This piece first appeared in Reader's Digest in May 2007
 The text here may not be identical to the published text

TEN WAYS TO KEEP MORE OF YOUR OWN MONEY

Ian Hosier has a familiar problem. His outgoings are more than his income. If anyone should able to sort that out, Ian should. He works in the financial services industry for a bank he would rather not name. He is not badly paid. But his large commitments mean “My outgoings are bigger than my regular income by £1500 a month.”

It is a big gap for anyone to fill. Especially with two dependent daughters – Ian got custody after his divorce in 2000. He was determined to make sure his ex-wife was left in a fair financial position. So he took on more debt himself to provide her with a home, hoping to rely later on his pension fund. But now that leaves a hole. Extra work and careful budgeting mean he manages to fill it over the year. In the months when he fails his overdraft covers the gap.

“I belonged to the local gym which cost £45 a month. So I quit and spent £380 on the equipment I needed and now I can exercise at home, when it suits me.” And when it suits his job – part of making ends meet is living in Colchester but commuting to London – despite the £3500 cost of the annual season ticket.

Ian’s story is common enough – parents working hard to make ends meet – just. And it is the necessities that are hitting hard. Interest rates are on the rise adding to the monthly mortgage commitment. The cost of heating and lighting our homes has risen by 72% since January 2004 and now takes on average more than £1000 a year. And for the first time since comparable records began in 1997 prices are rising faster than wages. Filling that gap means making sure we do not spend a penny more than we need to.

1 Mortgage makeover
The very best way most people with a mortgage can save money is to move it to another lender. Almost all lenders offer better deals to new customers than they do to loyal ones, tempting them in and hoping inertia will keep them there as rates creep up.

But beware. There are new tricks to part you from your money. When you take out a mortgage you will have to pay an arrangement fee – in other words a charge to become a customer. These have rocketed in recent years and can now be £1000 or more. And your existing lender may well charge an exit fee just to leave. They too have shot up to more than £200. In addition there may be legal fees and a survey to pay for. All told these costs can easily wipe out the first year’s savings.

Patrick Bunton, a director of national mortgage brokers L&C, says “Charges are an issue. Lenders have racheted them up and taken a lot of criticism, rightly in my view.”

But he says moving your mortgage makes more sense than ever

“At a time when rates are changing it is more important to get on with it. Step one go to your existing lender and ask what they will offer on a new deal for the period you want. Then go to the best buy tables and all you have to look at then are the ones that are better. That saves you time. Always take account of the charges and make sure the deal is worth while overall.”

A good mortgage deal should knock the standard rate down by about 2%. So if rates are 7.25% look for deals at 5.25% or better. If you have a repayment mortgage that will cut monthly payments by around £122 a month on an average mortgage of £100,000. If you are one of the growing number with an interest-only mortgage – and more than one in four new buyers uses this risky method – then the saving will be more, around £166 a month. Top tip is to use what you save to pay down your debt.

www.moneyfacts.co.uk
www.lcplc.co.uk

2 University fees
Not so much education, education, education as debt, debt, debt. Most of this year’s new undergraduates in England and Wales will be charged £3000 a year in tuition fees (there are no fees for Scottish students studying in Scotland) as well as taking out a loan of more than £4000 for their living expenses. The result is that many students will end up with a debt of well over £20,000 after three years’ study. Total student loan debt is growing by around £3 billion a year and is now almost £19 billion in total.

But this year for the first time in England there are grants and bursaries that do not have to be repaid. Students starting in England this September whose parents have an annual household income up to £38,330 can get a grant on a sliding scale from £50 up to £2765. Although the grants should be paid automatically, students who get the maximum grant can also get a bursary from the university to help with tuition fees. Keith Houghton of the student funding service at Kingston University says that can be a problem. “On the Student Loans Company system the parent and partner must give consent on the loan form for their details to be passed to the university but many do not.” Without that the bursary worth £300 to £3000 cannot be assessed. In 2007/08 students who normally live in Wales and who go to a Welsh university will be entitled to a grant of £1800 towards their tuition fees.

