It's time you got into shape
Financially, that is. Our new 10-part series shows you how to become a lean, mean, money-managing machine
Friday 21 July 2000
The Independent's 10-part guide to improving your financial health. Our challenge is to make you up to £5,000 a year richer, without having to change employer, take a second job or break the law.
Welcome to The Independent's 10-part guide to improving your financial health. Our challenge is to make you up to £5,000 a year richer, without having to change employer, take a second job or break the law.
The key is active personal financial management. Instead of flopping into an armchair at the end of the day, spend a few minutes managing your money. Check those interest rates, move money between accounts, think more about how you spend cash and, of course, read The Independent's Your Money section every Saturday.
You might also consider obtaining computer programmes to help balance the family budget. Market leading personal finance software packages include Microsoft's Money, Quicken and Moneyshield. Some banks will provide software free to customers, assisting them to use banks' internet banking facilities, pay bills, transfer sums between accounts and generally manage their finances.
ICL provides programmes to Woolwich for use by its customers, incorporating cash flow planning systems to encourage users to put enough aside for pensions contributions and other expenses such as university costs. One intention is to assist families to create several reserves for such things as holidays and Christmas, within a single, high interest bearing account.
Other programmes are available specifically to assist with submitting annual tax returns, including that produced by Which? magazine, TaxCalc Lite, downloadable free from www.taxcalc.com.
Over future weeks we will examine opportunities to make major financial gains, by reviewing home mortgage options and looking at the large savings that are possible by carefully shopping around for a range of products including insurance, bank accounts, utilities and even groceries. We will consider, too, how to cut costs in running a car. Just the efficient use and choice of credit cards could save many families hundreds of pounds a year.
We will avoid the temptation to cheat. We will not, for instance, include in our calculations possible windfalls that might be available from demutualisations of building societies, friendly societies and mutual insurers. Despite the news this week that Bradford & Bingley building society will convert to a PLC and give members a typical £700 windfall payout, the days of the big building society conversions are probably mostly over - the heyday was three years ago (see chart on this page).
There are likely to be further demutualisation attempts (see chart on page 2) focusing more on mutual insurers, though some may fail - like that on Standard Life. The Skipton and Portman building societies also remain conversion targets. But many societies have put effective barriers in place to protect them from carpetbaggers. Nationwide, Britannia, Coventry, Skipton, Portman and other larger societies have changed their rules to make conversion more difficult, by requiring new members to assign proceeds from a share flotation or takeover to charity.
At least as important in deterring the carpetbaggers are the significant improvements made in the management of societies that were demutualisation targets, overcoming some of the original grievances of those seeking to change societies' status. The Nationwide is perhaps the best example of a building society that has sharpened up its act. It is a dynamic financial institution, an intelligent user of new technology, runs smart branches and offers products that out-compete most of its non-mutual competitors.
The Building Societies Association calculates that a borrower with a £50,000 Nationwide overdraft will save £250 annually on interest charges compared with similar loans from converted societies. It also claims that a Bradford & Bingley borrower with a typical £80,000 mortgage, will lose their £700 or so windfall in extra interest rates in just two years. What sense is there in voting for a one-off windfall of a few hundred pounds, if the eventual cost is an extra £7,000 over a 20 year mortgage term?
Bradford & Bingley borrowers may now want to look at the terms of their mortgages to examine whether they can remortgage with another lender to take advantage of lower borrowing costs. But this is something we will return to in greater detail next week, as our series proper gets underway.
Savers are in a different position. While building society saving rates tend to be higher than those offered by most banks, the difference is often marginal and it is easier for savers to move institutions than it is for borrowers. The sensible option for the cynical saver is to vote for conversion and then, once the payout is made, move their money into a different building society offering keen interest rates and the outside possibility of another demutualisation windfall.
The Building Society Association's Jennifer Holloway says: "By dint of what has gone on before, and preparations for conversion by the Bradford & Bingley, people have seen their mortgage interest rates rise. Bradford & Bingley have said they have had to raise rates to get ready for conversion. You also see branch closures after demutualisations. People can see what happens when they have to pay for the extra 35 per cent that it costs to run a PLC, to pay dividends to the shareholders.
