How to get your finances in great shape for 2008
A little planning now will hold you in good stead for the future, says James Daley
Saturday 05 January 2008
It's not too late to make a few extra new year's resolutions. While you might have already promised yourself that you'll give up smoking, lose weight or make a career change why not also make 2008 the year when you get your finances in order? If you're stuck for ideas, try casting an eye over our list of 10 financial necessities. As well as giving you peace of mind, in the long-run, each of them will also help you and your family save money.
Make a will
According to the National Consumer Council, more than 27 million people in England and Wales the majority of the adult population do not have a will. Furthermore, it is often those who are most exposed who have not bothered to lay out what will happen to their assets and dependents should they die. For example, more than four out of five co-habiting non-married couples have not made a will, meaning that the survivor would be legally entitled to none of their partner's assets were they to die.
According to UK law, if you die "intestate" (without a will), your estate will be divided amongst certain individuals within your family. If you are not married and have no living children, the estate will pass on to (in order of priority) your grandchildren, parents, siblings (or their children if they too have died), grandparents, uncles and aunts.
If you do have children, it is crucial to make a will, setting out who will take care of them. Without a will, if both parents were to die unexpectedly, the courts could be left to decide who would be the children's guardian.
Making a will is relatively simple. Although it is advisable to seek advice from a solicitor, it is possible to write your own, by buying a pre-printed form from shops such as WH Smith. For more information on making a will, visit www.lawsociety.org.uk/documents/downloads/CCG_eng_will.pdf.
Start a pension
According to the Pensions Policy Institute, only 45 per cent of men, and 37 per cent of women contribute to a private pension in the UK. Amongst young adults, the statistics are even more alarming, with only 22 per cent of people between the ages of 18 and 29 saving into a pension.
Given that the state will currently only guarantee you an income of around 120 a week in retirement (equivalent to approximately 6,200 a year), there are lots of people who are either going to be forced to work till they drop, or get accustomed to a much more meagre standard of living when they retire.
The earlier you start saving, the less you need to put away each month to ensure you're left with a decent pot in retirement. As a rule of thumb, you can work out how much of your monthly wage you should be saving by halving your age at the time you take out your pension. Hence, if you're 40, you'll need to be putting away 20 per cent a month, whereas at 20, you'll need just half of that.
Get your taxes in order
If you haven't yet filed your tax return for the 2006/07 tax year, you've only got another 26 days to go after which, you'll be fined 100. Around 150,000 people leave it to the last minute, filing on the 31 January deadline day. But getting your affairs in order earlier will save you a lot of stress, and will give you more time to plan for any additional bill you may be hit with. (Or if you've paid too much tax over the past year, you'll get your hands on the rebate that bit sooner.)
Filing your return online is the easiest and quickest way to get things done. And if you find it all a bit daunting, why not take a look at the HM Revenue & Customs' podcast, which gives you a step by step guide: www.hmrc.gov.uk/podcasts. If all else fails, get an accountant. And remember that if you live in London or the South-east, you may find a cheaper adviser located elsewhere. You should be able to do all your paperwork by post, and over the phone. To find a financial adviser in your area, visit www.unbiased.co.uk.
If you've got children or other people who depend on you, it's well worth considering taking out some form of protection, to ensure the financial needs of your dependents can be met should you die. But according to Sainsbury's Finance, almost 30 per cent of people who have children under the age of 18 have no life insurance.
Anyone with a mortgage or serious debts should also consider taking out some form of cover, such as Income Protection Insurance, which ensures you can meet your loan repayments if you are out of a job or unable to work through ill health. If you own a property, it's also worth considering taking out life insurance, to ensure your mortgage will be paid off if you were to die, taking the strain off your partner or family.
Although the number of young first-time buyers has increased rapidly over the past few years, only 35 per cent of people between the ages of 18 and 29 have taken out life insurance, according to the protection broker, Lifesearch.
Find a better deal
Spending an afternoon spring-cleaning your finances could save you thousands of pounds a year. Use websites such as moneysupermarket.com and uswitch.com to check that you're getting the best deal on your home utilities (gas, electric, telephone, broadband), credit cards and home and motor insurance.
These sites allow you to compare your current deal with others on the market and help you to switch if you want to.
You might also want to check you're getting the best deal from your current account, and the best available rates of interest on your savings. And make sure you've not lapsed over on to the standard variable rate on your mortgage. Sites such as moneyfacts.co.uk and mform.co.uk are good for these jobs.
Check your credit rating
It's now possible to get your hands on your credit file in a matter of minutes, by paying a small fee to one of the credit agencies over the internet. Sites such as experian.co.uk, and equifax.co.uk allow you to download your complete credit file for as little as 10, and you can get your hands on more basic versions for even less.
The sites will let you know your credit score, and give you a chance to understand why you may be turned down for credit, or not receive the best rates. Not registering on the electoral roll at your current address, or failing to inform the credit agencies that you're no longer financially affiliated to an ex-partner are just two things which could be bringing your score down.
By taking just a few small and easy steps, you could help increase your credit score significantly.
Track down any unclaimed assets
An estimated 15bn is sitting in dormant bank accounts, pensions, premium bonds and unclaimed life insurance policies so it pays to scour your records (and your memory) to check whether any of it belongs to you. All too often, people lose track of old accounts when they move house, so if you think you may have some unclaimed money lying around, visit the Unclaimed Assets Register at www.uar.co.uk. For 18, they'll carry out a search on your behalf.
Check you're adequately insured
Check that you've got the right level of cover on your home and motor insurance policies as it's all too common for home and car owners to leave themselves underinsured. While companies such as More Than offer a standard limit of 75,000 on your home contents, others offer limits as low as 12,500. Try making an inventory of everything in your house, along with its replacement value the total is likely to be greater than you think.
Similarly, comparison site Gocompare.com warns that if you've made any upgrades or changes to your car, you'll need to tell your insurer, as this could invalidate your existing policy.
Benefits and tax credits
If you're working more than 30 hours a week or more than 16 hours a week if you have children but are on a low income, you could be entitled to working tax credits. These can be worth several thousand pounds a year, and are even greater for single parents, or people over 50 who are returning to work after a period of time on benefits. To find out whether you qualify, visit www.taxcredits.inlandrevenue.gov.uk.
If you're returning to work after having children, you may also be able to get help with childcare costs. Ask your employer if they are signed up to the childcare voucher scheme, and visit www.hmrc.gov.uk/ childcare for more details.
If you're unable to work because of ill health, you should be able to claim incapacity benefit, while if you're in need of personal or nursing care, many of the costs should be picked up your local authority or local primary care trust. To find out more, visit www.nhfa.co.uk
Invest your child's trust fund
If you've had a child in the past few years, you should have been sent a voucher for either 250 or 500 (depending on your income) to help get them started on the savings ladder. However, some 25 per cent of parents are failing to invest their child's money within the first year of receiving it, meaning it is allocated randomly to an investment provider rather than one of their choosing and also misses out on 12 months of investment growth.
The gap between the best and the worst performing funds is significant. According to BestInvest, the top performing equity child trust funds have returned over 10 more than the worst which means making the right choice is crucial. Even parents who have invested their child's money in cash could find themselves receiving very different rates of interest to their neighbours. The gap between the best and worst savings accounts is now almost 3 percentage points.
Although the small sums of money involved with CTFs mean that it's hard to get financial advice, The Share Centre offers a free advice service for its customers. There are also a range of tools and tips to help parents on its website ( www.share.com). For more basic information about CTFs, visit the Government's website www.childtrustfunds.gov.uk.
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