Many parents will be tempted to pay off student debt. But remember it is the cheapest debt around – the interest rate is currently 2.4%. So it is much better to pay off a credit card, overdraft or personal loan than the student loan itself. And remember, it is not worth putting yourself in financial difficulties to help your grown up children. They have longer than you to sort things out.

3 Health care
The NHS is great for the urgent and life threatening. But it is less good for painful or uncomfortable conditions which can mean waits of months to see a specialist and months more for surgery. But health insurance premiums are worked out on the assumption we will go private for everything – even the heart bypass that the NHS does as well and quickly as anywhere in the world. So instead of paying into expensive insurance plans, save up each month in a high interest account. Suppose you are 45 and your monthly health insurance costs £100. In ten years time that will have risen to close on £130 and by the time you are 65 it will have more than doubled to around £215. And that’s before allowing for inflation which is higher for medical costs than for other things. So instead, save that £100 up in a decent high interest account (4% after tax) and within eight years you will have a health fund of £11,000. Then if you want to see a specialist, need a scan, investigation or an operation you can use the fund to get it privately.

For example, a colonoscopy examination of the bowel costs £1000-£1500 from BUPA, a hernia repair comes in at £1500-£2450 and a full hip or knee replacement can be done for £8500-£10,500. All done at your convenience and within a short space of time.  

And unlike insurance, if you stay fit you get to keep the money. Why not try a health giving cruise!

Of course, if your employer pays your health plan, take it. But remember the cost of paying for it yourself when you leave or retire.

www.bupahospitals.co.uk  

4 Drive a good bargain
The AA says there is one simple rule with motor cars. The more they cost to buy new the more they cost to run. AA figures show that a car costing £20,000 to £30,000 to buy will cost £4979 a year (depreciation, finance, road tax, insurance, breakdown cover) even if you never drive it. While one that sells for £10,000 to £13,000 will cost you just £2608 a year.

It is much the same story with running costs. The cheaper car will cost you just under 17p a mile while the dearer one will take more than 24p for each mile you drive it. So trading down can save you money every single day.

Vince Yearley of the Institute of Advance Motorists reckons that you can save up to 10% off your fuel costs by what the IAM now calls ‘eco-driving’. “Using gears sensibly, anticipation, hazard awareness, what we call ‘predictive driving’ can save you money. If you see a queue ahead, what is the point of rushing to join it? Take your foot off the accelerator and let the car come to a gentle halt with as little use of the brakes as possible, saving fuel and wear and tear.”

The new hybrids – the Toyota Prius and a Lexus – have a standard petrol engine but use a parallel electric motor to save power as you drive. They do around 50 mpg, car tax costs just £30 a year and they pay no London congestion charge. But Andrew Howard of The AA warns they are so new that “we just don’t know the long-term cost – depreciation, maintenance, insurance and so on and whether they will keep their tax advantages. Overall the jury’s out.”  

Ian Hosier’s tip is replace your car less often. “I drive a small four year old Lexus and I will keep it for some time longer. You have to pay for MoTs but you don’t have the capital cost of renewal.”

www.theaa.com
www.iam.org.uk

5 Eat healthy pay less
Not everyone agrees with the Environment Secretary David Miliband who said in January that organic food “was a lifestyle choice” but we can all agree that organic food is generally more expensive.

For example, on a trip to my local supermarket a non-organic cucumber was 64p while a smaller organic example was 97p, more than half as much again for less cucumber. Half a dozen of the most expensive medium sized Woodland organic eggs were £1.65. But the ‘basics’ range of mixed size eggs were a third of the price, just 54p. Milk was 33p a pint but about a quarter more, 41p, for organic. On the other hand, some things were much the same – broccoli £2.90 a kilo or £2.99 for organic, Rose Prince, an advocate of buying fresh and home cooking, says if you plan things well you can eat healthily and save money. “Organic vegetables or free range meat tends to be dearer but in their season you get a better price. I believe in frugality and health. I want to eat food from fresh ingredients and I have to watch the cost.

With four in the family Rose, author of New English Kitchen – changing the way you shop, cook and eat has developed her own techniques to make food last.

