Struggling to get by? The new age of austerity begins at home
Families can follow the Government's lead and introduce 25 per cent cuts to their own budgets. It could be easier than you think.
Saturday 10 July 2010
the fact that the Treasury has ordered ministers to draw up scenarios for cuts of 25 per cent in their departments – and up to 40 per cent in some cases – shows that it wants to get tough on the national deficit. But can individuals introduce similar cutbacks to their personal finances? And is it wise to do so?
Yes, says Andrew Hagger of the financial comparison site Moneynet.co.uk. The writer of The Independent's weekly Money Insider column (which you'll find on page 68 this week) is passionate about money-saving and says even people who are doing comparatively well should take the time to focus on their finances and find cutbacks.
"We are heading into a period of austerity, and getting your finances in order now will help you be prepared for possible tough times ahead," he says. "Even if you think you're doing well right now, no one's job seems safe at the moment, which means it's a good idea to be more frugal while you have choices, rather than waiting until you may be forced to do so."
The average annual salary in the UK has dropped by more than £2,600 in the past six months. Figures from UKJobs.net this week revealed that wages are falling across the board from £28,207 to £25,543, a drop of almost 10 per cent. It means average families may already have been forced to make cuts, and preparing for further drops in income could be sensible.
"But, even more important than the possibility of a drop in income, is the fact that if you don't regularly check your spending and examine your bills, you're likely to be wasting a lot of money," says Hagger. "That's cash that could be used to safeguard your future, whether it's money to fund your retirement or pounds you could put towards your child's education. It could even be the money that pays for your next holiday."
There are lots of things you can do to reduce your outgoings – such as switching energy suppliers, mobile phone firms, or finance deals – but Hagger says it's the weekly shop that people should focus on first if they want to reduce the amount of money they spend.
"Whenever we've looked at people's budgets and ways for them to cut back it is nearly always the food shopping where most of the savings can be made," he says. "I know it's a bit dull, but it's a good idea to plan meals for the week, write down the ingredients and use this as the shopping list for one visit to the supermarket. You should check your cupboards, fridge and freezer first before you head off for the shops as many people don't have any idea what is in them and then end up throwing stuff out when it has gone past its best-before date."
He says the key to cutting down on food bills is to be honest with yourself. "You must write down exactly where the money is going each month – unless you do this, you can't tackle the problem effectively," says Hagger. "Carry a notebook with you to write down everything you spend for a fortnight. It's an easy way to identify where the money is going and often can be a good deterrent.
"People often decide against buying something when they realise they have to write it down. It makes them realise that they probably don't need it after all."
Shopping online could be a way to cut food bills, not least as it will mean avoiding the temptation that hits us as we walk up and down the supermarket aisle. What about the bargains you may miss by not going to the shop? In the main they're not bargains, they are sales promotions designed to make you spend more. If you regularly take up such offers, you're likely to end up with a fridge full of rapidly going off produce, as you're not buying what you need but what you're being sold.
"People should prepare a shopping list of what they need and stick to it," advises Jonny Steel, of the shopping comparison site mySupermarket.co.uk. "But they should be flexible on brands. With so many special offers, trying out a new brand if your usual choice is at full price could help save money." His website lets people compare prices at the leading online supermarkets, Tesco, Asda, Sainsbury's and Ocado. The site highlights where there's a cheaper alternative to an item you select and shoppers can save an average £18.80 every time they shop through the site, Steel claims.
Once you've dealt with the shopping bill, look more closely at your finances. "A tip is to go through your bank statement with a fine tooth comb," says Hagger. "Check your standing order and direct debit payments and ask yourself two questions re each one: do I really need it, and can I get it cheaper elsewhere."
Paying off debt is the biggest money saver. Interest payments on loans and credit cards have climbed upwards this year so the more you pay off, the more cash you will save. If you can't clear balances, switch to a lower charging card. If you owe £2,500 on an average credit card you'll be paying 18.6 per cent in interest, yet charges could be cut to zero with a 0 per cent balance transfer deal. However you need to look closely at arrangement fees to ensure the savings add up.
Switching to a cashback credit card could pay. Analysis from Moneysupermarket suggests that anyone using a cashback card and depositing their salary in an interest-bearing current account could be better off by £549 each year. "There are so many ways to earn more from your savings," says Kevin Mountford, head of banking at Moneysupermarket. "People just need to be clever with their finances, and take advantage of free cash."
However, cashback cards only really work for organised people who pay off the outstanding balance on their account each month. If you don't, the interest charges will soon outweigh any rewards you earn.
Refusing to accept the renewal quote for insurance can also mean savings. Homeowners, for instance, could be wasting an average £132 per household by sticking with their existing home insurance provider instead of shopping around for a better deal, according to Moneysupermarket.
