Money Insider: Go back to basics to sort out your finances


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The Independent Online

Many people will have made a resolution to reorganise their money matters this year – it's probably one of the top three 2014 promises, alongside shedding a bit of weight and doing more exercise.

With the Christmas credit card statements set to arrive shortly around the same time as the big winter gas and electricity bills, it's not surprising that people are concerned about getting their finances back on track at this time of year.

But as with dieting and fitness, getting to grips with your finances isn't a five-minute job and requires plenty of self-discipline, as well as being prepared to accept a little discomfort along the way.

Just telling yourself that you need to be better with your money and a bit more careful with your spending isn't going to be enough to turn your fortunes around and rid yourself of those nagging debts; it's all about going back to basics and adopting a new mind set – and a structured plan.

If you don't already do so, it's a good idea to get a box file to keep all your financial statements and information in one place where they're easy to lay your hands on.

The first step is to look at exactly where your money goes, for that you'll need to go through your last six months' bank and credit card statements.

Compile a monthly budget (by hand or on your PC) and list everything that you currently pay out; crucially, don't forget to include a contribution to those annual bills such as the MOT for the car, holidays, birthdays and Christmas.

Once you've got the list in place, review each item in turn and ask yourself two questions: can I manage without it? And can I reduce the amount I'm paying? For some items, such as gym membership, dental insurance and magazine subscriptions, it could be as simple as cancelling your standing order. But at the other end of the scale, when it comes to things such as council tax, you just have to bite the bullet and pay up.

With your mortgage, gas, electricity, water, telephone and broadband payments, consider ways of reducing your costs, either by switching provider, changing your tariff or, in some instances, by trying to cut down on your consumption.

For example when your renewal comes through for your home insurance and car insurance don't accept the new premium without carrying out a quick search on a comparison website. I'd be surprised if you can't find a cheaper deal and when you do, ask your current insurer if they will match the lower price; if they won't, simply take your custom elsewhere.

You may only be saving the odd £5 or £10 per month here and there, but the cumulative impact of these cut backs could end up making your monthly budget much easier to manage.

Another essential exercise is to identify where your cash goes. While your list of outgoings details your standing orders and debit and credit card payments, it doesn't show where that £50 or £100 from the ATM is being spent.

Carry a notebook with you or use your smartphone to record everything you spend over the course of a fortnight. It's a real eye opener and can help you identify where to cut back and make some quick savings.

Only when you've got a grip on where your money goes can you start to improve matters by using the cash you've freed up to start repaying your most expensive debts.

It's not a particularly exciting job and a financial makeover requires effort and willpower but, much like losing weight or getting fitter, the rewards mean the effort will be well worth it in the long run.

Andrew Hagger is an independent personal finance analyst from

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