“I see how many meals can one ingredient contribute to? A 2.5 kg chicken from a farmer’s market might cost £14. But it can contribute to five meals – a main roast, cold meat in a salad, sandwiches, soup from the stock, and a chicken risotto. That’s 16 helpings at 87p each”  

Another way to save is to buy things loose. Look at these non-organic prices per kilo. Broccoli – in a packet £2.90, loose £1.69. Sprouts - 99p loose, £1.58 in a bag. Courgettes - £1.99 loose, £3.98 in a plastic tray. Buying loose saves money two ways. First it is usually cheaper per kilogram than buying those wasteful packs. Second, you decide the quantity. And if you want four bananas or one baking potato or 120 carrots that is what you buy and pay for.

Next time you clear out your fridge, cupboard, vegetable drawer and bread-bin add up the cost of what last week’s lettuce, that old tomato paste that has been in the fridge for six months, and those two out of date eggs before you chuck them out. That is the price of overbuying. Buy loose and save.

6 Home energy
Most households in the country know they could save money by changing the company which supplies their electricity and gas. But half – more than ten million – are still with their local electricity supplier or British Gas. If you have never changed you are wasting money says Tim Wolfenden of uSwitch.

“It varies depending on the market but first time switchers can save up to £325 a year and the average saving is £200 a year. Offers change and customers’ lives and usage change so it is worth reviewing gas and electricity use annually.”

New controls by the energy regulator Ofgem and a new code of practice from the consumer group Energywatch should make switching trouble free. But Energywatch’s Madeleine Burbidge advises “There are other ways to save money apart from switching. Use energy carefully and see if you are eligible for an energy efficiency grant.” Get free advice on that and other help with keeping costs down from the Home Heat Helpline 0800 33 66 99.

One useful tip – if you are out when the meter reader calls, make sure you use the card they will leave to do your own reading and send it off at once. That way you will pay for what you use. With an estimated bills you either pay for too much fuel or you pay too little and get a much bigger bill later.

Ian Hosier’s plan:- “I never come home and light up the whole house. I just put on the lights in the room I am in and I don’t leave the heating on all day.”

www.energywatch.org.uk
www.uswitch.com

7 Council tax
Another inflation busting rise in council tax is expected in April. Average council tax in England is now £1056. Despite this growing cost millions of people do not claim reductions in the tax which they could get with a simple application to the council offices.

You can get a quarter off your council tax if you live alone. Just ask the council for a single person’s discount. You can also get that discount if other people do live with you but they are exempt – for example students. You can get also have your home moved down a band – which cuts your tax by around 17 per cent – if you, or someone who lives with you, is disabled and there is extra space for them because of their disability.

You may also be able to get a reduction on the grounds of your income. More than two million people who could get it do not claim this help missing out on up to £1.8 billion a year. The rules are complex and are best for the over 60s. Someone over 25 who lives alone with average Band D council tax can get that cut if they have an income which is less than £148 a week. That limit rises to £205 if they are aged 60 or more and to £223 if they are 65 or more. The limits are higher for couples and those with homes in higher bands.  

No need to worry (yet) about plans to change council tax. That won’t happen this side of a General Election – except in Northern Ireland where it starts in April. So wait until the dust clears before losing sleep over steep rises.

8 Broadband and phone
More than ten million people are connected to broadband but many are paying more than they need to. Broadband is faster, always on, and lets you use the same line for your phone calls or faxes even while the computer is connected. But finding the cheapest and best service is a nightmare, says Martin Lewis, founder of moneysavingexpert.com and author of a guide to saving money on broadband and phones.

“No normal home user should be paying more than £15 for standalone broadband. There’s no need to pay more than £25 a month for combined free broadband line rental and mostly free calls to land lines. These are phenomenal savings over the normal costs. But many broadband providers offer abysmal service. Both in switching you and in the line reliability.”

With standard connections costing around £30 just for broadband those are big savings. And he says there can be more for some.

“Check first if you can get free broadband. Sky offers it to some subscribers and so does Orange if you have a contract paying more than £30 a month.”