Make savings online
*Flog stuff you don't need any more for free on local classified ad site www.gumtree.com
*Swap unwanted items with others on Freecyle, where people give away their old things. Go to uk.freecycle.org
*Find the cheapest petrol prices in your area by typing your postcode into www.petrolprices.com
*Get the latest money-off vouchers at www.my-vouchercodes.co.uk
*Find out about shop misprices and offers at www.hotukdeals.com
*For holiday bargains go to www.travelzoo.com
*To find cheap hotels or bed and breakfast try www.laterooms.com
*Get money-saving tips and advice at www.moneysavingexpert.com
*Get free answers to your financial questions at www.cashquestions.com
*Compare finances at www.moneynet.co.uk, www.confused.com, www.gocompare.com, www.moneysuper-market.com
*Compare energy prices at www.energyshop.com or www.uswitch.com
*The Independent also has its own comparison site at compare.independent.co.uk
'Cutbacks? I've saved 23% on my spending'
Single mother Taryn Cox, right, has slashed her household bills by 23 per cent. "It was much easier than I thought to save money," says Taryn, who lives in Cheshire with her teenage daughter and works as a sales manager at a chemical firm. "I simply got my finances organised and looked at where I could cut costs and reduce the amount I was spending. However I was surprised by just how much difference a few things could make to the amount of money I have."
Taryn's actions, which she took with the help of the comparison site Moneynet.co.uk, have meant she has saved £520 a month on her household bills – a reduction of 23 per cent, just below the Government's proposed cutbacks. But she could have saved even more by switching her expensive 6.09 per cent fixed rate mortgage to a lower-priced deal if it wasn't for exit penalties which made the switching uneconomical.
So how has Taryn saved so much? For starters she switched her home and contents insurance to Barclays. The move cut the cost of cover by £300, saving her almost £30 a month.
Next was her credit card. Taryn was paying a hefty £157 in interest charges each month on the £9,000 balance on her Barclaycard. She's switched to a 0 per cent balance transfer deal with Egg to save the cash and is not running up further bills and interest charges on plastic. Instead she's able to pay off some of the debt rather than simply just covering the interest charge each month.
She was also paying out an unnecessary £12 a month for a packaged bank account with Barclays, so she's ditched that for a fee-free account.
Next under scrutiny was her energy bills. "I hadn't switched gas or electricity suppliers for years, so suspected I might be able to cut the bills." She was right. Moving to a dual fuel deal with E-On meant cutting her monthly energy charges by £28.
Taryn then examined her food shopping bills and realised she was buying too much and consequently wasting or throwing away a lot. "I've managed to cut my weekly shopping bill down to around £40 a week, when I was previously spending nearer £80 a week. It means I'm spending £160 less a month and don't waste or throw loads of food away any more."
To prove that she is serious about the new austerity, Taryn has cut her nights out in half to cut her entertainment expenses down from £200 to £100 a month. "I'm only going out now every other weekend rather than every Friday or Saturday night, but the money-saving makes it worth it," says Taryn.
In a similar vein she has simply stopped doing the Lottery, which has given her an easy saving of £20 a month, but means she will no longer be able to wish for a jackpot payout.
Finally she's switched her mobile phone contract to a cheaper and more suitable deal and saved £15 per month. "I've got the savings bug now," says Taryn, "and am looking for other ways to cut back."
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
Actress sees off speculation about her appearance in an amazing way
Powerful images of strays taken moments before being put down
Enid Blyton’s Magic Faraway Tree really is being made into a film
The Washington Post editor helped Bob Woodward and Carl Bernstein bring down President Nixon
Mark Dampier: Woodford’s young companies could be the stars of the future
Money round-up video: Low-rate mortgages; comparison sites; ethical finances
The best - and worst - investments in 2013
10 tips for taking out a personal loan
Bargain Hunter: Cut-price radiator reflectors can stop all that heat going to waste
- 1 Salisbury ranked seventh-best city in the world to visit in Lonely Planet’s Best in Travel 2015
- 2 Disney announces new female-led film Moana
- 3 Banksy not arrested: Internet duped by fake report claiming artist's identity revealed
- 4 Kentucky gang rape: 15-year-old boy left in critical condition after sexual attack by group at party
- 5 Russell Brand threatened with arrest after filming outside Fox News headquarters
Cameron is warned 'no possibility' of UK reducing immigration and that bid to bring in quota on migrant workers would be illegal
Residents should throw a street party and mix with immigrant neighbours, councils told
Russell Brand threatened with arrest after filming outside Fox News headquarters
London bus driver 'kicks gay couple off for kissing'
Of course, teenage girls need role models – but not like beauty vlogger Zoella
Jose Manuel Barroso warns David Cameron against making 'historic mistake' over immigration reforms
iJobs Money & Business
£18000 - £23000 per annum + Commission: SThree: The SThree group is a world le...
£18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...
£20000 - £25000 per annum + OTE £Competitive: SThree: SThree Group and have be...
£23000 per annum + pension and 22 days holiday: Ashdown Group: An established ...
Day In a Page
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village