"Of the 67 building societies that are left, some are very community based and most have put in defences against conversion. The financial system needs the diversity of both banks and building societies."
Advisers also accept the demutuality windfall days are moving to a close. Patrick Connolly, associate director of Chartwell Investment Management, sees few opportunities for carpetbaggers to target other building societies. "Most of the major building societies have got restrictions in place now," he says. "The opportunities for investors will be their local societies which are only taking in local investors without restrictions. The national building societies opportunities have gone."
While Mr Connolly believes that the remaining national building societies will eventually convert, demutualisation will not benefit new investors because of the requirements for their windfalls to go to charity. While local societies might be purchased by a major financial institution, most are unattractive purchases and converting to a PLC is not a real option for such small bodies. Mutual life assurers may now convert, but these also offer little attraction for new investors, he says.
"Friends Provident's conversion is now pretty well done and dusted and Scottish Provident is not a million miles behind," he says. "Beyond that, Standard Life is still around despite the vote in favour of mutuality. I would say that Standard Life will go, but not imminently. The board has got two years to prove they can offer more as a mutual. Most of the other mutual life assurers are small."
Scottish Life is the likely next assurer to convert followed by MGM Assurance, predicts Mr Connolly, and investors can still get on these boats. Whether it is worth doing is a different matter, as it may be necessary to tie up several thousand pounds for a return of a few hundred. There are similar stories with the friendly societies. Liverpool Victoria may be an acquisition target, but it is not regarded as sufficiently well managed to be very attractive and is probably too small to convert to a PLC. Other friendly societies are too small and rely on products that other types of institutions cannot offer, eliminating the benefits of conversion or takeover.
But there are other opportunities for windfalls - if of a rather different kind. Businesses regularly review their assets and consider selling what they no longer need. Individuals should do the same. If university costs have to be found, is it better to sell an original painting rather than take out a loan? If the children have moved away from home, is the second car necessary? While most toys have no resale value, there are some - such as rare dolls, railway sets and model cars - that will attract a good price from a reputable dealer.
A collection of rare records might raise thousands of pounds if it contains some truly sought after material, such as The Sex Pistols' God Save the Queen on the A&M Label (but not on the Virgin label, which is almost worthless). Original excellent condition Beatles recordings, in their original sleeves or boxes, are also worth a mint.
Book collections are worth sifting through to check for financial gems, in particular first editions, in pristine condition and with their original dust jackets. Early novels of unknown authors, who subsequently became famous, may be valuable as only a few copies may have been printed. Martin Amis's tale of teenage love The Rachel Papers, in first edition, may sell for £200. James Bond author Ian Fleming's Casino Royale might attract more than £2,500 at auction, while an excellent condition copy of a first edition of the initial Harry Potter book - Harry Potter and the Philosopher's Stone - could fetch several thousand pounds.
With books, in particular, price varies according to fashion and it is not always wise to assume they will go up in value if held onto for a few years. Prices charged by dealers tend to be much higher than those achieved by auction.
It is possible to sit on forgotten riches with other collections. Excellent condition comics could be worth a few hundred pounds to the right buyer. Stamp collections can be worth nothing or hundreds (or more) according to what they contain. The same is true of coins and old magazines. Furniture, too, can be worth more than it seems - but, usually, only if it is in excellent condition.
Finding someone reliable to value belongings may put some people off from seriously considering selling items. The answer, says the Royal Institute of Chartered Surveyors, is to go to a RICS member. Campbell Armour, a director of auctioneers Lyon and Turnbull and a member of RICS's fine arts panel, says membership is a guarantee of fairness and independence.
"Go to a fine art auctioneer who is a member of RICS for an opinion," says Mr Armour. "If it requires specialist knowledge they can pass it on. They are available by phone, or they can call at a house and value an item for sale or advise on insurance. People are often reluctant to go to dealers - many are good, but some will kill their grannies for a profit. An auctioneer is acting for the best interest of the client, providing a much more independent view."
But for most of us there is more likely to be "something nasty in the woodpile" - or the attic - rather than a forgotten Rembrandt. The golden rule is that it is usually easier to reduce expenditure than it is to increase income. And it is the outgoings that we will focus on in coming weeks.
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