Deep down Martin likes Talk Talk from Carphone Warehouse which is £21 for broadband, UK calls and some free international ones. But he is cautious because for some it works wonderfully, others have found it slow and the service terrible. “But with broadband you don’t get what you pay for. Cheap or not service can be atrocious.”

Martin also knows how to save money on your mobile. But the advice is complex and needs to be studied. Read Martin’s guides “Mobiles. Batter down your current contract” and “Broadband – who’s cheapest?” at www.moneysavingexpert.com

9 Shop smart
Which is better value for money – a pair of shoes that costs £120 which you wear two or three times a week for work? Or a pair of sweet sandals which cost £22.99 but you only wear twice before sending them to Oxfam? Suppose the shoes last a year. The cost per wear is about £1. But the cost per wear of the sandals is £11.50. So the shoes costing nearly six times as much were in fact better value. So when you buy clothes think about the cost per wear. Much better to buy that little black number in high quality fabric and design that you feel g-o-o-d in even if it does cost £319 than a special outfit for £150 that you will honestly only wear once.

If you aspire to top designs there is no need to fork out hundreds or thousands when a few tens or even a few pounds will buy something very similar. Primark and Asos have made their names by producing similar lines to top brands without infringing their design copyright or trademark. Accessorize, owned by Monsoon, can also be relied on for good cheap design.

Alternatively for the real thing try one of the many designer outlets which sell top brands at big discounts – 50% to 75% off. They do it by selling one year on – so you’re buying last year’s fashions for this year’s season. But don’t worry, you can always pick those classics that do not age. Try it out at Bicester Village near Oxford off the M40 which has outlets for 95 well-known international brands.

www.asos.com
www.primark.co.uk
www.monsoon.co.uk/icat/accessorize
www.bicestervillage.com

10 Learn to earn
There are two ways to have more money. Spending less is one, earning more is the other. We live in a world of skills. If you have more qualifications you get more money. Alvin Hall, the BBC TV money-saving guru and author of You and Your Money - Growing Prosperous Together told Reader’s Digest “The first step in becoming financial secure is controlling spending - save by spending less. But the second is to invest in improving your skills. In today's global economy you cannot assume your job will last forever. Look at online courses, or ask your company to provide the training that will make you more valuable to them - and make you more marketable outside.”

Work experience at school or college together with five GCSEs boosts the earnings of young people by more than £1050 a year. The Government is backing this idea with a billion pounds of public money through its Train to Gain plan. It hopes that 50,000 employers a year will help 350,000 employees up their skills and earn more. Why not ask your employer to take part?

The Secretary of State for Education and Skills Alan Johnson, launching the initiative in September 2006, said “Education should not stop when people leave school or college. People must be able to tap into education throughout life.”

Johnson doesn't have to convince Lyn Herriott, credit and systems controller for a national magazine who has just started a four year Association of Accounting Technicians course. She has ambitions to become a management or financial accountant which will bring an earning power of up to double her current salary.  “There's nowhere to go in my current job,” she says “so I have to further my education to get a better one”.

Juggling a full-time job with six hours of lessons and up to ten hours of homework a week is a challenge for Lyn, a single parent with a fourteen year old son. Lyn says her studying has proved an unexpected bonus for him. He asks what she’s going to do and then says “I think I’ll do my homework too”. And the anticipated pay rise in four years’ time is not just for her either. “He's showing real talent at art and I'm keeping my eyes firmly on the future when I'd like to be able to contribute towards the cost of sending him to art college.”

Ask your local further education college or check out www.lsc.gov.uk

Conclusion
Alvin Hall says “Two things everyone should do. First, make a list of what you want and then select judiciously from that list. You can’t have everything. Second, don’t be embarrassed to ask the question ‘can that be cheaper?’ Whether you’re buying an appliance or clothes or a car don’t be afraid to say ‘will it be on sale any time soon?’”

 That way you can balance income and expenditure. Which is the long term recipe for a happy life.

May 2007

e-mail Paul Lewis on paul@paullewis.co.uk