher's top tips are:
Keep a spending diary
‘Before you start sorting out your finances you need to know where all your money is going,’ said Gallacher.
If you never have any spare cash to save at the end of the month then you are more than likely frittering away money absent-mindedly. It’s surprising just how much the small purchases add up, including cups of coffee and sandwiches or magazines.
By keeping a spending diary, even for a month, you can see what unnecessary expenses you are shelling out for.
Set a budget
When you figure out where all your money goes by keeping a spending diary the next step is then to create a budget.
Cutting out unnecessary expenses does not mean living like a hermit, it has to be a realistic budget, said Gallacher.
‘Do you really need to spend £3 a day on fancy coffee?’ he said. ‘But make sure the budget is realistic and allows you treats otherwise it will instantly fail.’
Increase your income
When the economy is tough it may not be easy to convince your boss to give you a pay rise but if you can take on extra shifts then it may be worth doing.
Many people also boost their income by selling unwanted items on eBay or other auction and marketplace sites. And if you have a hobby, such as cake-making or woodwork, see whether you can make money from it.
Maximise your perks
Although most people are signed up to their employers’ pension scheme you probably aren’t getting the most out of your workplace.
Many employers offer different types of insurance, such as life insurance or dental insurance, and even savings schemes.
‘Many bigger companies offer valuable staff benefits such as pensions, savings schemes and staff discounts,’ said Gallacher. ‘Make sure you are taking full advantage of all of these benefits as they are equivalent to an extra pay rise.’
For those who are not part of their workplace pension scheme, the government plans to ensure they join through auto-enrolment.
Review your mortgage
The first question to answer is whether you are on the best mortgage deal. The mortgage market has become more competitive since the summer and the introduction of the government’s Funding for Lending scheme.
If you can swap mortgages without incurring high charges then moving to a lower interest rate will save you thousands of pounds. However, if you cannot move without paying a penalty then look at overpaying your mortgage to reduce the term of your mortgage and build up equity more quickly.
‘Check you have the best possible deal as this could save you literally hundreds of pounds a week,’ said Gallacher. ‘If affordable you should look to increase your monthly repayments as this could help you knock years off your mortgage.’
Repay your debt
This is a common sense approach to managing your finances; there is no point building up a pot of money that accrues little interest when you have debts that charge you more in interest.
By keeping to a budget and working out where your money is frittered away you should have more money to pay off your debt. Start with your most expensive borrowings first, such as credit cards.
Insuring yourself and your wages is also insuring your family and making sure they are protected should anything happen to you.
There are two main types of cover: income protection, which replaces income if you are made redundant or unable to work; or critical illness which pays out if you become ill.
‘You and your wages are your most important assets, don’t forget this and make sure you are insured against ill health or death. You should speak to an independent financial adviser to ensure that any insurance you have is competitive,’ he said.
Start a pension or increase your contributions
If you haven’t started saving for old age then you need to start now. The earlier you start saving the better thanks to the power of compound interest; in fact someone who starts saving at the age of 20 will have around 50% more in their pension when they retire than someone who starts saving exactly the same each month from the age of 30.
We will all have to rely less on the government in retirement so you need to make sure you are prepared and have enough money to support yourself, whether that’s starting saving or increasing your contributions.
‘It’s never too early to start saving for your retirement,’ said Gallacher. ‘You want to enjoy your retirement drinking Chardonnay in the south of France, not eating baked beans on toast in Cleethorpes.’
Build an emergency fund
Saving for your future is important but so is making sure you have a pot of money to dip into should the worst happen, whether that’s a prang in the car or a broken down boiler.
Gallacher said that not having an emergency fund is often the reason for getting into debt as people have to turn to the credit cards.
‘The reason many people get into debt is because they do not have any savings to start with. Ideally you should have an emergency fund of between three and six months expenditure,’ he said.
High street savings rates are low and are expect to remain that way so the only way to make money, as long as you don’t need short-term access to your cash, is to invest in the stock market.
The most tax efficient way to do this is to invest through a stocks and shares ISA. Everyone has an allowance of £11,520 in 2013/14 and any profit you make on your investments rolls up tax-free and can be taken out tax-free.
‘The stock market has historically given much better long term returns that deposit accounts and with savings rates at historic lows consider becoming an investor rather than a saver,’ said Gallacher.
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